Mastercard Chargeback Monitoring Program Guide for Beginners

One of the major concerns when selling online is chargeback monitoring programs. Mastercard has one, and I want to help you avoid it.

I’ll explain the program, how it works, and what you need to know.

Let’s begin with what the program is.

Key Takeaways

• This program tracks disputes and fines merchants with too many chargebacks.
• Excessive Chargeback Merchants face up to $100k in fines.
• High Excessive Chargeback Merchants pay up to $200k.
• After 4 months, an extra $5 per dispute is added.
  • If you have more than 300 disputes in a month.
• To exit the program, stay under the threshold for 3 months straight.
• If you need help getting out of this program, book a call with our experts here.

What is the Mastercard Excessive Chargeback Program?

The Mastercard Excessive Chargeback Program (ECP) tracks chargeback rates and fines merchants exceeding set thresholds. It aims to protect cardholders and maintain system integrity. Mastercard reviews merchant chargeback rates monthly at the Merchant ID level.

The goal is to encourage merchants to reduce chargebacks, improving customer trust.

The ECP is more of a “stick” approach than the carrot when referring to the carrot-and-stick.

I thought we were here to learn about the Excessive Chargeback Merchant (ECM) program?

Mastercard uses the terms “ECP” and “ECM” interchangeably. As they do with “chargebacks” and “disputes.”

Mastercard doesn't share how many merchants have been part of this program, but Visa’s program has included 5% of their merchants. We can use this as a benchmark.

If you’re a visual learner, Mastercard does a great breakdown in this video:

Let’s figure out how many chargebacks you’d need to end up in ECP.

Summary: It imposes fees on merchants who exceed a certain chargeback rate.

Mastercard Excessive Chargeback Program Thresholds

Mastercard will determine whether you’re eligible for either program by the number of basis points a Merchant ID has.

I’ll explain how to calculate these points in a moment.

But first, let’s compare the different tiers:

Merchants must exceed the dispute count and basis points before entering either program.

Once you breach a threshold, your acquirer receives an email. Provided they’ve registered for Mastercard’s Data Integrity Online application.

The differences between both merchant types are the thresholds and the fees. I’ll discuss these in a bit.

Let’s move onto calculating basis points.

How to Calculate This Rate

Formula to calculate basis points:

• Take the number of chargebacks in the current month
• Divide by the number of transactions in the prior month
• Multiply the result by 10,000

Mastercard counts chargebacks based on the dispute date, not the transaction date.

For instance, if a shopper bought something in September, then disputed it in October. Mastercard would count the chargeback in October.

Here’s what you’d pay if in either program.

Consequences of the Mastercard Excessive Chargeback Program

If you stay above the threshold for more than 4 months, you’ll face an Issuer Recovery Assessment.

This adds an extra $5 per dispute for merchants with over 300 chargebacks.

“Above the threshold” means you still have too many chargebacks.

Let’s say you’re in the ECP 4 through 6 tier and have 500 chargebacks in a month.

Here’s what would happen:

• $5,000 fine
• $1,000 in Issuer Recovery Assessments
  • (500 – 300) x $5

You’d then pay a total of $6,000.

Anyway:

The non-compliance fines for being an ECM are:

Fines for ECM and HECM will begin after 2 months.

And here’s what you’d pay an HECM:

From months 4 and on, HECM merchants pay double what their ECM counterparts would.

Now, you’re probably panicking.

Let’s see what you’d do when in either program.

What Should You Do When in This Program?

Your acquirer will help you lower your chargeback rates and may request an extension.

This extension allows you to analyze and address the causes of your chargebacks.

Areas you should focus on include fraud prevention, business operations, and communication with your payment systems.

Then, you’ll need to submit an action plan that includes the following:

• Causes of your chargebacks.
• Steps to reduce them.
• Details about fraud prevention tools.
• Information about your business and its processes.

Many may refer to this as a “remediation plan.”

And now you’ll want to know how to exit the program.

Summary: Work with your payment processor to lower dispute rates.

How to Exit the Program

To exit the program, you must stay below the threshold for 3 consecutive months.

If you exit and re-enter later, the program restarts from month 1.

To exit the programs, you’ll need to lower your dispute rates.

Some steps you can take that Mastercard recommends includes:

1. Using Ethoca and Verifi alerts to stop disputes before they happen
2. Use velocity monitoring
3. Fraud scoring tools
4. Make your billing descriptor easier to identify
5. Make it easier for users to cancel subscriptions

We discuss additional ways to prevent and reduce chargebacks in a separate piece.

Those running SaaS businesses might find this guide more useful.

When opting for chargeback alerts (point number 1), you could go with Verifi and Ethoca. Though, both require separate accounts and might charge more per alert.

Certified resellers like Chargeback condense all alert providers (RDR, CDRN, and Ethoca) into one platform. We also offer volume pricing for alerts.

Learn how we can help.

Because if you’re having chargeback issues with Mastercard, you’re also likely having them with other brands like Visa.

Thus, you’ll need all available alert providers.

