Card schemes (such as Visa and Mastercard) monitor your disputes monthly and compare them to your sales. If the number of disputes (also known as chargebacks) you receive exceeds what the card scheme deems acceptable, you may be placed into their monitoring program.
If you are accepted into the program, the system may charge you monthly penalties and additional fees until you reduce the number of disputes to an acceptable level.
Visa uses descriptors to group and calculate fraud rates, linking transactions to specific merchants, goods, and services. The formula for the fraud rate is the percentage or amount of fraud per month divided by the total sales or amount for that month. Only the first 10 chargebacks or fraud alerts per card are counted, excluding fraud type code 3 (application fraud).
Mastercard uses Merchant IDs (MID) to group transactions and assess fraud levels. The formula is the number of monthly chargebacks divided by the total number of successful transactions the previous month, considering only the first 35 chargebacks from the same card.
Other card systems, such as American Express, Discover, Diners, and JCB, identify merchants by their account ID and calculate fraud rates using the formula: either the number of chargebacks or the amount of fraud in a month divided by the total number of successful transactions or total sales amount for the same month.
Visa
Visa has established two monitoring programs to identify merchants with excessive disputes and/or fraud and to promote the use of fraud controls and fair business practices.
The Visa Dispute Monitoring Program (VDMP) and the Visa Fraud Monitoring Program (VFMP) run monthly for 12 months. At the beginning of each month, Visa reviews the previous month’s processing activity and identifies merchants that exceed the program’s thresholds. Your company must exceed both thresholds to be enrolled in the program. Additionally, Visa has launched the Visa Digital Goods Merchant Fraud Monitoring Program as an extension to the VFMP, targeting digital goods merchant fraud transactions.
Visa calculates the ratio of disputes to sales as follows: the number of disputes you received in a month divided by the number of sales you processed in that month multiplied by one hundred.
This would put you at the standard level of the VDMP program (if you are not a high-risk merchant).
Visa will disqualify you from the program if your dispute activity is below the standard threshold for three consecutive months.
If your business is accepted into the program, you must submit a monthly remediation plan beginning in the second month. This plan will describe the root cause and recovery actions. The plan must include steps and dates for all remedial actions. Penalties for non-compliance will be calculated monthly based on the plan and the month of participation in the program. To opt out of the program, your company must remain below the standard thresholds for three consecutive months. If your company participates in the program for over 12 months, you may no longer be allowed to accept Visa payments.
The Visa Digital Goods Merchant Fraud Monitoring Program has been in effect since April 1, 2023, with a twelve-month advisory period for no actions or fines. Starting April 1, 2024, the program will be fully operational based on March 2024 data. The VFMP-Digital Goods program specifically targets digital goods merchant fraud transactions for the following MCC codes:
- 5735 Record Stores
- 5815 Digital Goods Media - Books, Movies, Digital Artwork/Images, Music
- 5816 Digital Goods - Games
- 5817 Digital Goods - Applications (Excludes Games)
- 5818 Digital Goods - Large Digital Goods Merchant
Visa’s Fraud Monitoring Program for 3D Secure (VFMP 3DS) is designed for US users to monitor and manage domestic 3D-Secure transaction fraud.
The fraud ratio for VFMP-3DS is calculated by dividing the amount (in USD) of fraud reported on 3D Secure transactions in a given month by the amount of sales processed through 3DS in the same month.
Timeline, Fines, and Fees:
- Early Warning: No fines or additional fees are imposed for receiving an early warning.
- Remediation: If your account stays below the standard program thresholds for three consecutive months, it will be removed from VFMP-3DS.
- Uses US domestic 3DS (ECI 5 and 6) fraud and sales transactions processed in the previous calendar month.
- Only the first ten fraudulent transactions between you and a single account number are included in a given month.
- Excludes fraud type code 3 (fraud application).
