Mastercard fraud and chargeback monitoring programs explained

When merchants accept Mastercard payments at the point of sale, they become responsible for controlling and preventing fraud incidents. As part of that, merchants must keep fraud and disputes under certain thresholds, according to Mastercard’s Security Rules and Procedures.

Similar to the Visa fraud monitoring program, when Mastercard identifies merchants that exceed fraud or chargeback thresholds, they place the merchant in one of their dispute or fraud programs.

As of May 2021, Mastercard operates an umbrella fraud and chargeback program called the Acquirer Chargeback Monitoring Program (ACMP). Within the ACMP are two branches: the Excessive Chargeback Program (ECP) and the Excessive Fraud Merchant (EFM) program. And each Mastercard monitoring program has different levels, depending on the merchant’s classification.

What are the Mastercard Excessive Chargeback Program (ECP) thresholds?

Mastercard evaluates merchant dispute levels monthly. When merchants generate excessive disputes and exceed chargeback allowance thresholds, Mastercard places them in its Excessive Chargeback Program (ECP) until they reduce their disputes below the satisfactory threshold.

The ECP classifies merchants on two levels:

• Excessive Chargeback Merchant (ECM)
• High Excessive Chargeback Merchant (HECM)

These levels correspond to the severity of a merchant’s chargeback rate. Mastercard determines a merchant’s chargeback rate by calculating the number of chargebacks and basis points associated with their merchant identification number or merchant ID.

For example, if a merchant sees 200 chargebacks in a given month and processes 5,500 transactions in the previous month, they can divide those figures and multiply by 10,000 to see their basis points.

Mastercard classifies businesses with over 100 chargebacks per month and 150 basis points as ECM and classifies businesses with over 300 chargebacks and 300 basis points as HECM. So in the above example, that merchant would be classified as a HECM.

Mastercard places a merchant in one of its monitoring programs when they exceed thresholds for two consecutive or non-consecutive months. To get out of a Mastercard monitoring program, a merchant must keep their chargebacks or basis points below program thresholds for three consecutive months.

Once Mastercard identifies a merchant as ECM or HECM, it will start to apply non-performance assessments. Non-performance assessments are fees that start at $1,000 in month two and can be as high as $100,000 by month 19. Merchants can also be liable for additional fees like issuer recovery charges.

What are the Mastercard Excessive Fraud Merchant (EFM) program thresholds?

While Mastercard’s ECP monitors all chargeback-related disputes, the Mastercard Excessive Fraud Merchant (EFM) program only monitors fraud-related chargebacks from e-commerce transactions.

Like the ECP, the EFM program monitors merchants monthly, according to their merchant ID. And like Mastercard’s ECP, its EFM program is just one of many chargeback fraud consequences. Businesses are subject to the EFM program when they meet or exceed all four of the following criteria:

• They processed at least 1,000 e-commerce Mastercard payments in the previous month.
• They experience at least $50,000 in fraud-related chargebacks.
• They have at least 50 basis points in fraud-related chargebacks.
• They’re located in a non-regulated country, and the percentage of their clearing volume processed using 3DS is 10% or lower. Alternatively, they’re located in a regulated country, and the percentage of their clearing volume processed using 3DS is 50% or lower.

Mastercard also places merchants in its EFM program when they exceed thresholds for two consecutive or non-consecutive months. To get out of the program, a merchant must keep their chargebacks or basis points below monitoring program thresholds for three consecutive months.

Non-performance assessments in the EFM program start at $500 in month two and go up to $100,000 by month 19.

Can merchants be in more than one Mastercard program at once?

Yes, if a merchant violates both thresholds, Mastercard can put them in the ECP and the EFM program at the same time. Fortunately, in mid-2021, Mastercard changed its rules so that if a merchant is in the ECP and the EFM program at the same time, only EFM program fees apply. Previously, merchants were subject to fees in the ECP and the EFM program.

However, getting out of one Mastercard monitoring program won’t get a merchant out of the other. Merchants must stay below both programs’ thresholds for three consecutive months before Mastercard releases them.

Additionally, suppose a merchant enters the ECP as an excessive merchant but exceeds the high-excessive thresholds. In that case, Mastercard can reclassify them as a high-excessive merchant and subject them to higher fees.

What happens if you’re put in a Mastercard program?

If a merchant is put in a Mastercard program, they can expect a few things to happen, according to fraud monitoring program guides. First, Mastercard will notify the merchant’s acquiring bank through its online portal that the merchant has exceeded thresholds. The acquirer will then review Mastercard’s compliance report regarding the merchant’s fraud or chargeback activity and notify them of violations.

Merchants are then responsible for developing a strategy to meet Mastercard’s threshold standards. This strategy usually takes the form of a remediation plan that outlines the causes of the excessive chargebacks and how the merchant plans to stop them.

Merchants will likely need to give monthly updates on their progress. Mastercard wants to see that the merchant is making a concerted effort to get their dispute rates under control. They may even impose heavier fines and penalties to incentivize merchants to bring their rates below thresholds.

A business must stay below thresholds for three consecutive months to get out of a program. But the dangerous part about Mastercard fraud and chargeback monitoring programs is the longer a merchant is in one, the more difficult it is to get out. And fines increase all the while. If a merchant is in a program too long, Mastercard can terminate their relationship.

Deflect chargebacks, save the sale, and avoid the ECP with Ethoca Alerts and Consumer Clarity

Kount’s dispute and chargeback management solution integrates with post-authorization tools from card brands like Mastercard to help merchants act on and resolve customer disputes quickly.

Mastercard’s post-authorization tools, Ethoca Alerts and Consumer Clarity, help businesses intercept and deflect disputes from criminal and friendly fraud. For example, Ethoca Alerts informs businesses of customer disputes or confirmed fraud as soon as a customer reports an issue.

As soon as the business knows a customer initiated a dispute, it can stop the shipment of goods and services, issue refunds, or take other steps to stop chargebacks. And businesses can use the direct-from-source issuer data to update their fraud rules and prevent future fraud.

With Ethoca Consumer Clarity, businesses can relay additional transaction details over secure channels to banks and financial institutions to help customers recognize purchases. These details help merchants curb fraud-related chargebacks, save sales, extend their brand presence, and increase customer loyalty.