Understanding Excessive Chargeback Levels

Understanding Excessive Chargeback Levels

By In Information On July 1, 2015


How MasterCard and Visa Use Chargeback Monitoring Programs to Track Excessive Chargebacks

From a merchant’s perspective, chargebacks are an unfortunate but necessary part of doing business. Having a chargeback filed against you once in a great while is normal, but what happens if several chargebacks are filed in a short timeframe?

Experiencing too many chargebacks in a short amount of time will drive up a merchant’s chargeback ratio. If the ratio gets too high, the merchant passes into the excessive chargeback levels. Credit card networks each have a chargeback monitoring program which will alert the processor to the risk posed by excessive chargebacks. Various consequences for merchants with elevated chargeback levels could result.

Calculating Chargeback Levels

The two most popular credit card processors, Visa and MasterCard, each have their own system for measuring chargeback levels. The table below describes the differences between these two processors and how they calculate chargeback levels.

Company Chargeback Calculation Method Example
MasterCard Chargebacks in current month /
Transactions in previous month =
Chargeback-to-Transaction Ratio
150 chargebacks in July / 10,000 transactions in June = 1.5% chargeback ratio, which equals 150 basis points.
Visa Chargebacks in current month /
Transactions in current month =
Chargebacks-to-Transaction Ratio
150 chargebacks in July / 10,000 transactions in July = 1.5% chargeback ratio, which equals 150 basis points.

What are Excessive Chargeback Levels?

Determining excessive chargeback levels varies by credit card network and their specific chargeback monitoring system. MasterCard and Visa’s chargeback monitoring systems and definitions of excessive chargeback levels are described below.

MasterCard’s Excessive Chargeback Program

Using the simple equation in the above table, MasterCard’s Excessive Chargeback Program monitors each merchant’s activity. MasterCard’s Excessive Chargeback Program differentiates between two categories of excessive chargeback levels. Merchants are given one of two titles depending on the chargeback threshold.

Category Gross Number of Chargebacks Chargeback-to-Transaction Ratio Time Frame
Chargeback Monitored Merchant (CMM) 100 or more chargebacks in current month 1% (100 basis points) or higher Title is applied at the end of the month under review. Title remains until ratio drops below 1%.
Excessive Chargeback Merchant (ECM) 100 or more chargebacks in current and previous months 1.5% (150 basis points) or higher in current and previous months Title is applied after two consecutive months with a chargeback-to-transaction ratio of 1.5% or higher. Title remains until ratio drops below 1.5% for two consecutive months.

Visa’s Chargeback Monitoring Program

Like MasterCard, Visa has its own Chargeback Monitoring Program. Unlike MasterCard, Visa differentiates between three categories of risk from excessive chargeback levels.

Category Gross Number of Chargebacks Number of Transactions Chargeback-to-Interchange Volume Time Frame
Global Merchant Chargeback Monitoring Program (GMCMP) 200 or more international chargebacks in current month 200 or more international transactions 2% (200 basis points) or higher on international transactions only Merchants are granted a workout period during which they may work on reducing chargebacks before fees are assessed. Title remains until chargeback ratio for international transactions falls below 2%.
U.S. Merchant Chargeback Monitoring Program (MCMP) 100 or more chargebacks in current month in U.S. only 100 or more transactions in U.S only 1% (100 basis points) or higher Merchant’s acquiring bank is notified first. After 10 calendar days, acquirer must notify merchant of title. Title remains until ratio falls below 1%.
High Brand Risk Chargeback Monitoring Program (HBRCP) 100 or more chargebacks in current month 100 or more transactions 1% (100 basis points) or higher Merchant’s acquiring bank is notified first. After 15 calendar days, acquirer must notify merchant of title. Title remains until ratio falls below 1%.

Preventing Excessive Chargeback Levels

While receiving an occasional chargeback in the course of doing business is normal, receiving excessive chargebacks indicates that there is a problem. If your business is in danger of breaching chargeback thresholds, you may want to consider the following options:

  • Utilize fraud detection technologies so that criminal activity is blocked. The fewer fraudulent transactions you unwittingly process, the fewer chargebacks you will receive.
  • Find ways to improve customer service. Sometimes customers will file a chargeback as a result of subpar service or lack of communication.
  • Add extra layers of security to your payment systems, especially if you use mobile payment technologies. Hackers are becoming increasingly savvy and regularly find new ways to gain unauthorized access to sensitive information.

The chargeback process is complex, and the reason for your excessive chargeback levels may not be immediately apparent. However, keeping chargebacks under control and ensuring that the merchant account you have with your acquiring bank is protected is of paramount importance. Remember that your ability to have a merchant account and process credit card payments is a privilege that can be lost if you allow chargeback levels to get out of control.

We work with businesses of all sizes in a variety of industries. We can help you development fraud detection and chargeback management plans. Contact us today to start combatting chargebacks and friendly fraud.