The Excessive Chargeback Merchant Program: Mastercard’s New Approach to Managing Disputes
The Mastercard Excessive Chargeback Merchant (or ECM) and the Excessive Fraud Merchant (or EFM) designations are two new programs instituted in 2019 by Mastercard. The goal of these programs is to trackfraud and chargebacks and try to keep fraud instances under control.
We’ve already discuss the EFM program in our last blog post. Now, let’s take a look at the ECM. We'll see what this new designation means for merchants who accept Mastercard transactions.
What is the ECM?
- Mastercard Excessive Chargeback Merchant Program
The Excessive Chargeback Merchant program is a chargeback compliance scheme created by Mastercard. The purpose of the program is to exercise oversight in regards to eCommerce merchant activity and prevent excessive chargebacks from occurring on the Mastercard network. This is achieved by imposing penalties on merchants for noncompliance.
Mastercard announced the Excessive Chargeback Merchant program back in April 2019. Now, the program is being deployed globally as part of an update to the Excessive Chargeback Program (ECP). This program monitors merchants that receive, as Mastercard puts it, “an excessive number of chargebacks on a monthly basis.”
Going forward, Mastercard will use network data to track chargebacks for all transactions, both card-present and card-not-present. The card network will then notify acquirers when an individual merchant ID breaches the compliance threshold. According to Mastercard , the program aims to “reduce chargebacks and strengthen the integrity" of the network.
Mastercard began monitoring transactions in November 2019. However, they didn’t begin charging assessments until May 2020 (in all markets except Canada). This was based on the number of chargebacks tracked in the previous month.
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Why is Mastercard Doing This?
Card networks like Mastercard see that identifying and preventing all chargebacks is unrealistic. Mistakes can happen from time to time. A bad actor might slip through a merchants’ defenses, or the merchant might make some error that results in a chargeback. There’s also the prospect of friendly fraud, which is outside of the merchant’s control.
Preventing 100% of chargebacks may be unrealistic. However, the company still wants to cut the number of issuances that occur on their network. Their reputation is tied to the security and stability of card payments. Runaway chargeback activity could destabilize the payments industry and shake consumer confidence over time.
The point of the Mastercard Excessive Chargeback Merchant program is not to punish merchants. The ECM program has a two-fold purpose. First, it’s meant to provide negative reinforcement that motivates merchants to keep chargebacks under control. Some merchants might argue that this is unnecessary, and that the merchant’s own self-interest would motivate them to mitigate chargeback risk. This is where the second purpose comes in: identifying and removing bad actors from the Mastercard system.
The card networks want to create a fair and sustainable payments ecosystem for cardholders, banks, and merchants. Unfortunately, that means some legitimate merchants may get caught in the crosshairs.
Examining the Program Thresholds
Chargeback thresholds—and associated noncompliance penalties—are nothing new. Mastercard has had similar requirements in place for years. Other card networks like Visa also have programs outlining acceptable levels of chargeback issuances.
The Excessive Chargeback Merchant program is targeted at streamlining enforcement and facilitating faster communication between acquirers and the card network. The goal is to make merchant compliance a more accurate process with greater accountability.
The program is split into two categories: Excessive Chargeback Merchant (ECM), and High Excessive Chargeback Merchant (HECM). The card network will filter merchants into one program or the other based on whether or not they breach predetermined thresholds for monthly chargeback issuances:
|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|
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What are the Penalties for Noncompliance?
The penalties for both programs increase based on the number of months that a merchant remains in the program. And, as one might expect, the HECM program carries stiffer penalties than the standard ECM. The chart below outlines the fee structure for merchants in the two programs:
|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*|
To further complicate matters, merchants won’t be immediately removed from the program just because they manage to get their chargeback rate under the acceptable threshold. The merchant’s status won’t be reset to “compliant” until they manage to keep their chargeback rate for the merchant ID in question below the program threshold for three consecutive months.
As mentioned above, Mastercard began assessing fees in May 2020. These penalties are based on the number of chargebacks reported in the previous month; any penalties assessed in November, for instance, would be tied to incidents that occurred in October.
There could be further consequences for extended periods of noncompliance, too. If a merchant has been in either the ECM or HECM for six months, Mastercard might mandate the merchant’s acquirer undergo a review, or implement an action plan, all at the acquirer’s expense. After 12 months, the acquirer could be subject to non-compliance assessment fees of up to $50,000 per month.
Acquirers are likely to simply terminate noncompliant merchants’ accounts, rather than risk the potential consequences of keeping their MID active. The merchant could be added to the MATCH List, making it hard to secure another merchant account. This could sink the business entirely.
How to Avoid the ECM & Associated Fees
Merchants can request an extension through the Data Integrity Online application for individual merchant IDs. However, extensions are reviewed and granted on a case-by-case basis at Mastercard’s discretion. Acquirers must comply with Mastercard’s decisions to cover their own ends, as the card network may assess penalties on acquirers for noncompliance as well.
If Mastercard determines that the merchant is subject to the ECM program, there’s no way to appeal the decision or avoid the resulting penalties. At that point, the only option is to try and get one’s chargeback rate below the acceptable thresholds.
We always recommend merchants start by identifying chargebacks according to their true source. Tools like Intelligent Source Detection™ can help merchants trace their chargebacks to missteps and errors, criminal fraud, or friendly fraud. We then recommend a two-part approach to chargeback management: fight chargebacks caused by friendly fraud, and prevent all other chargebacks.
If you’d like to learn more about how to stop chargebacks, recover your revenue, and avoid costly Excessive Chargeback Merchant program fees, we’re here to help. Click the link below to speak with one of our qualified chargeback experts.