Merchant Monitoring Programs: Your Last Chance to Get Chargebacks & Fraud Under Control
Beyond facilitating payments, card networks like Visa and Mastercard also have a responsibility to protect users from fraud and abuse in the payments ecosystem.
Their reputation depends on it. And they’re very protective of their brands.
As a result, the card networks impose strict rules and regulations about how merchants like you can operate on their network. Merchant monitoring is a good example of this.
If the number of chargebacks or fraud incidents you see on either card network exceeds the limit set by the brand in question, you could be entered into a merchant monitoring program until you can get the problem in check.
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Why do Merchant Risk Monitoring Programs Exist?
The stated aim of a merchant monitoring program is to help merchants control fraud and chargebacks, and to protect the payment card ecosystem.
Merchant monitoring programs are a body of similar initiatives created and maintained by Visa and Mastercard. These programs track your merchant activity, generally on a month-to-month basis.
Being entered into one of these programs can result in added fees and penalties being levied on your business. It could also mean restrictions are imposed on your activity; for instance, say you get a dispute assigned Visa reason code 10.5, but you're already in the Visa Fraud Monitoring Program. Your ability to fight that dispute will be restricted. Even worse, being entered into one of these programs could lead to your account being frozen or terminated, depending on the severity of your situation.
We need to get this clear right up front: the aim of these programs is not to punish anyone. Instead, the goal is to identify high-risk merchants and, ultimately, to help those merchants improve sales processes and reduce risk in the long term.
Merchant monitoring programs can be focused on tracking two key areas of merchant risk: criminal fraud and chargebacks. Here's how each of those work in more detail.
Merchant Monitoring Programs | Mastercard
Mastercard maintains two separate merchant monitoring programs: the Mastercard Excessive Chargeback Merchant (ECM) program, and the Mastercard Excessive Fraud Merchant (EFM) program.
The basic aim of these fraud monitoring programs is twofold. First, they want to help merchants manage their individual chargeback fraud risk. In turn, this will help protect the larger Mastercard ecosystem.
Active Mastercard Monitoring Programs
Mastercard Excessive Chargeback Merchant Program
The Mastercard Excessive Chargeback Program, or ECP, is a chargeback compliance scheme created by Mastercard. The purpose of the program is to exercise oversight in regard 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 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.
The Mastercard ECP threshold (as of this writing) is set at a 1.5% chargeback ratio and 100 chargebacks per month.
The Mastercard Excessive Fraud Merchant (EFM) program is a fraud compliance scheme created by Mastercard. The purpose of the program is to exercise oversight in regards to eCommerce merchant activity and prevent excessive fraud from occurring on the Mastercard network.
Like the VFMP, entry into the EFM will mean you have to create a mitigation plan, outlining how you plan to reduce fraud incidents. And, like with the VFMP, you’ll get hit with penalties for noncompliance, up to and including termination.
The EFM threshold (as of this writing) is set at $50,000 in monthly fraud losses and 0.5% of sales value, with a minimum of 1,000 transactions per month.
Learn about chargeback reason codes
Merchant Monitoring Programs | Visa
Mastercard was pretty straightforward; they’ve got one program for managing fraud risk, and one for managing chargeback risk. Visa is a little different, though.
Active Visa Monitoring Programs
The Visa Acquirer Monitoring Program (VAMP) is a consolidated initiative that tracks acquirer activity related to fraud and chargebacks. It leverages a transaction count-based metric and the Visa Account Attack Intelligence (VAAI) Score system to offer better risk-based enforcement and improved fraud coverage.
The enhanced Visa Acquirer Monitoring Program will basically offload individual merchant monitoring to acquirers. But, it also offers merchants a way to avoid the restrictions associated with VDMP and VFMP, provided disputes are resolved through designated Visa and Verifi channels. It will also lead to enhanced fraud coverage across the ecosystem.
Legacy Visa Monitoring Programs
Visa Dispute Monitoring Program
The Visa Dispute Monitoring Program, or VDMP, is a program administered by Visa for the purpose of controlling merchant chargeback issuances. If a merchant exceeds the monthly chargeback threshold set by Visa, they will be entered into the program. This will result in punitive fees, operating restrictions, and costly periodic reviews.
There are three tiers of the VDMP: Early Warning, Standard, and Excessive. The program tier that applies to you, as well as the corresponding penalties, are based on whether your monthly chargebacks exceed a predetermined threshold.
The VDMP Early Warning threshold (as of this writing) is set at a 0.65% chargeback ratio and 75 chargebacks per month, while the VDMP Standard threshold is a 0.9% chargeback ratio and 100 chargebacks.
Visa Fraud Monitoring Program
As the name implies, the Visa Fraud Monitoring Program, or VFMP, is a merchant monitoring initiative administered by Visa.
When you've moved into the VFMP, Visa will require you to develop a mitigation plan with your acquiring bank to address your rising fraud problem. For the first four months, you won’t have to worry about any penalties or additional fees associated with the program. But, if you're unable to get your chargeback rate under the acceptable threshold after those first four months, Visa will begin assessing fines and fees for every fraud-related chargeback you receive.
