What is a Chargeback Monitoring Program (And Why They’re Bad)

As an online seller, I worry about joining a dispute monitoring program. I want to use this guide to bring them to your attention.

This guide will explain what they are and how they work.

Let’s begin with what they are.

Key Takeaways

• Too many chargebacks are the reason for ending up in these programs.
• Visa and Mastercard have programs.
• Discover and American Express don't.
• Lower your chargeback rate to exit these programs.
• Reduce fraud and improve communication to lower chargeback rates.

Prevent card brands from enrolling you in these programs. Use chargeback alerts to lower your chargeback rates. Try us out and see how these alerts can help.

What is a Chargeback Monitoring Program?

A chargeback monitoring program tracks merchants' dispute activity to reduce excessive chargebacks. It sets thresholds, manages disputes, and helps avoid penalties. The program encourages businesses to address root causes and improve transaction practices. Minimizing financial losses.

Card brands check your chargebacks each month against your sales. If you pass their limits, they put you in their program.

Once you’re in the program, the following may happen:

• Big fines ($25,000+)
• Higher chargeback fees
• Loss of payment processing
• Joining a MATCH list

Each network has different consequences. Fines depend on how long you're in and your tier. For instance, Mastercard merchants with more disputes may pay double the fines of sellers with fewer.

You stay in until you lower your rate below the limit. This often involves making a plan to stop chargebacks.

These are why keeping chargeback rates low is crucial for sellers. They're the worst part of chargebacks.

I'll cover what rates put you in these programs later.

Read this for more information on rates in general.

It’s rare to end up in any of these programs. Only 1% of sellers join Visa's fraud program. And 5% join their dispute program [1].

There’s still something to consider. There were more than 130 million Visa merchants worldwide in 2023. Meaning, there are 1.3 million merchants in their fraud and 6.5 million in their dispute programs [2].

I couldn’t find any numbers for other card brands.

Let’s move into how they work.

Summary: Card brands penalize merchants who breach their chargeback threshold.

How Do They Work?

As a merchant, you’d need to have so many chargebacks that you breach a card network’s threshold. For instance, Visa has a 0.90% limit.

Networks usually give you time (1-3 months) to lower your rates. After the grace period, you pay fines and extra fees. These grow the longer you're in.

You must also share a plan to lower your chargeback rate. This means using resources to handle chargebacks.

And it involves shuffling your resources toward dealing with chargebacks. Another cost.

Anyway:

If you're in too long, the network may stop your account. This means you can't take their payments anymore.

Those who pass "excessive" rates lose this grace period.

For instance, having a 1.8% dispute rate would put you in the Excessive tier with Visa’s program.

To leave, keep your rate below the limit for a set time. Visa needs 3 months below 0.90%.

If you get yourself out of the program and immediately have too high of rates again, you’re back in the program. But you’ll start off at month 1.

Great. You know how they work.

Let’s begin comparing these programs.

Summary: Card brands give merchants a grace period. From there, they’ll charge fines that increase monthly. If in the program for too long, the seller loses access to the card network.

Different Chargeback Monitoring Programs

We'll compare programs from these brands:

• Visa
• Mastercard
• AusPayNet
• Cartes Bancaires

If a brand isn't here, they likely don't have a program.

Here are Visa’s programs.

1. Visa Chargeback Monitoring Programs

Visa has the following programs to monitor their merchants:

• Visa Dispute Monitoring Program
• Visa Fraud Monitoring Program
• Visa Fraud Monitoring Program 3DS
• Visa Digital Goods Fraud Monitoring Program
• Visa Issuer Monitoring Program

Let’s begin with VDMP.

A. Visa Dispute Monitoring Programs

VDMP tracks chargebacks. Sellers join if their monthly disputes are too high. This leads to fines until they fix their rates.

It covers transactions from:

• United States
• Australia
• Canada
• Europe: UK, France, Germany
• Brazil

If your country isn't listed, VDMP only includes international transactions from these areas.

1. Rate to Enter VDMP

2. VDMP Penalties

Notes:

• Chargeback Rate: Percentage of disputes compared to total orders.
• Dispute Count: Total disputes.some textsome text
  • This counts all Visa reason codes except 10.5.

VDMP Excessive is a bit different:

See this guide for details on VDMP.

3. How to Exit VDMP

Keep your chargeback rate under 0.90% for 3 months in a row.

Let’s see what happens when you have too much fraud.

B. Visa Fraud Monitoring Program

VFMP targets sellers with high fraud rates. They must lower fraud or face fines. This program only includes fraud chargebacks, but disputes can include friendly fraud.

1. Rate to Enter VFMP

Notes:

• Fraud Amount: USD volume of Early Fraud Warnings (EFWs).
• Fraud Rate: Money lost to fraud.

2. VFMP Penalties

3. How to Exit VFMP

Keep fraud rates under 0.90% for 3 months in a row.

Do you use 3D secure for your business?

Then keep reading.

C. Visa Fraud Monitoring Program 3DS

This is like VFMP, but only for US businesses using Visa Secure.

