What to expect if you’re placed in a fraud monitoring program

When a business accepts payments from major credit card processors, they become responsible for managing and preventing fraud. Any business that sees a higher-than-acceptable chargeback or fraud rate can end up in a card brand’s fraud monitoring program. But seasonal businesses or businesses with major sales cycles, in particular, should keep a close eye on their rates. Both bad actors and good customers — committing criminal and friendly fraud, respectively — can increase these rates.

A picture of credit cards with a blue-green gradient overlay that has a text overlay checklist: get a notification, determine the fraud program, submit a remediation plan, report progress.

“When a card brand places a business in a monitoring program, it’s because the business’s chargeback or fraud rate is higher than the program thresholds,” explained Scott Adams, Kount’s VP of Friendly Fraud.

While all major cards have fraud monitoring programs, most businesses will be placed in one of Visa or Mastercard’s programs. Visa’s fraud and dispute monitoring programs automatically place businesses with over 100 disputes per month and a .9% dispute-to-sales transaction rate. For fraud monitoring, the threshold is a .9% fraud-dollar-to-sales rate.

Mastercard’s chargeback programs automatically place businesses with over 100 disputes per month and a 1% dispute-to-sales rate. Mastercard’s fraud programs automatically place businesses with over 1,000 disputes in the previous month, $50,000 in fraudulent transactions, and a .5% fraud-to-sales rate. In either Visa or Mastercard’s programs, businesses are subject to fees if they can’t get their fraud or chargeback rates below the thresholds.

“Unfortunately, most businesses don’t know they’re over program thresholds until a processor tells them,” Adams said. “I’ve seen top companies not have any idea this could happen. Smaller businesses tend to not know at all. Most of the time, it’s a surprise.”

Regardless of how a business got there, placement in a fraud monitoring program is serious. Businesses that can’t reduce their fraud, dispute, or chargeback rates incur high fees and risk disqualification. Disqualified businesses won’t be able to accept payments from that card brand. So once a business is in a program, it’s in their best interest to get out as soon as possible.

A step-by-step guide to being in a fraud monitoring program

Step 1: Get a notification from your processor

If a business is placed in a fraud monitoring program, their processor will contact them by phone or email. Typically, this notification will come with a confidential case detail report. Reports may vary by processor. But, generally, this report includes the acquirer’s name, bank identification number (BIN), country, and region. It also includes the merchant descriptor’s name, city, state, country. Finally, the report may outline the report month, program name, status, identification type, and month.

  • Report month: This is the month the business exceeded program thresholds.
  • Program name: This will depend on the card brand. For example, Visa may place a business in the Visa Dispute Monitoring Program (VDMP). Or Mastercard may place a business in its Chargeback Monitored Merchant (CMM) program.
  • Status: This indicates what stage in the program the business is at. For example, businesses on the VDMP timeline may see “Notification,” “Workout,” or “Enforcement.”
  • Identification type: This indicates which program the business is in. For example, Visa identifies businesses as Standard or High-Risk/Excessive. Mastercard may identify businesses as Excessive or High Excessive.
  • Month: This indicates the number of months the business has been in the program.

Case detail reports may further break down the business’s fraud count, fraud amount, fraud-to-sales ratio, dispute count, sales count, sales amount, dispute-to-sales ratio, assessed or waived fines, and remediation status.

Step 2: Find the cause of the fraud or chargeback problem

When a card brand places a business in a fraud program, typically, they’ll have between a month and a few months to get back within the threshold. That’s time they’ll have to spend figuring out the cause of their fraud or chargeback problem.

Here are some things businesses can do to figure out the cause of their fraud problem, especially if they’re not using a fraud prevention solution.

  • Review transaction patterns: Transaction patterns can reveal which products or campaigns are contributing to fraud.
  • Assess transactions for duplicate orders: If a business’s website is placing duplicate orders, customers may be going through their credit card companies, instead of the business, to reverse charges.
  • Review product descriptors: One of the leading causes of chargebacks from friendly fraud is legitimate customers not recognizing a charge on their statement. If a product descriptor doesn’t align with a product or brand name, a customer might not recognize it.
  • Assess customer service protocols: “Businesses are always surprised when I ask them about customer service,” Adams said. “Figure out how long it takes your customer support team to respond to an inquiry. If it’s a purchase or refund inquiry, you need to respond within 24 hours. If you don’t, you’re going to have chargebacks. Or maybe there’s a priority issue on tickets. Maybe you had a huge sales spike but didn’t have enough customer support agents to handle it.”
  • Review refund and return policies: Businesses need to make it clear how they process refunds and returns. If customers know to contact a business first, they may be less likely to initiate a chargeback with their credit card company first. And, Adams cautions, if a business has a no-refund policy or a short refund and return window, they’re more likely to end up in a chargeback program.
  • Go through the purchasing process: Place an order to see its descriptor on a credit card statement. Then track the item’s shipping and delivery time for accuracy. Attempt to place a call with customer support, return, or refund an item to identify gaps or areas of improvement.

Step 3: Submit a remediation plan with the card processor

“Businesses submit a remediation plan, a structured document that says they’re taking their fraud problem seriously and what the problem is,” Adams explained. “If a business doesn’t know the problem yet, they may describe what they’re doing to find the root cause. Then they’ll describe all the different things they’re doing to combat the issue.”

Remediation plan requirements include:

  • The program name
  • Acquirer information
  • Merchant information
  • Security, dispute, or fraud mitigation tools in place (AVS, CVV2, device fingerprinting, tokenization,
    rules-based fraud system, etc.)
  • The root cause of the fraud or chargeback problem or process they’re using to find the root cause
  • An outline of fraud reduction initiatives

Step 4: Implement the plan and report progress

Processors expect monthly updates from businesses in fraud programs. They’ll want to see that the business is making a concerted effort to reduce fraud and chargebacks. To get out of a fraud program, a business will need to stay below thresholds for three consecutive months. But the longer they’re in the program, the higher their risk for heavy fines.

“As the months go on, the fines start going up,” Adams said. “Fines vary by card brand and program, but they can be charged flat fines as well as per-chargeback fines, which can add up fast.”

Whatever a business does, Adams says, they shouldn’t ignore the problem. Nor should they try to get out of a program by changing processors. This will make it harder to track progress and data. Finally, they shouldn’t make assumptions but test their processes and theories to confirm and solve their fraud problems.

A banner of each program's threshold: .9% for Visa's programs and 1% and .5% for Mastercard's programs.

How to get out of a fraud monitoring program quickly

The longer a business is in a fraud monitoring program, the harder it is to get out. Businesses that don’t make progress risk heavy fines. To get out of a fraud monitoring, a business has to keep their fraud or chargeback rate under the lowest program minimum for three consecutive months. Time is not on their side. That’s why experts like Adams say the best and fastest way to get fraud under control is contact a company like Kount.

A business could go through the list above to determine the root of their fraud problem. But talking to an expert means they have a guide who can help identify problems immediately and guide them towards a solution. An expert can help businesses ask and answer the right questions. Businesses can consult with Kount to immediately reduce fraud and chargebacks. And they can consider Kount a partner who can provide education and help them reach other goals around manual reviews, false positives, and more.

“When someone calls Kount, saying they’re in a fraud program, the first thing we want to see is their case detail report,” Adams said. “From there, we want to know about their chargeback rate, sales cycles, customer service experience, what tools or solutions they’re using if any. We want to figure out what they know and don’t know about their fraud problem so that we can help them get the right tools, make that concerted effort, and create and take action on a remediation plan with confidence.”

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