Ultimate Guide to TC40 Reports: Detect Fraud & Prevent Chargeback Losses

TC40 reports are documentation credit card companies, like Visa and MasterCard, use to track fraud and protect cardholders. TC40 report helps banks and card brands know when merchants have fraud claims against their companies.

Credit card companies use these reports to determine a merchant’s fraudulent transaction risk profile. Consequently, acquirers perceive businesses with more TC40 reports as "high-risk" merchants. Yet, TC40 does not accurately depict a merchant's fraud status. They don’t include disputes arising from buyer's remorse, forgotten subscriptions, transactions made by a minor, and other similar issues.

Some merchants misinterpret and misuse these reports for chargeback prevention, resulting in double refunding a transaction due to the misconception. If you’re one of these merchants, you’ll gather actionable insights from this critical evaluation of TC40 reports to help make the best decision and avoid costly errors.

Table of Content

1. What is TC40 data?
2. Importance of TC40 reports in fraud detection
3. How do TC40 reports affect a Merchant's chargebacks?
4. How do you know if TC40 reports are impacting your business?
5. Is a TC40 report the same as a chargeback?
6. Can you use TC40 reports to prevent chargebacks?

Let’s dig in!

What is the TC40 Report?

TC40 reports are documents financial institutions such as issuing banks and payment processors send to card networks (like Visa and Mastercard) when cardholders complain of fraudulent transactions on their accounts. The report also includes internal correspondence among banks and credit card networks.

Card networks require banks to file TC40 reports as part of their fraud detection fiduciary responsibilities. The documentation aims to connect every instance of fraud to a specific merchant's account. Hence, TC40 data are the vital pieces of information that make up a TC40 report.

Previously, Mastercard used the System to Avoid Fraud Effectively (SAFE) facility for fraud reporting. They eventually superseded SAFE with Fraud and Loss Database (FLD) in October 2020, while Visa uses the Risk Identification Service (RIS).

The data contained in a TC40 report include the following:

• The merchant’s information
• The participating bank's details
• Detailed information about the allegedly fraudulent transaction – including the order date, location, item purchased, and currency used.

Again, a TC40 data report is primarily associated with fraudulent activities rather than chargebacks. This data is not meant for chargeback prevention as it doesn’t prioritize chargebacks effectively. However, understanding the report can give you insights into potential chargebacks in the future.

Importance of TC40 Reports in Fraud Detection

One of the frequently asked questions we receive from readers concerning the reports is:

How do TC40 claims affect a merchant's account?

For starters, the data used in TC40 and SAFE reporting helps determine a merchant's ultimate fraud risk and track merchants who qualify for interventions like the Visa Fraud Monitoring Program.

Visa derives the metrics they use to track merchants with high or excessive frauds (i.e., the overall monthly fraudulent transactions value and the monthly ratio of fraud dollars to sales dollars) from TC40 reports. Not from chargebacks.

On the merchant’s side, analyzing TC40 reports can complement your fraud detection efforts. As these reports include all the relevant documentation banks use in file chargebacks, reviewing TC40 is one way to pinpoint potential root causes of the claims. That enables you to avoid prospective instances of unauthorized transactions.

Nevertheless, TC40 and SAFE reports are not a silver bullet for chargeback mitigation due to certain limitations.

How do TC40 Reports Impact a Merchant’s Chargebacks?

Financial institutions generate TC40 data reports every time a cardholder reports a merchant for fraudulent transactions. Even though not all TC40 claims result in chargebacks, having many reports against your business will likely impact your chargeback rate.

Banks and card schemes assess a merchant's risk profile before processing payments. This is where TC40 reports come in. They track any known fraud claims against a specific merchant. The processor may terminate their payment processing capabilities if the merchant has excessive chargebacks.

But while TC40 reports can be helpful to merchants, as noted earlier, it is unreliable for mitigating fraudulent transactions and chargebacks. Here’s why:

1. There's no guarantee you will obtain the reports on time. While you can request a copy, your acquirer or payment processor holds no obligation to share the documentation with you. TC40 reports are also bulky and contain sensitive internal documents, making them cumbersome for merchants to access.
2. The data is predominantly predicated on cardholders self-reporting fraud on their accounts. That creates the possibility of inaccurate information getting captured.
3. Premeditated chargebacks like friendly fraud, which accounts for ~70% of all chargebacks, will be omitted entirely from the documentation.

Having said all that, it's still advantageous to know when customers are lodging these complaints against you.

How do You know if TC40 Claims are Impacting your Business?

Since merchants cannot request periodic disbursement of TC40 data claims, it’s challenging to know when a report has been generated. For some merchants, it comes as a complete surprise:

• The company begins experiencing a spike in payment declines.
• Unhappy or confused customers then call their card issuer to find out why they couldn’t complete the transactions, even though they had enough credit to cover the purchases. These complaints may be passed on to the merchant.
• The merchant digs into the payment decline logs and notices several issuers declined all transactions.
• Through one of the card brands, the company eventually found that the declines were due to TC40 reports.