1. Rate to Enter VFMP 3DS

The fraud rates to enter are stricter:

2. Penalties for VFMP 3DS

There are no fines, but you lose liability shift on 3DS orders until leaving the program.

3. How to Exit VFMP 3DS

Keep your fraud rate under 0.90% for 3 months in a row.

Now, here’s a program for folks who sell digital products.

D. Visa Fraud Monitoring Program (Digital Goods Sellers)

The Visa Goods Merchant Fraud Monitoring Program is a version of VFMP for digital goods sellers.

Your business would need one of these merchant category codes to join:

• 5735: Record Stores
• 5815: Books, Movies, Digital artwork, and Music
• 5816: Games
• 5817: Applications (Not Games)
• 5818: Large Digital Goods Merchant

1. Rate to Enter VFMP Digital Goods

2. Penalties for VFMP Digital Goods

Disqualification means that you can’t accept payments from Visa anymore.

3. How to Leave VFMP Digital Goods

Keep your fraud rate under 0.90% for 3 months in a row.

There’s one more program.

2. Mastercard Excessive Chargeback Program

ECP tracks chargeback rates and fines sellers who exceed limits. It aims to protect cardholders.

Learn more about the program in this guide.

1. Rate to Enter ECP

Sellers must exceed the dispute count and basis points to enter.

Once you’re in the program, your acquirer receives an email. So long as they’ve registered for Mastercard’s Data Integrity Online.

And here’s how you’d calculate the basis points

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

2. Penalties for ECP

Here are the fines for ECP:

And the fines for HECM:

The Issuer Recovery Assessment is a fine that adds $5 per dispute for merchants with over 300 chargebacks.

3. How to Leave ECP

Lower your chargeback rates below the program threshold.

3. AusPayNet CNP Fraud Mitigation Framework (AU-Only)

AusPayNet's CNP Fraud Mitigation Framework sets benchmarks for acceptable e-commerce fraud levels. It requires authentication thresholds for online CNP transactions. AusPayNet monitors the framework's success through issuer and acquirer feedback and reporting.

CNP stands for “card not present.”

1. Rate to Enter CNP Fraud Mitigation Framework

You must have:

• More than AUD 50,000 in fraud loses; and
• A fraud-to-sales ratio of 0.2% or higher (or 20 basis points) in the quarter

Calculate your fraud-to-sales rate by dividing the total number of CNP orders in a quarter by the number of settled transactions in a quarter.

AusPayNet’s website typically mentions the “fraud loss” amounts and basis points. Calculate this by using the same formula in the previous paragraph and multiplying it by 10,000.

The following factors don’t contribute to the above chargeback rate:

• 3DS authorized orders
• Card-present transactions
• Orders outside Australia
• Pre-paid or corporate cards

2. Penalties for CNP Fraud Mitigation Framework

They’re not clear on what the “penalties” are. Some sources suggest that means you’re banned from using AusPayNet, though.

Before moving on, you should know what Strong Customer Authentication (SCA) is.

SCA verifies a cardholder's identity using at least 2 of these:

• Something they are (like biometrics)
• Something they own (like a phone)
• Something they know (like a security question)

The goal is to get the cardholder to prove who they are.

3. How to Exit CNP Fraud Mitigation Framework

AusPayNet doesn’t say how long you must stay below the threshold before exiting the program.

4. Cartes Bancaires' Disputes Monitoring Program

Cartes Bancaires' Disputes Monitoring Program tracks merchants with high dispute rates. It encourages these merchants to reduce disputes to acceptable levels. The program helps maintain compliance and minimize financial risk for businesses.

While in this program, you must create an action plan that:

• Sets a target date to lower chargebacks.
• Submit it to Cartes Bancaires within two months of entering the program.
• Cartes Bancaires validates the plan after submission.

1. Rate to Enter Cartes Bancaires' Disputes Monitoring Program

You enter the program if you maintain a 2% dispute-to-sales ratio and 200 disputes for 4 consecutive months.

From there, they monitor you for 6 months.

Disputes are counted from the order’s date, not when the customer complained.

2. Penalties for Cartes Bancaires' Disputes Monitoring Program

You’ll face a €50 fine for each chargeback during the program.

3. How to Exit Cartes Bancaires' Disputes Monitoring Program

To exit, stay below either threshold for 6 straight months:

• Fewer than 100 disputes.
• Chargeback rate under 1%.

There are card brands missing from this list. Do they have programs?

Let’s see.

5. What About Other Card Brands & Processors?

Brands like Discover, American Express, JCB, and Diners don’t publicly disclose dispute programs or chargeback thresholds. This doesn’t mean they lack these rates.

They may still add you to a MATCH list for too many chargebacks.

We’re not done, yet.

Other payment processors have their own versions of dispute monitoring programs.

For example, PayPal has an internal disputes program.

You need a 1.5% dispute rate and over 100 orders in the last 3 months to qualify.

If PayPal marks you as high-risk, they’ll charge a High Volume Dispute Fee of $16. That’s double the $8 for typical disputes.

Find more details about PayPal disputes here.

