Credit Card Chargeback Monitoring Programs

To ensure their own success and profitability, credit card companies are very careful about how they allow merchants to use their brands. Each credit card company has a set of rules and regulations that merchants must comply with in order to accept their credit card brand for customer payments.

As part of these rules and regulations, each credit card company has its own credit card chargeback monitoring program. While each chargeback monitoring program is slightly different, the end goal is to carefully manage merchant chargeback ratios and thresholds.

These credit card chargeback monitoring programs are effective in identifying high-risk merchants, and ultimately in helping merchants improve sales processes to limit chargebacks.

Each credit card company provides merchants and acquirers with full documentation about their rules and regulations and chargeback monitoring programs. Merchants should review this documentation and have it easily accessible.

Visa Chargeback Monitoring Program

Visa expects merchants to be fully up-to-date with its chargeback guidelines and regulations. Download Chargeback Management Guidelines for Visa Merchants and Visa Core Rules and Visa Product and Services Rules. These guides provide key merchant information about working with Visa and the fundamental rules that apply to all Visa system participants.

Visa monitors merchant chargeback activity on a monthly basis and notifies the merchant’s acquirer of any excessive Visa chargebacks. The responsibility is then on the acquirer to work with the merchant to reduce any chargeback activity. Visa states, “Merchants should work with their acquirer to develop a detailed chargeback-reduction plan which identifies the root cause of the chargeback issue and an appropriate remediation action(s).”

Visa has some general recommendations to help merchants monitor chargebacks, including:

• Track chargebacks based on reason codes
• Track chargeback activity as part of overall sales
• Track card-present and card-not-present chargeback data separately

Merchants who fail to properly monitor chargebacks run the risk of meeting or exceeding Visa’s defined chargeback thresholds. When these thresholds are violated, merchants risk being enrolled in one of three Visa chargeback monitoring programs.

• Visa Merchant Fraud Program. This program monitors chargeback activity for all merchants and acquirers monthly. If a merchant exceeds defined chargeback thresholds, the acquirer is notified with a written warning. If after this first warning and actions are not taken to lower chargeback rates to the specified levels, Visa may apply financial penalties to the merchant’s acquirer.

• High Brand Risk Chargeback Monitoring Program. This program is targeted directly at reducing chargebacks for high-risk merchants. Read the Visa Core Rules and Visa Products and Services Rules guide for details on the high-risk merchant category codes.

• Global Merchant Chargeback Monitoring Program. This program applies when a merchant meets or exceeds specified international chargeback thresholds. Similar to the Visa Merchant Fraud Program, the acquirer is notified and the merchant is expected to work with the acquirer to remedy these excessive chargebacks.

It’s up to merchants to monitor their chargeback ratio and volume. Knowing these numbers is as critical as knowing sales and revenue numbers. Merchants who use an end-to-end solution that protects them throughout the entire payments life-cycle are well equipped to detect, track, prevent, and represent credit card chargebacks.

MasterCard Chargeback Monitoring Program

MasterCard reviews merchant chargeback activity with its Excessive Chargeback Program. Merchants should watch the special MasterCard training series to learn how the Excessive Chargeback Program works.

As part of this program, MasterCard expects a close relationship be established between the merchant and acquirer to monitor credit card chargeback activity and to take action to remedy excessive chargebacks. The chargeback threshold which merchants are accountable to is based on the following calculation: current month’s chargebacks divided by previous month’s chargebacks equals merchant chargeback ratio/threshold.

To manage merchants who fail to comply with MasterCard chargeback thresholds, the MasterCard Excessive Chargeback Monitoring Program has two categories:

• Chargeback Monitored Merchant. When a merchant has a chargeback activity that exceeds a 1% chargeback ratio, enrollment in this program is enforced. This chargeback ratio is based on the thresholds for the region/location of the merchant’s acquirer.

• Excessive Chargeback Merchant. Merchants who have a chargeback ratio of 1.5% for two months are enrolled in this program. There are two tiers within this program, and merchants should watch the Excessive Chargeback Program series to understand how these are enforced.

To maintain good standing with MasterCard, it’s important that merchants have strong relationships with their acquirers. Open communication about chargeback activity, thresholds, and the measures taken to reduce chargebacks can go a long way in mitigating enforced chargeback management program enrollment.

Learning More About Credit Card Chargeback Monitoring

We cannot stress enough how important it is for merchants to read and comply with all information provided by your credit card companies. Maintain clear channels of communication with your acquirers and be proactive in implementing any chargeback prevention programs.

Learn more about your chargeback ratio and how our end-to-end solution can help you get control over your chargeback management. Our solution allows you to bridge the gaps in communication that are breaking the payments ecosystem and causing unnecessary revenue loss. Our team of trusted experts is here to help you prevent chargebacks and protect your revenue.