Understanding Chargebacks: The Latest Chargebacks and Fraud Rules from Visa and MasterCard

Both Visa and MasterCard have been managing the amount of fraud and deceptive marketing present within their ecosystem via a set of Fraud and Chargebacks policies. Visa have been using the Visa Chargeback Monitoring Programme, the Visa Fraud Monitoring Programme, and the Visa Acquirer Monitoring Programme; while Mastercard have developed the MasterCard Excessive Chargeback and Fraud programmes.

These policies regulate the number of chargebacks and fraud at individual merchant levels, as well as at the acquiring bank level, and are enforced through fines and cancellation of merchant accounts or removal of acquiring licenses.

As these programmes are of utmost importance but also keep evolving over time, we wanted to give you a summary of the latest changes and a precise understanding of the rules as they apply currently.

Programmes designed to reduce fraud in the system

Fraud within the Visa and MasterCard ecosystem can come from fraudsters trying to use stolen credit cards on legitimate merchants websites, as well as from ‘deceptive’ merchants selling inappropriate content (e.g., counterfeit items, aggressive free-trial/subscription offers, etc.) to legitimate cardholders.

Visa and MasterCard can only act at the Merchant and Acquirer level and even if merchants are legitimate, they have to be responsible for putting their own fraud prevention mechanisms in place: they cannot simply process cards and let fraudsters defraud cardholders. But interests are well aligned as fraud and chargebacks are ultimately costly for merchants.

It also puts a lot of the cost and administrative burden on the acquirers, who need to select the appropriate merchants but also need to educate their merchants and ensure that they take the appropriate measures to reduce fraud or be less deceptive in their marketing approaches.

What are the latest Visa rules?

Visa Inc’s recent acquisition of Visa Europe has ensured consistency across various existing programmes by rebranding them and by defining a set of common criteria (applicable as of July 1st 2016):

  • Visa Fraud Monitoring Programme: 
    • Standard level: $75,000 (or local currency equivalent c. €64,250) and a fraud-dollar-to-sales-dollar ratio of 1% in any month
    • High Risk level: $250,000 (c.€217,500) and 2% faud-dollar-to-sales-dollar ratio in a month
  • Visa Chargeback Monitoring Programme: 
    • Standard level: 1.0% chargebacks-to-sales ratio and 100 chargebacks
    • High risk level: 2.0% chargebacks-to-sales ratio and 500 chargebacks
  • Each programme is then subject to a specific timeline where the merchant can try to reduce the number of fraud and chargebacks. For excessive chargebacks, fees per chargebacks (EUR 45/chargeback as of 5th month into Standard timeline, and EUR 85/chargeback as of 1st month under the high risk timeline) will be charged by Visa to the acquirer/merchant. For excessive Fraud, fees will only be charged under the High Risk threshold and at the merchant level and will be cumulated over time from EUR 9k to up to EUR 65k
  • Important to notice that standard and high-risk sub-programmes apply (which means that the standard threshold apply to all merchants at all time).
  • Finally the Visa Acquirer Monitoring Programme
    • Fraud activity of => 1% fraud-dollar-to- sales-dollar ratio and $500,000 (or local currency equivalent c.€435,000)
    • Chargeback-to-sales ratio of => 1% and 750 chargebacks

This basically means that the Acquirer needs to balance its entire portfolio and cannot work only with merchants with higher risk ratio. The fees that apply in case of non compliance are hefty (from EUR 20k to EUR 90k/month for the acquirer). This will also give additional bargaining power to low-risk merchants will low ratio that could negotiate very low processing cost as some acquirers might want to pay for their traffic.

What are the latest MasterCard rules?

MasterCard have not updated their rules in recent months, but the most recent merchant edition of their Security Rules and Procedures can be found at this link (automatic download).

What are the potential impacts of excessive chargebacks?

Excessive chargebacks can spell awful news for merchants, who risk losing their businesses due to loss in profits, stemming from the harsh treatment from acquiring banks who would generally rather terminate merchant accounts rather than working to remedy any potentially legitimate fraud issues.

After having lost the ability to process credit card payments, merchants can then be placed on the MATCH (Member Alert to Control High Risk Merchants) list. Originally created by MasterCard, this list is used by acquiring banks when screening potential merchants. There are various “Reason Codes” (which can be found in this piece from Chargebacks911), which remain alongside the entry on the list for five years, after which time the entry expires and merchants are removed from the list.

Five years is a long time, and the damage is generally already done for merchants.

The best defense against reaching excessive chargeback status is planning and mitigation.

What can you do to avoid excessive chargebacks?

Given the potentially dire consequences of receiving excessive chargebacks and being placed on the MATCH list, it is imperative that merchants employ as many tactics as possible to mitigate the number of chargebacks that they receive.

In order to assist you in limiting the number of chargebacks that you receive, the Paydoo team would refer you to our previous entry, “Understanding Chargebacks: How To Reduce Chargebacks”.

This post will give you a number of actionable tips, as well as a curated further reading list and discussion points.

Should there be a particular area of chargebacks that still concerns you or requires further clarification, please do not hesitate to get in touch with a member of the Paydoo team.


Excessive Chargeback Levels


Understanding Chargebacks: How To Reduce Chargebacks


The MATCH List



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