Then there’s Amazon.

Amazon Payments has the Order Defect Rate (ODR). They calculate this by comparing sales with A-to-Z Guarantee Claims and service chargebacks.

An ODR of 1% or higher may result in:

• Restriction or suspension of your selling privileges.
• Loss of Buy Box eligibility, reducing visibility and sales.
• Damage to your seller rating, making it harder to attract new customers.

Learn more about this in our Amazon chargeback guide.

Thankfully, other platforms like Zelle, Cash App, and Venmo don’t have monitoring programs. Since they technically don’t have chargebacks.

All these programs sound like a nightmare from hell.

What are ways to prevent my business from ending up in one?

That’ll require you to lower your chargeback rates…

Summary: AmEx, JCB, Discover, and Diners don’t have monitoring programs. Amazon and PayPal do.

How to Prevent Chargebacks: Avoiding These Programs

There are 3 types of chargebacks:

• True fraud: An unauthorized transaction.
• Friendly fraud: A customer disputes a legitimate order.
• Merchant error: Issues caused by the business.

I’ll dive into preventative measures for each chargeback type.

We have a guide that’s more thorough with prevention methods.

We’ll begin with true fraud.

1. True Fraud

Here are some ways to prevent first-party fraud (AKA true fraud):

• Use strong authentication.
• Educate customers.
• Use secure payment gateways.
• Regularly update security measures.
• Assess customer behavior.

I have more information on this type of fraud and ways to prevent it in a different guide.

I’ll discuss some of these details here, though.

A. Strong Authentication

Multi-factor authentication (MFA) adds security by requiring multiple verification methods.

This includes something a user knows, like a password, and something they have, like a smartphone. Businesses could also consider using biometric verification.

For example, some saw a 25% drop in disputes after enabling Apple Pay, known for its security.

MFA reduces the risk of unauthorized access. Because if a fraudster stole the user’s password, they’d have to go through another layer of security to break into their account.

B. Educate Customers

Use newsletters, your website, and social media to share tips on protecting personal information. 

Explain why strong passwords matter and the risks of sharing account details.

When customers know how to protect themselves, they’re less likely to fall victim to fraud, leading to fewer chargebacks.

Though I couldn’t find exact numbers, one study shows education reduces financial fraud vulnerability [3].

Using secure gateways and updating measures are a given. I won’t expand on those points.

C. Assess Customer Behavior

Track purchasing patterns, transaction frequency, and account activity.

Watch for red flags like multiple purchases in a short time or mismatched billing information.

Use data analytics to spot unusual behavior.

If you notice something odd, pause the order and contact the customer. If they didn’t make the purchase, cancel and refund it.

Here’s a type of fraud that’s not as easy to detect.

2. Friendly Fraud

Here’s how to prevent first-party (friendly) fraud:

• Implement clear descriptors
• Send confirmation emails
• Use subscription confirmation

Friendly fraud is a type of chargeback fraud. You might wonder how it’s different. And we cover the differences here.

Otherwise, you should check out this piece for more information on first-party fraud.

Here are some details on the above points.

A. Implement Clear Descriptors

Chargebacks often occur when customers don’t recognize transactions on their bank statements. Use clear descriptors that include your business name and a brief purchase description.

This helps customers quickly identify charges and prevents disputes over forgotten transactions.

B. Send Confirmation Emails

Send emails after transactions with item details, amounts, and order numbers.

This confirms the sale and gives customers a reference. If a chargeback happens, use these emails to prove they were informed about the purchase.

Ensure these emails go out promptly to maintain transparency.

C. Use Subscription Confirmation

Send emails outlining subscription details, like billing frequency and amounts.

And use these reminders before billing to keep customers aware of upcoming charges.

This reduces chargebacks by ensuring customers are informed of future payments.

3. Merchant Error

To prevent merchant error disputes, try these steps:

• Use clear product descriptions
• Communicate with customers after purchase

A. Use Clear Product Descriptions

Provide detailed descriptions, including size, color, features, and specifications. Avoid jargon and use straightforward language.

Here’s a great guide I found on writing product descriptions.

This reduces misunderstandings that can lead to chargebacks. Accurate images also support the descriptions.

Consistent updates ensure that descriptions match current inventory.

B. Communicate with Customers After Purchase

Send confirmation emails with order details, shipping info, and delivery estimates.

Include tracking links and encourage questions or concerns. Quick responses resolve issues before they escalate to chargebacks.

That’s all, folks.

Wrapping Up

It’s rare for businesses to end up in chargeback monitoring programs. But if you’re not careful, you could find yourself in one.

If you’re nearing a dispute threshold, use chargeback alerts. They’re an effective way to prevent chargebacks.

We offer chargeback alerts (CDRN, RDR, and Ethoca) in one place, making integration easier for your business.

Learn how we’ve helped businesses reduce chargeback rates by up to 91%.

Sources

• [1] VFMP. Chargeblast. 4/16/2024.
• [2] Annual report. Visa. 2023. PDF.
• [3] Can education reduce susceptibility to fraud? Science Direct. 06/2022.