In addition to the ECM and HECM, there’s a fraud compliance program.

Summary: Lower your chargeback rates.

What Is the Mastercard Excessive Fraud Merchant Compliance Program?

This program monitors fraud rates, setting thresholds for fraud on card-not-present transactions. It seeks to protect consumers and prevent fraud in e-commerce. Merchants exceeding the limits face fines.

Sellers must meet/exceed all the following criteria to be placed in this program:

• 1,000+ e-commerce orders
• $50,000 or higher in fraud-related disputest
  • 15,000 USD threshold for Australia
  • Reason codes are 4837 and 4863
• Fraud chargeback rate is more than 0.50%
  • 0.20% for Australia
• At least 50 basis points in fraud-related disputes
• EMV 3D Secure Utilization:
  • Regulated country: Clearing volume is 50% or lower
  • Non-regulated country: Clearing volume is 10% or lower

I’m going to break down some of the above points:

I don’t have enough space in this guide to discuss the reason codes.

See our Mastercard reason code guide for more information.

The formula for determining your EFM basis points is as follows:

• Number of first presentment fraud-related chargebacks for the current month
• Divided by the number of transactions in the prior month; and
• Multiply the resulting number by 10,000

If you had 25,000 orders in September and 200 chargebacks in October, you’d have 80 basis points.

Here are some countries that I’ve found where 3DS is mandatory (regulated) [1]:

• Countries in the European Union
• United Kingdom
• South Africa
• Bangladesh
• Singapore
• Nigeria
• India

Here are the fines merchants will face while in this program:

What you’ll need to do while in this program is basically the same as ECM. Work with your acquirer to lower fraud rates.

You’ll also leave this program if you fall below the above thresholds for 3 consecutive months.

Since there are 2 separate programs, what happens if I breach the threshold for ECM and EFM?

You’ll only pay fines for EFM.

Are you more of a visual learner?

Here’s a video that breaks down this program:

You might have read through this and wondered how Mastercard deals with chargebacks.

Summary: Merchants with too much fraud face fees.

How Does Mastercard Handle Chargebacks?

• How Long They Take: Up to 120 days (17 weeks)
• Chargeback Fee: $20 – $100

Mastercard handles chargebacks through this Chargeback process:

1. Cardholder disputes a charge with their bank.
2. Issuer determines whether dispute is valid
3. If valid, they give the customer a provisional credit
4. Issuer lets acquirer know there’s an issue
5. Acquirer lets the merchant know and requests evidence
   • Merchant decides whether it’s worth fighting
6. Seller gathers and submits evidence
7. Issuer reviews the evidence and makes a decision:
   • Seller wins: Chargeback reversed
   • Customer wins: They keep the credit

This process could enter pre-arbitration or arbitration. But those paths are too much to discuss in this guide.

See our Mastercard chargeback guide for more information.

You’ve dealt with Mastercard chargebacks. Good job.

Now, you’ll need to deal with the card brands.

Do Other Card Networks Have Monitoring Programs?

Visa has the Visa Dispute Monitoring Program that’s divided into these tiers:

They’ll calculate your dispute-to-sales ratio from the previous calendar month. They do this by dividing the number of disputes by the number of sales in the same month.

The Early Warning rung doesn’t come with any consequences.

Standard, High-Risk, and Excessive initially tack on an additional $50 per chargeback. You’ll eventually pay that fee plus a $25,000 review fee.

There’s too much to cover in this guide regarding this nightmare. Check out a separate guide for more information.

I know, there are more card networks than Visa and Mastercard.

Let’s cover them…

Discover doesn’t have a monitoring program.

The worst I’ve heard is that they’ll label you as high risk and slap you with fines.

American Express has a couple of programs for folks with a 1% or higher dispute rate for 3 consecutive months:

• Immediate Chargeback Program: Skips the inquiry process.
• Partial Immediate Chargeback Program: Skips the inquiry process on orders below a threshold.

It’s not as severe as Visa or Mastercard’s programs.

To learn more about AmEx’s chargeback process, read this piece.

Otherwise:

Let’s finish this guide with a question that’s somewhat related to this topic.

What Is the Mastercard Data Integrity Monitoring Program?

The Mastercard Data Integrity Monitoring Program watches transaction data submitted by acquirers. The program monitors for unusual patterns and suspicious transactions, maintaining data integrity.

This program has 2 components:

• Excessive Fraud Merchant
• Excessive Chargeback Merchant

I covered both programs throughout this guide. Thus, there’s nothing else to discuss.

And that’s it for this piece.

Summary: Mastercard monitors card transactions for issues.

Wrapping Up

Mastercard doesn’t specify the percentage of merchants that fall into these programs. But those who do end up potentially paying a lot.

That’s why it’s critical for you to keep your chargeback rates below Mastercard’s limits.

Alerts are one of the best ways to do so.

We offer alerts from Ethoca and CDRN — which cover Mastercard purchases. Learn how we can help you drop your chargeback rates.

Sources

• [1] 3D credit card security. The Points Guy. 8/26/2024.