What is the Mastercard Chargeback Threshold? How Do I Know if I’m Compliant?
Like other card networks, Mastercard maintains its own predetermined monthly limit for the number of chargebacks considered “acceptable.” Merchants and banks commonly refer to this as the Mastercard chargeback threshold.
The thresholds are not arbitrary numbers that you can simply ignore. They’re essential key performance indicators (KPIs) that you must track to gauge your effectiveness at chargeback prevention. Plus, breaching the Mastercard chargeback threshold carries very serious consequences that could put your business in danger.
In this post, we’ll explain what the Mastercard chargeback thresholds are, what can happen if you exceed the limit, and steps you can take to prevent Mastercard chargebacks.
What is the Mastercard Chargeback Threshold?
First, we need to clarify this point: there is no single Mastercard chargeback limit. The company used to require merchants to maintain a chargeback rate of less than 1% of transactions. That changed with the announcement of the Excessive Chargeback Merchant program back in April 2019.
As of this writing, Mastercard requires merchants to maintain a chargeback rate that is less than 1.5% of transactions. Merchants whose chargeback rate exceeds 1.5% and who see more than 100 chargebacks per month would qualify as an excessive chargeback merchant.
The Mastercard Excessive Chargeback Merchant program split into two categories: Excessive Chargeback Merchant (ECM), and High Excessive Chargeback Merchant (HECM). The card network will give merchants one label or the other based on whether they breach the predetermined thresholds for monthly chargeback issuances outlined below:
|Number of Monthly Chargebacks||Monthly Chargebacks (% of Total Transactions)|
|Excessive Chargeback Merchant Program||100 to 299||1.5% to 2.99%|
|High Excessive Chargeback Merchant Program||300 or more||3% or more|
How Do I Know if I Violate Mastercard Chargeback Thresholds?
To determine whether or not you’re in danger, you need to know your Mastercard chargeback-to-transaction ratio (also known as a chargeback rate).
Your Mastercard chargeback rate determines the number of Mastercard chargebacks filed against you in a single month. You can find this by taking the number of chargebacks issued during the month in question, then dividing it by the number of total transactions processed during the previous month.
Remember: you need to calculate and keep track of a separate chargeback rate for each card brand you accept. For example, your Mastercard chargeback rate will be different from your Visa chargeback rate. The two are also calculated differently: while Mastercard bases your chargeback rate on the total transactions processed during the previous month, Visa uses the current month to determine your chargeback rate.
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What Happens if My Mastercard Chargeback Rate is too High?
In short, getting placed in Mastercard’s two-tiered Excessive Chargeback Program means that the costs you pay to accept payment cards will go up significantly.
The penalties for both programs increase based on the number of months that you remain above the Mastercard chargeback threshold:
|Number of Months Above ECP Thresholds||Assessment if ECM in Violation Month (100-299 Chargebacks and 150-299 Basis Points)||Assessment if High Excessive (HECM) in Violation Month Chargebacks and Greater than 300 Basis Points)|
|Violation Assessment||Violation Assessment||Issuer Recovery Assessment|
|2||EUR/USD 1,000||EUR/USD 1,000||No|
|3||EUR/USD 1,000||EUR/USD 2,000||No|
|4 to 6||EUR/USD 5,000||EUR/USD 10,000||Yes*|
|7 to 11||EUR/USD 25,000||EUR/USD 50,000||Yes*|
|12 to 18||EUR/USD 50,000||EUR/USD 100,000||Yes*|
|19 +||EUR/USD 100,000||EUR/USD 200,000||Yes*|
It’s important to note that you won’t be immediately removed from the program just because your chargeback rate drops below the acceptable threshold. In fact, you won’t be considered “compliant” until you manage to keep your chargeback rate under the limit for three consecutive months.
Mastercard also requires that banks submit a monthly report outlining the activity of each listed merchant. The network charges between US $50 and $300 for every report the bank is required to send. The cost of not filing the reports is even worse, though, with penalties running as high as US $1,000 per day, per report. These fees are levied against the acquiring bank, which will likely pass the costs on to you (along with a healthy markup).
After six months in either program, Mastercard might mandate your acquirer undergo a review, or implement an action plan (all at the bank’s expense, but again, the cost will likely be passed on to you). After 12 months, the acquirer could be subject to non-compliance assessment fees of up to $50,000 per month.
…of course, that’s all assuming the acquirer allows you to continue operating as usual.
The reality is, if your chargeback issuances spike above—or even close to—the Mastercard chargeback threshold, the bank may freeze your account to protect its own interests. In the best case scenario, this would restrict your access to necessary operating capital; in many cases, the bank may simply cut their losses and terminate your account altogether.
Other Factors Influencing Your Chargeback Rate
Both card network rules, and your acquirer, can determine what’s considered an “acceptable” chargeback rate for you. There are also other variables to consider, though.
The number of transactions you process each month can impact your Mastercard chargeback rate; the same goes for the average dollar value of your transactions. For example, a small business with a small number of sales each month may get more leeway than a large operation in a high-risk vertical. However, this can actually work against you when calculating your chargeback rate.
You may have less flexibility if you already have a history of receiving chargebacks. By the same token, your acquirer may be more inclined to cut you some slack if you have a better record of avoiding chargebacks.
Finally, keep in mind that only first chargebacks count. Mastercard arbitration chargebacks won’t impact your chargeback rate.
Protect Your Business Against Mastercard Chargebacks
So what can you do to protect your business long-term? First, note that many chargebacks—between 60% and 80%—are potential cases of friendly fraud. You have the right to challenge these invalid chargebacks through the representment process. If you contest a customer dispute and win, you can recapture a portion of the amount disputed.
Unfortunately, even a successful representment can’t undo the impact of a chargeback on your chargeback ratio. This is because chargeback rates are calculated using the total number of chargebacks issued, regardless of whether they get reversed later. That’s why it’s crucial that you do everything possible to prevent chargebacks before they happen.
Maintaining a chargeback rate below the Mastercard chargeback threshold means implementing a comprehensive strategy that addresses chargebacks directly at their sources. Be sure to check out our recent blog post that offers 20 tips to help you prevent and fight back against chargebacks.
Have additional questions about how to protect your business? The experts at Chargebacks911 are here to help. Chargebacks911 offers the industry’s only fully-managed approach to chargebacks, deploying machine learning and human forensic expertise to help you stop chargebacks and protect your revenue. Contact us today and learn how much you stand to save.
What is an Acceptable Mastercard Chargeback Rate?
Mastercard defines an excessive chargeback merchant as any merchant with a monthly chargeback rate higher than 1.5% and who has more than 100 chargebacks per month. However, your acquirer may choose to impose more stringent standards.
What Does Chargeback “Over Threshold” Mean?
This means your monthly chargeback rate is higher than what Mastercard considers acceptable for a typical merchant. This may result in you being entered into one of two Mastercard Excessive Chargeback Merchant programs.
What is a Chargeback Ratio?
A chargeback ratio (also called a chargeback rate) represents the ratio of chargebacks filed against your business to overall transactions for the time period in question. You will have a different chargeback ratio for each card brand (Mastercard, Visa, etc.).
How is a Chargeback Ratio Calculated?
For Mastercard, you can find your chargeback ratio by taking the number of chargebacks issued during the month in question, then dividing it by the number of total transactions processed during the previous month.
Is My Mastercard Chargeback Ratio Different From My Visa Chargeback Ratio?
Yes. You will have a different chargeback ratio for each card brand. Each network has its own chargeback rules and requirements. Also, the Visa chargeback threshold is different from the Mastercard chargeback threshold.