VDMP
- 75 or more disputes, and 0.65% ratio of disputes to sales transactions
- 100 disputes, and 0.9% ratio of disputes to sales transactions
- 1000 disputes, and 1.8% ratio of disputes to sales transactions
- 100 disputes, and 0.9% ratio of chargeback to sales transactions and
- One of the following:
- Merchant outlet moved from Visa standard threshold to High-Risk threshold based on a review of merchant performance and inappropriate business practices (e.g., use of abusive free trial policies, negative renewal options, etc.), or
- The Merchant exceeds the standard program thresholds and is categorized or should be categorized by a high-brand risk MCC, as specified in Section 10.4.6.1, High-Brand Risk MCCs (MCC 5962, 5966, 5967, 7995, 5912, 5122, 5993), or
- Met or exceeded the program’s Excessive threshold
VFMP
- US $50,000 or more in fraud dollar amount, and 0.65% or higher ratio of fraud to sales dollar amount
- US $75,000 in fraud amount, and 0.9% ratio of fraud to sales dollar amount
- US $250,000 in fraud amount, and 1.8% ratio of fraud to sales dollar amount
- US $75,000 in fraud dollar amount, and 0.9% ratio of fraud to sales dollar amount, and
- One of the following:
- Merchant outlet moved from Visa standard threshold to High Risk threshold based on a review of merchant performance and inappropriate business practices (e.g., use of abusive free trial policies, negative renewal options, etc.), or
- The Merchant exceeds the standard program thresholds and is categorized or should be categorized by a high-brand risk MCC, as specified in Section 10.4.6.1, High-Brand Risk MCCs (MCC 5962, 5966, 5967, 7995, 5912, 5122, 5993), or
- Met or exceeded the program Excessive threshold
VFMP Digital Goods
- US $15,000 in fraud dollar amount, and 0.45% ratio of fraud to sales dollar amount
- US $25,000 in fraud dollar amount, 0.9% ratio of fraud to sales dollar amount
VFMP-Digital Goods Standard Program Timeline:
- Months 1-4
- No penalties
- Months 5-6
- Enforcement: $25,000 & 10.5 Dispute Liability
- Months 7-9
- Enforcement: $50,000 & 10.5 Dispute Liability
- Months 10-11
- Enforcement: $75,000 & 10.5 Dispute Liability
- Month 12+
- Enforcement: $75,000 & 10.5 Dispute Liability
- Merchant eligible for disqualification (can no longer process Visa payments)
VFMP 3DS
- US $50,000 or more in fraud dollar amount, and 0.65% or higher ratio of fraud to sales dollar amount
- US $75,000 in fraud amount, and 0.9% ratio of fraud to sales dollar amount
VFMP-3DS Standard Program Timeline:
- Months 1-12
- No fines + Merchant loses liability shift protections until they exit the program.
Mastercard
Mastercard’s Acquirer Chargeback Monitoring Program (ACMP) has two levels: Excessive Chargeback Merchant (ECM) and High Excessive Chargeback Merchant (HECM). Your total number of chargebacks in a month and your ratio of chargebacks to sales in that month will determine which tier you are placed in. We will notify you if you are accepted into the program.
These basis points are calculated as follows: the number of chargebacks in that month is divided by the number of Mastercard transactions you processed in the previous month and multiplied by 10,000. For example, if you had 185 chargebacks in February and processed 7,500 payments in January, your chargeback rate would be 247 basis points (185 / 7500 x 10,000 = 246.66, rounded up to 247). This would place you in the program's Excessive Chargeback Merchant (ECM) tier.
Mastercard will remove you from the program if your dispute activity falls below the ECM thresholds for three consecutive months.
The ECM program aims to simplify enforcement and enable faster communication between acquirers and the card network. The goal is to make merchant compliance a more accurate process with greater accountability. The ECM program is a chargeback compliance program created by Mastercard. The program’s purpose is to monitor eCommerce merchants’ activities and prevent excessive chargebacks on the Mastercard network. This is achieved by imposing penalties on merchants for non-compliance.
The EFM program aims to simplify enforcement and enables faster communication between acquirers and the card network. The goal is to make merchant compliance a more accurate process with greater accountability.
ECM
- A count of at least 100 to 299 chargebacks, and
- A chargeback to transaction ratio (CTR) = 1.5% to 2.99%
- A count of at least 300 chargebacks, and
- A chargeback to transaction ratio (CTR) = > 3%
EFM
- 1,000 or more eCommerce transactions and
- The total dollar amount (or local currency equivalent) of fraud related chargebacks in a given month equals or exceeds USD 50,000, and
- The total number of fraud chargeback basis points is equal or more than 50, and
- The percentage of monthly clearing volume processed using 3DS (including Data Only transactions) or Digital Secure Remote Payment (DSRP) is less than 10 percent in nonregulated countries or less than 50 percent in regulated countries.