On their own, chargebacks are bad enough: in addition to losing out on revenue and inventory, you also incur chargeback fees, which can range from $20 to $100 per filed dispute.
But receiving many chargebacks in a short period of time can be overwhelming…for reasons that have to do with far more than just the sheer quantity of disputes you have to deal with.
See, card networks like Visa and Mastercard set pre-determined chargeback-to-transaction ratios. Exceed those, and you’ll find yourself involuntarily placed in a merchant monitoring program — a corrective measure that helps you control fraud and chargebacks.
Sounds fine, right?
Not exactly. By design, merchant monitoring programs come with punitive fees and surcharges that are meant to compel merchants to get back into compliance. If you find yourself enrolled in a program, you can expect to shell out hundreds or even thousands of dollars in fees and penalties.
Here, we’ll dissect Mastercard’s two merchant monitoring programs — the Excessive Chargeback Merchant (ECM) and Excessive Chargeback Fraud (EFM) programs. We’ll talk about what constitutes “excessive,” describe how fees work, and talk about how you can exit these punitive programs.
The Excessive Chargeback Merchant program is a dispute compliance scheme created by Mastercard. The aim here is to prevent too many chargebacks from occurring on the Mastercard network by setting a standard chargeback-to-transaction ratio threshold, and imposing penalties on non-compliant merchants.
Read MoreThe Mastercard Excessive Fraud Merchant program is a fraud compliance scheme created by the card network. The program’s purpose is to exercise oversight regarding eCommerce merchant activity and prevent excessive fraud from occurring on the Mastercard network.
The basic point of the EFM program is to stop fraud instances resulting from eCommerce transactions. Mastercard explains that this program creates “a more secure ecosystem and provides a better experience for cardholders.”
Read MoreAll chargebacks, regardless of the reason, contribute to a merchant’s standing for the purposes of Mastercard’s Excessive Chargeback Merchant (ECM) program.
Exceeding pre-determined thresholds leads to immediate consequences for merchants, who risk placement in either the “standard” ECM program or the “high” ECM program.
Read MoreThe Mastercard Excessive Fraud Program (EFM) is designed to identify and address unacceptable levels of card-not-present (CNP) fraud experienced by eCommerce merchants.
Unlike the ECM program, there is only a single tier within the EFM program. All non-compliant merchants are enrolled in this program tier if they exceed the program thresholds.
Read MoreMastercard’s ECM program assesses fees that escalate month after month.
This fee structure is intentionally designed to compel you to address your excessive chargeback issues and achieve compliance as soon as possible.
Read MoreLike Mastercard’s Excessive Chargeback Merchant (ECM) program, the card network’s Excessive Fraud Merchant (EFM) program offers you a one-month grace period before penalties begin to accrue. But, once that period expires, program inclusion can result in substantial penalties if you fail to act fast.
This fee structure is designed to compel you to address your fraud situation and get incidents under control as quick as possible.
Read MoreKnowing how to determine your chargeback rate using Mastercard’s specific calculation method can help you determine how close you are to the edge.
Specifically, a merchant must exceed both a minimum number of monthly chargebacks and a specific chargeback-to-transaction ratio to risk involuntary enrollment in the ECM program.
Read MoreMastercard’s EFM program inclusion criteria is broad. It extends beyond fraud-related chargebacks to incorporate factors like fraud volume and 3-D Secure usage to determine your risk profile.
That’s why knowing how to determine your fraud chargeback rate is important. Here, we detail that calculation and discuss which transactions and fraud-specific reason codes apply.
Read MoreFor merchants enrolled in Mastercard’s Excessive Fraud Merchant (EFM) program, implementing advanced security measures like 3-D Secure (3DS) becomes a mandatory requirement for program exit, rather than an option.
We’ll explore this, plus how Mastercard sets different 3DS utilization thresholds for EU and non-EU merchants, with stricter compliance required in the EU due to legal mandates.
Read MoreThe monthly fees from Mastercard’s monitoring programs are a significant immediate cost. But, they’re still just the most readily visible consequence.
The long-term and often hidden repercussions that come later — such as strained acquirer relationships and higher processing fees — can negatively impact your operations and prospects for years after you exit a monitoring program.
Read MoreMerchants can exit both the Excessive Chargeback Merchant (ECM) and Excessive Fraud Merchant (EFM) programs by consistently maintaining chargeback and fraud rates below the specified thresholds for three consecutive months.
In addition, sustained improvement and adherence to program guidelines can help you avoid further penalties by keeping your account in good standing.
Read MoreBeing placed in a merchant monitoring program can lead to punitive fees, so it’s best to stay in strict compliance with Mastercard rules at all times.
Here, we present several prevention-focused tips and best practices you can consider. From regular transaction monitoring and transparent customer communication to clear billing descriptors and customer-friendly return policies, you can use a multi-layered approach to address potential issues well before you exceed program thresholds.
Read More
An excessive chargeback program is a corrective measure used by card networks like Visa, Mastercard, and Discover to monitor merchants who experience excessive chargebacks. Merchants who exceed a card network’s predefined excessive chargeback threshold are involuntarily enrolled in these monitoring programs, which come with steep fees and penalties.
Mastercard’s excessive chargeback limit is set at 100 chargebacks per month, plus a chargeback-to-transaction threshold of 1.5% or more. Mastercard also has a high excessive limit, defined as 300 chargebacks or more per month, plus a chargeback-to-transaction ratio of 3% or higher. Merchants who exceed either chargeback limit risk being put in one of Mastercard’s merchant monitoring programs.
Yes. If you receive too many chargebacks over a certain period, you may be involuntarily enrolled in a merchant monitoring program. If this happens, you’ll be assessed steep fees and penalties until you reduce your chargeback ratio to a level below a predefined “excessive” threshold.
An excessive chargeback fee is a surcharge imposed on merchants by card networks when merchants experience too many chargebacks over a certain period of time.
The Mastercard Excessive Fraud Merchant Monitoring Program (EFM) is a program designed to help eCommerce merchants stay in compliance and lower the amount of fraudulent transactions they experience.
The Mastercard fraud rule says that debit or credit cardholders will not be held liable for unauthorized transactions provided they exercise reasonable caution in protecting their card from theft and, upon detecting unauthorized activity, immediately report the activity to their issuing banks.
