July 28, 2028
by David Goodale
Related Topics
April 19, 2022
A chargeback is a dispute between a customer and the business. In this video we explore what a chargeback is, and some of the reasons that chargebacks occur.
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Hello, David here at Merchant-Accounts.ca. Today I'm going to tackle a very frustrating topic. Sometimes it's infuriating. What do you do when you get a chargeback and you lose it and it's completely unfair? What's left? Stay tuned, I'm going to do my best to help in one second.
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Pre-authorizations are one of the best tools available to prevent fraud. A pre-auth will enable you to return security results for the order, such as AVS and CVV security checks. More importantly, it gives you a chance to evaluate the order and determine if you want to accept the sale. You are fully protected because you can't get a chargeback until you capture the funds from the pre-authorization.
What are the Visa and MasterCard Chargeback Thresholds?
(Slightly edited from video transcript for greater readability)
Key Takeaways
1
Different Chargeback Levels
The first level does not result in fines, but gives you a chance to fix your chargeback problem. The second threshold level introduces possible fines. The third level introduces significant fines and potential account termination.
2
Work With Your Processor
If you have a chargeback problem be proactive and contact your processor. Tell them what went wrong, how you're going to fix it, with a date on when it will be done.
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Here are the chargeback thresholds as of 2023:
| Visa | ||||
|---|---|---|---|---|
| Program Timeline | VDMP - VISA Dispute Monitoring Program | VFMP - VISA Fraud Monitoring Program | ||
| Thresholds | Non-Compliance Assessments | Thresholds | Non-Compliance Assessments | |
| Early Warning |
75 dispute count; and 0.65 percent (65 basis points) dispute-to-sales count ratio. |
US$50,000 fraud amount; and 0.65 percent (65 basis points) fraud-to-sales amount ratio. |
||
| Thresholds | Non-Compliance Assessments | Thresholds | Non-Compliance Assessments | |
| Standard |
100 dispute count; and 0.9 percent (90 basis points) dispute-to-sales count ratio. |
Month 1-4 = no non-compliance assessment Month 5-6 = $50 per dispute Month 7-9 = $50 per dispute Month 10-12 = $50 per dispute + $25K review fee |
US$75,00 fraud; and 0.9 percent (90 basis points) fraud-to-sales amount ratio. |
Month 1-4 = no non-compliance assessment Month 5-6 = $25,000 fee per month Month 7-9 = $50,000 fee per month Month 10-12 = $75,000 fee per month |
| Thresholds | Non-Compliance Assessments | Thresholds | Non-Compliance Assessments | |
| Excessive & High Risk (by MCC) |
1,000 dispute count; 1.8 percent (180 basis points) dispute-to-sales count ratio. |
Month 1-4 = $50 per dispute Month 5-6 = $50 per dispute Month 7-9 = $50 per dispute + $25,000 review fee Month 10-12 = $50 per dispute + $25,000 review fee |
US$250,000 fraud amount; and 1.8 (180 basis points) fraud-to-sales amount ratio. |
Month 1-4 = $10,000 fee per month Month 5-6 = $25,000 fee per month Month 7-9 = $50,000 fee per month Month 10-12 = $75,000 fee per month |
| Mastercard | ||
|---|---|---|
| 1 Tier ECM - Excessive Chargeback Merchant | Program Thresholds | Non-Compliance Assessments |
|
Number of Chargebacks: 100 to 299 in a calendar month; and Monthly Chargeback-to-Transaction (CTR): 1.50% to 2.99% (150 to 299 bps) |
Month 1 = $0 Month 2 = $1,000 EUR/USD Month 3 = $1,000 EUR/USD Month 4 to 6 = $5,000 EUR/USD* Month 7 to 11 = $25,000 EUR/USD* Month 12 to 18 = $50,000 EUR/USD* Month 19+ = $100,000 EUR/USD* |
|
| *Merchant may also receive an Issuer Recovery Assessment, in which they must pay $5 USD for each chargeback after the first 300. | ||
| Mastercard also charges a $100 reporting fee and an issuer recovery fee, which may vary | ||
| 2 Tier HECM - Excessive Chargeback Merchant | Program Thresholds | Non-Compliance Assessments |
|
Number of Chargebacks: 300 or more; and Monthly Chargeback-to-Transaction Ratio (CTR): 3.00% or more (300 bps or higher) |
Month 1 = $0 Month 2 = $1,000 EUR/USD Month 3 = $2,000 EUR/USD Month 4 to 6 = $10,000 EUR/USD* Month 7 to 11 = $50,000 EUR/USD* Month 12 to 18 = $100,000 EUR/USD* Month 19 = $200,000 EUR/USD* |
|
| Merchant may also receive an Issuer Recovery Assessment, in which they must pay $5USD for each chargeback after the first 300. | ||
| Mastercard also charges a $100 reporting fee and an ussyer recovery fee, which may vary | ||
| EFM - Excessive Fraud Merchant | |
|---|---|
| Program Thresholds | Non-Compliance Assessments |
|
A merchant is identified by the EFM program if all of the following conditions are met: 1. Minimum of 1,000 e-commerce transactions in clearing; 2. Monthly net fraud is greater than the $50,000 or more EUR/USD 3. Monthly net fraud is greater than 0.50% (50bps) 4. Penetration of 3DS and/or Data Only transactions is less than total card-not-present volume threshold of: 50% (Europe) / 10% (U.S. and Canada) |
Month 1 = $0 Month 2 = $500 EUR/USD Month 3 = $1,000 EUR/USD Month 4 to 6 = $5,000 EUR/USD Month 7 to 11 = $25,000 EUR/USD Month 12 to 18 = $50,000 EUR/USD Month 19+ = $100,000 EUR/USD |
It is very important that merchants stay within Visa and Mastercard guidelines for acceptable levels of chargebacks. If you do not, you run the risk of fines, or even having your account closed. These fines can be significant, and if you lose your account due to excessive chargebacks you may even find it difficult to obtain a merchant account elsewhere in the future.