The VFMP Early Warning threshold (as of this writing) is set at $50,000 in monthly fraud losses and 0.65% of sales value, while the VFMP Standard threshold is $75,000 and 0.9% of sales value.
Visa Fraud Monitoring Program-3DS
3-D Secure, or 3DS, is an antifraud software protocol. When used properly, it can help deter a substantial number of fraud attacks.
If you use 3-D Secure antifraud software in this market, but exceed fraud thresholds on 3DS transactions, you’ll be relegated to the VFMP-3DS silo. This program is dedicated to fraud tracking practices specific to 3DS technology.
The VFMP-3DS “Early Warning” threshold is set at a fraud rate of 0.5% and at least $5,000 in total fraud from 3-D Secure transactions. The “Standard” threshold is set at a fraud rate of 0.75% and at least $7,500 in total fraud from 3-D Secure transactions.
Do you think it’s unfair that all the burden for fraud and chargebacks land on merchants? Well, the truth is that issuers have their own compliance standards to adhere to as well.
A bank will be subject to the VIMP if the total fraudulent card-not-present transactions they process in a single month either meets or exceeds a predetermined threshold. At that point, the bank is allowed a three-month Notification Period similar to the workout period allowed for merchants under the VFMP or VDMP. After this window expires, the issuer will enter the Enforcement Period, at which point Visa imposes stiff penalties.
How to Avoid Merchant Monitoring Programs
You’d be forced into a merchant monitoring program because of excessive fraud transactions, excessive chargebacks, or both. Thus, the key to avoiding the fees and restrictions associated with these programs is to prevent fraud and chargebacks.
Simple enough…right?
Well, as you probably already know, that’s a lot easier said than done.
Chargeback issuances, both fraud- non-fraud-related, have been surging in recent years. That’s not to say chargebacks and fraud are inevitable, though. You just need to adopt the right strategies and technologies.
I Need Help Now! What Can I Do?
The strategies outlined above will put you on solid footing for a long-term, strategic approach to reduce fraud and chargebacks and avoid a merchant monitoring program. For a lot of merchants, though, time may be of the essence.
The best solution for seeing a rapid reduction in chargeback issuances is to adopt chargeback alerts technology.
Chargeback alerts are a dispute prevention product provided by a chargeback management specialist. Alerts providers work closely with banks to ensure that you receive advance notice of impending chargebacks. This lets you resolve the issue before a chargeback happens.
You can think of chargeback alerts and other tools like network inquiries as a stop-gap measure. They can be the decisive factor to defend you against chargebacks while you work to roll out a long-term solution.
Learn more about chargeback alertsHave other questions about fraud and chargeback monitoring programs? Want to learn how you can protect your business against the fees and restrictions that come from merchant fraud chargeback monitoring?
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FAQs
What is a merchant fraud monitoring program?
A fraud monitoring program is an initiative maintained by one of the global card networks, aimed at tracking merchant activity and identifying those who process an excessive number of fraudulent transactions. The basic aim of these fraud monitoring programs is twofold. First, they want to help merchants manage their individual criminal fraud risk. In turn, this will help protect the larger payments environment.
What is a chargeback monitoring program?
A chargeback monitoring program is an initiative maintained by one of the global card networks, aimed at tracking merchant activity and identifying those who receive an excessive number of disputed transactions. If you’re forced into a chargeback monitoring program, it’s because you see a high volume of disputes. These dispute claims can be tied to both fraud- and non-fraud-related reason codes.
What is the threshold for the visa chargeback monitoring program?
The threshold for Visa chargebacks monitoring program has three tiers: Early warning, with a threshold of 75 chargebacks and a chargeback ratio of 0.65%; Standard, with a threshold of 100 chargebacks and a chargeback ratio of 0.9%; and Excessive, with a threshold of 1,000 chargebacks and a chargeback ratio of 1.8%.
What is the chargeback monitoring program for Mastercard?
Merchants who exceed Mastercard's chargeback-to-transaction ratio of 1.5% will be placed into one of the two Mastercard dispute monitoring programs.
The Excessive Chargeback Merchant program is for merchants who receive between 100 to 299 chargebacks per month and have monthly chargeback-to-transaction ratios of 1.5% to 2.99%, while the High Excessive Chargeback Merchant program is for merchants who receive more than 300 chargebacks per month and have monthly chargeback-to-transaction ratios of 3% or more.
What happens if I’m placed in a fraud or chargeback monitoring program?
You’ll generally be given a set window of time in which to bring your fraud and/or chargeback activity back to an acceptable level. If you’re unable to do this, the card network will impose hefty fees and other restrictions on your account. If you’re still unable to resolve the problem by the end of the program duration, your acquirer may be forced to terminate your bank account.
How do I exit the chargeback monitoring program?
You must reduce your monthly chargeback issuances to a level deemed “acceptable” by the card network. Visa, for instance, imposes a chargeback threshold of 0.9% of monthly transactions and 100 chargebacks for the VDMP Standard initiative.
