Merchants always want to avoid losing sales and often the cost of goods sold which accompanies chargebacks. But chargebacks don’t just cost you the money lost from goods sold, they also lead to fees. Unwatched, your chargeback ratio can convince the credit card network to place your business in a monitoring scheme that will cause these additional fees to balloon. These programs, namely the Visa Dispute Monitoring Program (VDMP) and Mastercard’s Excessive Chargeback Program (ECP), are designed to help incentivize merchants to get their house in order. The salient features of each program are included in the tables below.
The chargeback monitoring program fees below are in addition to the chargeback fee an acquirer or PSP normally levies. Unlike acquirer fees that are charged per chargeback, monitoring program fines can include a flat monthly cost in the thousands of dollars. When a merchant enters a chargeback monitoring program, it’s a sign that they need to invest in a good chargeback mitigation solution and an early warning system to reduce excessive chargebacks. With both, they can locate the source of payment disputes, reduce the number of chargebacks from repeat offenders and pre-empt payment disputes before they happen.Â
Fraud monitoring programs are a separate topic best dealt with elsewhere, separately from excessive chargebacks.
VDMP is the name for the Visa chargeback monitoring program for merchants with excessive chargebacks. For Visa, a merchant will first receive a warning that their chargebacks are reaching an unacceptable level when their chargeback ratio hits 0.65 percent and they have at least 75 chargebacks per month. If a merchant with a regular risk profile exceeds 100 transactions per month with a chargeback ratio greater than 0.9 percent of transactions, they will be placed in the VMDP where they will have to pay:
For merchants in high-risk Merchant Category Codes (MCCs) or those with over 1,000 chargebacks per month and a 1.8 percent chargeback ratio, the costs in VDMP rise quicker:
Once you are placed in the VDMP, your acquirer is notified and you’re expected to work with them to create a detailed chargeback mitigation plan. This chargeback remediation plan is supposed to identify the root cause of your chargeback problem and present an outline of how you intend to correct it. The plan is presented to Visa.
If after 12 months you have failed to reign in your chargebacks, Visa may ban you from its network. Unless you are in an industry that is willing to deal with cash-only business, this would effectively deal a death blow to your enterprise.
MasterCard’s ECP is divided into two program categories, one for the Excessive Chargeback Merchant (ECM) and the other for the High Excessive Chargeback Merchant (HECM). The thresholds and fees in the ECP are different from the VDMP. In addition, the way the chargeback ratio is calculated for Mastercard differs from Visa.
Merchants are placed in the Excessive Chargeback Merchant (ECM) program when they exceed 100 chargebacks and have a Mastercard chargeback ratio greater than 1.5 percent for two consecutive months. Fees are as follows:
For merchants that have over 300 chargebacks per month and a chargeback ratio exceeding 3 percent there is the HECM, which has the following fees:
If you’re in HECM and your dispute level drops but still exceeds ECM thresholds (i.e. a over 100 chargebacks with a chargeback ratio between 1.5-2.99 percent), you will be moved to that program.
Once a merchant is enrolled in the ECP, Mastercard will usually ask them to submit a chargeback remediation plan. This document outlines the steps that the merchant will take to reduce their chargeback levels. It includes a description of the business, an explanation of the circumstances that led to the current high chargeback levels, the dates on which specific actions were taken to mitigate these circumstances, and a list of any anti-fraud tools the merchant is using.
After a merchant has been six months in the ECP, Mastercard may require their acquirer to create and put into action a chargeback remediation plan to resolve the issue at their own expense. After 12 months, Mastercard starts charging the acquirer non-compliance assessment fees as well, with the fees reaching as high as $50,000 per month. By that point, most acquirers will have terminated the merchant account to avoid paying the non-compliance fees.
As you can see, the costs of chargebacks can quickly add up if left unattended. To fight the trend and avoid the chargeback monitoring programs, you will need to invest in both preventative measures like early warning and anti-fraud solutions and a robust chargeback defense.
Justt is a chargeback mitigation solution tailor made to address your needs in fighting chargebacks. Our success-based fee means merchants can fight to recover money lost to chargebacks risk-free.
