Mastercard Chargeback Monitoring Program: How to Manage Enrollment

Enrollment in the Mastercard^® chargeback monitoring program — called the Mastercard Excessive Chargeback Program — can be stressful.

But with these tips and suggestions, you can safely exit the program and avoid future enrollment.

What is the Mastercard Excessive Chargeback Program?

The Excessive Chargeback Program (ECP) is designed to encourage merchants to reduce chargebacks and improve their chargeback management strategy. It also serves as a penalty for merchants with excessive chargebacks.

Acquiring banks and card brands like Mastercard want to make sure your business doesn’t become a liability for their organizations.

Mastercard ECP thresholds

Mastercard uses two benchmarks to evaluate risk: the number of chargebacks in a given month and the chargeback rate. Merchants must exceed the threshold for both in order to be enrolled in the program.

Your chargeback rate is a metric that shows the ratio between the total number of transactions you process and the total number of chargebacks you receive. It’s also referred to as your chargeback-to-transaction ratio or chargeback ratio.

Here’s how Mastercard calculates your chargeback rate:

For example:

Merchant risk classifications

When you are enrolled in the ECP, your acquirer will classify you as either an excessive chargeback merchant (ECM) or a high excessive chargeback merchant (HECM).

Excessive chargeback merchant

Merchants are classified in this category when they breach both of the following monthly ECM thresholds:

• Chargeback count: 100 - 299
• Chargeback ratio: 1.50 - 2.99%

High excessive chargeback merchant

Merchants are classified in this category when they breach both of the following monthly HECM thresholds:

• Chargeback count: 300+
• Chargeback ratio: 3.0%+

Fines

Mastercard assesses fines for merchants enrolled in the ECP based on the time spent within the program. The first month is a grace period — Mastercard won’t charge fines. However, your processor might.

After the first month in the program, fines are issued monthly and increase the longer you are enrolled. Amounts can range from $1,000 to $200,000 depending on your program classification.

However, you could potentially face additional fines from your processor or Mastercard through the Issuer Recovery Assessment (ISR). The ISR is an additional fine for merchants classified as HECM at 5 USD/EUR per chargeback over 300 chargebacks.

How Chargeback Monitoring Programs Can Affect Your Business

The unfortunate reality of being enrolled in a chargeback monitoring program is that the process of getting out of it can be difficult. And more than that, the program itself can be a huge drain on your revenue.

Chargebacks alone can dampen your profits. Add fines and penalties on top of chargebacks, and the financial health of your business could be seriously damaged.

Additionally, fraud and excessive monthly chargebacks put your merchant account at risk — which means you could potentially lose the ability to process transactions.

Taking proactive measures to avoid enrollment in a monitoring program is ideal. However, once you are enrolled, there are steps you can take to exit as quickly as possible.

What to Do When You Are Enrolled in the Mastercard ECP

When it’s impossible to avoid enrollment in Mastercard’s chargeback monitoring program, there are steps you can take to minimize the impact.

STEP ONE

Develop a remediation plan

Part of a chargeback monitoring program is to help merchants develop an effective chargeback management strategy. Mastercard may request that you submit a remediation plan that outlines the steps you’re taking to resolve issues and regain compliance.

Most remediation plans include the following key elements.

Business description

Talk about the type of business you own, payment and billing methods you accept, marketing efforts, and any other notable aspects of the business. The card networks need to get a good sense of who you are.

Policy outlines

Provide details about your return and refund policies, terms and conditions, and any other internal procedures that could relate to the chargeback issue.

Chargeback description

Provide details of the events that lead to the increased number of chargebacks. That means investigating the root cause of the issues — not just the reason codes — so you can tell a complete story about what happened.

Risk management strategy

Your strategy for reducing risk is one of the most important parts of the remediation plan. You’ll need to provide a description of all fraud tools and prevention methods you plan to use, when you will implement them, and how those will help prevent chargeback issues.

Action plan

Let the card network know what steps you will take to reduce chargebacks — what solution you will use, when you will implement it, and your expected results. You’ll also need to include a backup plan in case the first plan fails.

STEP TWO

Work on Managing Chargebacks

Your main goal when in a monitoring program is likely to get out of it. And you do that by reducing your chargeback activity.

But the reality is you need to develop an entire strategy around chargebacks for the present and the future. You want to reduce the current chargebacks you have but also prevent them from happening again. There are a variety of tools you can use to accomplish this mission.

3D Secure (3DS) 2.0

3DS 2.0 is an identity verification tool used to authenticate card-not-present transactions. When a customer makes a purchase, the merchant sends information like shipping address and order history to the customer’s issuing bank.

The bank then reviews the information to determine the likelihood of fraud. From there, the transaction can be accepted, denied, or challenged.

Address Verification Service (AVS)

AVS compares the billing address provided during checkout to the billing address on file with the bank.

During checkout, the customer enters their billing address. The address provided is compared to the address on file at the customer’s issuing bank. If the addresses don’t match, a fraudster might be at work. Suspicious transactions can be declined to avoid the resulting chargeback.

CVV

The card security code or card verification value is a number printed on the card. This code is used to verify that the cardholder physically has the card on hand during card-not-present transactions. Requiring this code at checkout can help reduce the amount of unauthorized payments made from fraudsters who obtained stolen card information online.

Fraud detection software

Using a customizable, automated solution like Kount^® can drastically reduce the amount of fraud-related chargebacks you receive. The main benefit of using technology is that you can more accurately prevent chargebacks from happening using a combination of data, machine learning, and artificial intelligence.

Additionally, you can conduct more robust data analyses — which can help you identify problems associated with friendly fraud that are difficult to discover on your own. You can more easily figure out the source of your chargeback issues rather than taking guesses at what the problem might be.

Order validation

When a customer files a dispute with the bank, the bank can activate order validation to get additional information about a transaction. With additional insights, the bank can hopefully resolve the dispute for you at the moment it happens.

Prevention alerts

Prevention alerts notify you when a dispute is filed. This gives you the opportunity to resolve the issue — usually by processing a refund — before the dispute becomes a chargeback.

Rapid dispute resolution (RDR)

Like prevention alerts, RDR helps reduce chargebacks by issuing refunds on disputed transactions. The main difference between the two strategies is automation.

RDR allows you to set thresholds regarding liability — for example, the reason codes or dollar amounts you are willing to accept. And anything that fits your criteria is automatically refunded by the bank.

Exiting the program

To exit the ECP, your merchant account must be below the excessive chargeback merchant threshold for three consecutive months. That means if either your chargeback count or chargeback rate fall below the thresholds, you will be considered compliant with the program requirements.