Ultimate Guide to MasterCard's Excessive Chargeback Program

Do you own an online store that accepts MasterCard payments? If so, then you know the importance of providing a secure payment system to protect yourself against chargebacks. Unfortunately, regardless of your best efforts, some MasterCard holders are able to exploit the Excessive Chargeback Program and easily dispute charges without consequence - putting your business at risk. 

To help businesses better understand MasterCard excessive chargeback program overly complicated program, we’ve created the Ultimate Guide which dives into all the rules and regulations so that your business can be prepared if someone tries to scam you with a fraudulent claim. Read on for more information!

What is Excessive Chargeback?

An excessive chargeback happens when a merchant receives more chargebacks than what is considered normal for their business. It's calculated by dividing the number of chargebacks received by the total number of transactions processed. If a merchant has a high excessive chargeback ratio, it means they are getting more chargebacks than they should, which could be a cause for concern.

How many chargebacks are too many?

The acceptable number of chargebacks varies depending on the merchant's industry, the products or services they offer, and their total number of transactions. Generally, having a chargeback ratio of 1% or lower is considered normal and acceptable.

To calculate the chargeback ratio, divide the number of chargebacks the merchant received by the total number of transactions processed. For example, if a merchant had 100 chargebacks in a month and processed 10,000 transactions, their chargeback ratio would be 1%.

If a merchant's chargeback ratio goes above 1%, it may indicate that they are getting too many chargebacks, which could be a cause for concern.

What is MasterCard Excessive Chargeback Program (ECP)? 

Mastercard's Excessive Chargeback Program is a system designed to monitor and reduce chargebacks. Chargebacks occur when customers dispute transactions on their credit card statements. If a merchant has too many chargebacks, it can have a negative impact on their business and even lead to enrollment in the this program.

Overview of the Program

Excessive chargeback program by MasterCard is a system put in place by Mastercard to help protect merchants from excessive chargebacks. The program tracks the number of chargebacks a merchant receives and provides warnings and penalties for those who exceed the threshold.

Criteria for Excessive Chargebacks

Mastercard has established certain criteria for determining what constitutes excessive chargebacks. The chargeback-to-transaction ratio is the primary factor considered. If a merchant's chargeback rate exceeds 1%, they may be at risk of being enrolled in the program. The chargeback-to-transaction ratio is calculated by dividing the number of chargebacks by the total number of transactions.

Other factors considered include the type of business, the merchant's processing history, and the overall risk level of the merchant.

How does the Program Affect Merchants?

Such program can have a significant impact on merchants. Enrollment in the program can lead to increased fees, fines, and penalties. It can also damage a merchant's reputation and lead to increased scrutiny from banks and other financial institutions.

In addition, the program can require a significant amount of time and resources to manage. Merchants must carefully track and analyze chargebacks to avoid exceeding the threshold.

Tiers of MasterCard Excessive Chargeback Program (ECP)

Mastercard's Excessive Chargeback Program (ECP) has two tiers:

ECP 1

Merchants are placed in ECP 1 when their chargeback-to-transaction ratio (CBR) exceeds 1.0% and their total chargebacks exceed 100 in a calendar month for two consecutive months. Merchants in ECP 1 are monitored and are required to take action to reduce their chargebacks.

ECP 2

Merchants are placed in ECP 2 when their CBR exceeds 1.5% and their total chargebacks exceed 1000 in a calendar month for two consecutive months, or when their CBR exceeds 3.0%. Merchants in ECP 2 are subject to a fine of $1000 per month until their chargeback levels improve.

What Happens if your Business is Enrolled in ECP?

If your business is enrolled in Mastercard's Excessive Chargeback Program, it means that your business has exceeded the chargeback thresholds set by Mastercard. Chargebacks occur when a cardholder disputes a transaction and the card issuer reverses the transaction, resulting in a loss for the merchant.

Enrollment in the program can have several consequences for your business, including:

1. Increased fees: Mastercard may impose fines and fees on your business for each chargeback that exceeds the threshold. These fees can add up quickly and significantly impact your bottom line.
2. Monitoring and reporting: Your business may be subject to additional monitoring and reporting requirements, which can be time-consuming and costly.
3. Risk of losing your merchant account: If your chargeback ratios continue to exceed the thresholds, Mastercard may terminate your merchant account, making it difficult for you to process credit card transactions.

What is MasterCard Compliance Program?

The Mastercard Compliance Program is a set of rules and regulations that Mastercard merchants must follow in order to maintain their merchant account. The program is designed to protect Mastercard cardholders and to ensure that Mastercard transactions are processed securely.

The Mastercard Compliance Program covers a wide range of topics, including:

• Fraud prevention: Merchants must have a strong fraud prevention program in place to reduce the risk of fraudulent transactions.
• Data security: Merchants must protect the personal and financial information of Mastercard cardholders.
• Compliance with Mastercard rules and regulations: Merchants must comply with all Mastercard rules and regulations, including the Mastercard Code of Conduct.

Merchants that fail to comply with the Mastercard Compliance Program may be subject to a number of penalties, including:

• Increased fees: Merchants may be charged higher fees by Mastercard if they have a history of non-compliance.
• Loss of merchant account: Mastercard may terminate a merchant's merchant account if they fail to comply with the program.
• Damage to reputation: Merchants that have a history of non-compliance may damage their reputation with Mastercard cardholders and other businesses.

The Mastercard Compliance Program is an important part of Mastercard's commitment to protecting cardholders and ensuring the security of Mastercard transactions. Merchants that comply with the program can help to protect their business and their customers.

How to Avoid Excessive Chargeback on any Network?

Excessive chargeback on any given network can be a major impediment to any business. MasterCard, the world’s largest payment processor, has developed its own MasterCard ECP in order to identify and prevent fraud and abuse. 

To avoid an excessive chargeback on MasterCard, businesses can take steps such as setting up a merchant account with MasterCard and then creating custom transaction rules to help detect fraudulent behavior before it occurs. 

Businesses should also review their compliance procedures regularly to ensure that they are adhering to MasterCard’s standards for transaction security and processing. Furthermore, businesses should be diligent about noting any changes in purchasing trends or customer review responses that could indicate potential fraud and should reach out to MasterCard if there is any indication of suspicious activity. 

With these steps in place, businesses can significantly reduce the chances of excessive chargebacks on MasterCard networks.

Final Thoughts on Excessive Chargebacks

Overall, the MasterCard excessive chargeback program is designed to protect consumers from fraudulent activity by giving them a way to get their money back after being scammed. However, this program can also be punitive for businesses who are enrolled in it, as they may lose their merchant account and be forced to pay high fees. 

There are ways to avoid being enrolled in the ECP, however, by following best practices for preventing chargebacks such as maintaining clear communication with your customers and issuing refunds promptly. 

Chargeflow autopilot solutions can also help you fight disputes and prevent chargebacks before they happen. So if you're looking for a way to keep your business safe from excessive chargebacks, Chargeflow is the perfect solution.