MasterCard International has upgraded its system for transmitting images of sales drafts to help settle customer disputes.

Changes in the system, called MasterCom, allow it to process images more quickly and interface with other equipment, such as facsimile machines.

MasterCom was introduced in 1989. It was a pioneering system to allow banks to transmit images of sales drafts to resolve the disputed charges known as chargebacks.

The system replaced a cumbersome procedure that involved locating original receipts and mailing photocopies.

The enhancements will further speed the process, which helps members by allowing them to collect funds faster and by reducing processing costs.

MasterCard plans to begin replacing parts of the system at member banks in the first quarter of next year.

Meanwile, Visa U.S.A. has begun to test its own image-based chargeback system.

Visa also had previously relied on mail and facsimile transmission of charge slips among members.

In September the San Mateo, Calif.-based credit card company said that it would also make an image system available to members.

A Check on Chargebacks

With profit margins in the credit card business squeezed, both Visa and MasterCard are seeking ways to cut the costs of the labor-intensive chargebacks, which occur when customers request an original transaction document.

Chargebacks also occur when an interback settlement transaction cannot be completed because its file contains incorrect information.

MasterCard recently reported that it receives one chargeback transaction per second over its settlement network.

The Cost of Processing

The seven million chargebacks a year, totaling $1 billion in transaction value, cost members an estimated $175 million to process.

Visa and MasterCard tightened rules governing the handling of chargebacks, and that has helped reduce the volume.

Another factor is the trend toward electronic draft capture, which greatly reduces incorrect coding of sales receipts.

Visa has said that the portion of its interchange volume charged back has fallen from 0.27% in 1988 to 0.22% in 1990 and 0.18% as of June 1991.

David Africk, senior vice president at MasterCard, said its chargeback rate has dropped by 20% from 1987 to 1991, and is now at 0.20%.

He said that the image system reduces the number of chargebacks, but that it is difficult to measure by how much.

The time needed to fulfill requests for drafts, which can be as long as a month, can be reduced by 75%, Mr. Africk said.

MasterCard requires its largest member banks to use MasterCom.

The MasterCom image workstations, which consist of a personal computer equipped with a scanner and special software, have been enhanced with new software that scans receipts in three seconds instead of 20.

Images by Fax

The device can also be hooked up to a facsimile machine, allowing banks to exchange that type of image.

The software has been simplified, and a color monitor and a mouse have been added to the workstation.

MasterCard developed the improvements in-house and plans to develop all future enhancements itself.

The original MasterCom was developed with TRW Financial Systems, which served as a systems integrator for MasterCard.

Mr. Africk said the card association brought development in-house "so we could control our own destiny."

Free Upgrades

MasterCard will begin to replace the MasterCom terminals early next year. Upgrades and training are free.

Member banks lease the hardware and software from MasterCard for $800 a month and pay a per-transaction fee. Mr. Africk said prices will remain the same.

Visa said it plans to roll out its image system for chargebacks early next year.

Ten banks in the United States and one in Britain are now testing a preproduction version of the system, which consists of an IBM PS/2 personal computer with attached facsimile and communications boards and a scanner.

Richard L. Lonergan, senior vice president for VisaNet business development, said Visa will impose a monthly fee and a per-image charge.

He said the fees have not yet been set by Visa's board.

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