To see if TC40 data claims are impacting your business, you can conduct the following checks:

1. Review Transaction Declines

Investigate your payment decline log, especially for lower-dollar transactions. Separate the declines by an issuer to determine if any issuers are declining almost all transactions. Review decline reason codes, though most use “general decline” in these cases.

2. Track customer calls

If you see a spike in customers saying their cards were declined, but they don't know the reason, that could be a factor for excessive TC40 reports.

3. Contact your processor

Reach out to your processor to see if they track TC40 volume. If they don’t, they may be able to contact the card networks on your behalf to determine if this impacts your business.

Is a TC40 report the Same as a Chargeback?

The answer is no. While TC40 reports originate from the data collected whenever a cardholder announces a fraudulent transaction on their account, a TC40 data claim is NOT the same as a chargeback.

While it’s true that TC40 reports have all the relevant documentation one requires for filling chargebacks, initiating the chargeback is an entirely different process.

A chargeback claim is primarily an attempt by the customer's card-issuing bank to reverse the transaction proceeds from a merchant. When a cardholder files a chargeback against a merchant, the merchant will receive a reason code that signifies the cause of the chargeback on their merchant statement.

However, TC40 only accounts for a cardholder's allegations of fraud against a merchant. Such documentation does not have refund requests from the issuing bank attached to it.

For instance, a TC40 report can be generated, and no chargeback filed. That's especially true in small dollar-value transactions because the cost of initiating the chargeback exceeds refunding the cardholder directly. In most cases, the financial institution will refund the customer directly and write off the loss.

However, the Issuer must still submit the TC40 data claim report. And the report adds to your cases, even if you know nothing about it, unlike in chargeback incidents where they notify you immediately for each chase.

How to Use TC40 Reports to Prevent Chargebacks

Although the chances of success are limited due to the constraints noted earlier, here's how to use TC40 reports in tracking fraudulent transaction chargebacks.

1. Research each claim thoroughly, matching it up with the account information in the merchant database.
2. Mark these transactions as fraudulent so they can be flagged for manual review.
3. You could refund the buyer to avoid a chargeback if genuine fraud occurred.

The faster you refund and mark these transactions as fraudulent in your system, the quicker your business can prevent similar fraud from occurring.

Sadly you may end up refunding transactions that will not result in a chargeback. You may also have a situation where you issue a double refund, as TC40 reports do not prevent chargebacks from happening. If you used the TC40 report as an indicator to refund the transaction proactively, the chargeback might still happen anyway.  

Hence, relying solely on TC40 as an indicator of chargeback and fraud patterns is not ideal. You need a tool that provides accurate pre-sale fraud patterns and reliable chargeback representment with guaranteed value for money.

That’s what Chargeflow gives you, a completely automated chargeback solution for preventing fraud and recovering disputes without lifting a finger. You can reduce your rising chargeback rates and secure your business while maintaining excellent relationships with all relevant stakeholders.

FAQs:

What Is TC40 Data?

TC40 data reports are documentation banks generate when cardholders allege fraudulent transactions against merchants. The card issuer produces TC40 claim reports and sends them to the acquirer and card brand, i.e., Visa and Mastercard. The report helps record any fraud reported in connection with the seller.

Can TC40 reports prevent a merchant from accepting online payments?

Yes. A merchant receiving excessive TC40 reports at their store, even if a smaller percentage of those resulted in cardholder chargebacks, could damage their ability to receive card-not-present payments.

Banks frequently use TC40 reports to construct and evaluate a merchant’s risk profile before executing payment transactions initiated by cardholders. TC40 data captures every known fraud instance against a merchant. Thus, giving banks insight into the frequency and severity of a merchant's alleged fraudulent activities.

The precise calculations and thresholds are not always known. However, it's common knowledge that an uptick in a merchant's fraud claim volumes is directly proportional to the likelihood of banks seeing such a merchant, not the cardholder, as the fraud culprit in the transaction. Banks can deny customer payments to such merchants, making it impossible for the business to process payments from genuine buyers. Hence, a high TC40 report volume is synonymous with an increased risk profile.

Can TC40 data help prevent chargebacks?

TC40 data does not help prevent chargebacks, as they're essentially a record of alleged fraud against a merchant. Merchants often misinterpret TC40 data as a way to avert chargebacks proactively. Such a method is impracticable because these documents are only sometimes within the merchant's reach. Even when accessible, they do not account for all fraud and chargeback-related issues merchants face.

Where can a merchant find its TC40 Report?

The first place to look for any TC40 report against your business is from your acquirer. TC40 reports are used primarily by issuers and card networks to assess merchants' fraud risks. They’re also passed on to the merchant’s acquirer or processor, typically daily. The processor decides whether the merchant has access to this report.  Another place to look for this Report is with services that partner with issuers to offer “chargeback alerts.”