If you do start to get too many chargebacks you should alert your payment processor before they even reach out to you. However, even if you've already been contacted because you are on one of the monitoring programs you can still address the problem.
Once you are on a monitoring program it's important to implement a remediation plan that addresses why the problem has occurred, and how you are going to address it. It's very important to openly and transparently address what failures led to the problem, and how you are going to fix it. Once you have the plan, you need to put it in place because this is a time sensitive issue. The longer the problem persists the more likely it is for fines, or even potential account termination.
Summary
If you have problems with chargebacks, it's important not to be lackadaisical in your efforts to deal with them. Work closely with your processor, let them know that you are taking this seriously, and what you are doing about it. If you are running into a problem with chargebacks and would like our advice, feel free to reach out to us at Merchant-Accounts.ca to discuss your problem.
Related Topics
April 19, 2022
A chargeback is a dispute between a customer and the business. In this video we explore what a chargeback is, and some of the reasons that chargebacks occur.
April 07, 2022
If you get too many chargebacks your merchant account can be shut down. In this video we explore what you should do to keep your account in good standing if you've been targeted by fraudsters and suddenly start receiving a lot of chargebacks.
February 07, 2023
Card testing is an increasing problem for #ecommerce merchants. Fraudsters are constantly looking for ways to test cards. It's even a problem for payment processors, Visa and Mastercard. In this video David explains what card testing is, why fraudsters do it, and how to stop it, in addition to advice on how to get some of the fees reversed when it occurs.
January 20, 2022
Hello, David here at Merchant-Accounts.ca. Today I'm going to tackle a very frustrating topic. Sometimes it's infuriating. What do you do when you get a chargeback and you lose it and it's completely unfair? What's left? Stay tuned, I'm going to do my best to help in one second.
May 14, 2021
In the past the best way to manually screen suspicious orders was to call the customer on the phone and ask them questions. Now, with modern web based video technologies it's possible to validate customers in a way that was never previously possible.
March 16, 2018
Visa is addressing some of the most common chargeback related complaints from merchants. Going forward, chargebacks are a thing of the past and will now be known as disputes.
March 22, 2023
A positive AVS result is an indicator of a legitimate transaction. In this short explainer video David explains what AVS is, how it works, and things to be aware of when relying on an AVS security result for any particular order.
March 25, 2023
It can be difficult to win a chargeback dispute. David explores different ways to shift the odds into your favour.
March 29, 2023
David explains what two factor authentication is, how it works, and how it shifts chargeback risk for fraud onto the card issuer and away from the merchant.
July 21, 2023
How does Visa and MasterCard chargeback arbitration work? When a merchant has fought a chargeback and lost there is still one more chance to turn it around by taking it to the card brands for arbitration.
January 10, 2024
There is a strong argument that 3DSecure (version 2) is the single best anti-fraud tool available to any online merchant. In this video David explains what 3DSecure is, how it works, how you set it up on your website, and different ways that it can be configured.
March 28, 2024
Pre-authorizations are one of the best tools available to prevent fraud. A pre-auth will enable you to return security results for the order, such as AVS and CVV security checks. More importantly, it gives you a chance to evaluate the order and determine if you want to accept the sale. You are fully protected because you can't get a chargeback until you capture the funds from the pre-authorization.
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My name is David Goodale, CEO at Merchant Accounts.ca. I launched our business in 2001 and have over 20 years of expertise in the field of online payments. If you have a payments related question or project, and especially if it relates to multi-currency or international e-commerce don't hesitate to contact me. I'm always happy to help with an honest opinion, and enjoy chatting with folks from interesting businesses.
Toll free: 888-414-7111 ext. 5
Direct: (905) 901-2254
david.goodale@merchant-accounts.ca