EXPLAINED

Dispute Monitoring Programs

Merchants have a financial obligation to card networks to keep disputes and chargebacks to a minimum. If the number of disputes meets or exceeds the threshold set by the networks (e.g Visa & MasterCard) the risk of being placed into a monitoring program increases. Once placed into a program, merchants can incur monthly fines and fees until their dispute and fraud levels are reduced.

Should you find yourself placed in one of these programs, it is critical that merchants take immediate action to address the situation. Inability to comply with the specific requirements of the monitoring program within the given timeline can result in merchant account closure and termination of payment processing privileges.

Visa Dispute & Fraud Monitoring Programs

Visa operates two separate chargeback monitoring programs: one for general chargebacks (Visa Chargeback Monitoring Program or VCMP), and one specifically for fraud (Visa Fraud Monitoring Program VFMP).

Visa monitors all merchant dispute activity and on a monthly basis will notify acquirers if any merchants have excessive dispute levels. Once notification has been received, acquirers are required to take immediate action to reduce the merchant’s disputes which includes completion of a Remediation Plan with the merchant to help improve chargeback or fraud mitigation efforts with the end goal to get the merchant out of the risk compliance program.

Visa Dispute Monitoring Program (VDMP)

The VDMP is used to monitor merchants for excessive numbers of disputes.

	Monthly Threshold
VDMP Early Warning	0.65%* dispute ratio and 75 chargebacks
VDMP Standard	0.90%* dispute ratio and 100 chargebacks
VDMP Excessive	1.80%* dispute ratio and 1,000 chargebacks

*or higher ratio of dispute count-to-sales count

Visa Fraud Monitoring Program (VFMP)

The VFMP is used to monitor merchants for excessive fraud levels.

	Monthly Threshold
VFMP Early Warning	0.65%* of sales and $50,000
VFMP Standard	0.90%* of sales and $75,000
VFMP Excessive	1.80%* of sales and $250,000

*or higher ratio of fraud dollar-to-sales dollar amount

If a merchant finds themselves on either program, Visa advises the follow actions may be taken:

Assess a non-compliance assessment per merchant per month to the acquirer.
Permanently disqualify the merchant and its principals from participating in the Visa Program.

For further information regarding these programs, please refer to the following Visa documentation:

MasterCard Monitoring Programs

MasterCard’s Excessive Chargeback Program is designed to track a merchant’s chargeback activity and quickly determine if the merchant is nearing or has exceeded the monthly chargeback threshold. The network experts each aquirer to monitor these thresholds and take immediate action when a merchant has exceeded acceptable levels.

MasterCard’s Excessive Chargeback Program has two categories: Chargeback Monitored Merchant and Excessive Chargeback Merchant. If a merchant exceeds a 100-basis point chargeback threshold for one month, it is labeled a Chargeback Monitored Merchant, and remains as such until the number is reduced to an acceptable level. An Excessive Chargeback Merchant is a merchant that exceeds 150 basis points for two consecutive months and remains in this category until numbers falls below 150 for two consecutive months. The Excessive Chargeback Merchant category is a tiered system that is used to further categorize the worst offenders. In addition to chargeback thresholds, MasterCard also has fraud thresholds. If disproportionate fraud activity is detected the acquirer can terminate merchant account.

Chargeback Monitored Merchant

Number of Chargebacks	Number of Basis Points
At least 100 chargebacks	At least 100 basis points (1% chargeback ratio)

*MasterCard has different thresholds depending upon where the acquiring bank is geographically located. It’s important to know where the acquiring bank is located to understand the exact limitations.

Excessive Chargeback Merchant

Number of Chargebacks	Number of Basis Points
At least 100 chargebacks	At least 150 basis points (1.5% chargeback ratio)

*Within the category of Excessive Chargeback Merchant, there are two additional distinctions.

A merchant is a Tier 1 Excessive Chargeback Merchant during months one through six.
If the merchant is still categorized as an Excessive Chargeback Merchant after the sixth month, the next distinction is Tier 2 for months seven through twelve.

If a merchant reaches Tier 2 of the Excessive Chargeback Merchant program, MasterCard advises the follow actions may be taken:

Advise the acquirer to create an action plan or implement other strategies to reduce the merchant’s chargeback-to-transaction ratio.
Require the acquirer to undergo a Global Risk Management Program Customer Risk Review.

For further information regarding these programs, please refer to the following MasterCard documentation:

Excessive Chargeback Program (ECP) Compliance Program

MasterCard’s Global Merchant Audit Program (GMAP)

Tier 1 Violation	Tier 2 Violation	Tier 3 Violation
At least $3,000 in reported fraud Fraud-to-sales ratio between 3% and 4.99%	At least $4,000 in reported fraud Fraud-to-sales ratio between 5% and 7.99%	At least $5,000 in reported fraud Fraud-to-sales ratio greater than 8%

Calculating Your Chargeback Ratio

Visa and MasterCard calculate chargeback ratio using the same principal formula, however take data from different time points.

Visa takes the number of chargebacks from the current month and divides it by the number of transactions from the current month. Whereas MasterCard takes the number of chargebacks from the current month and divides it by the number of transactions from the previous month.

Calculating Your Chargeback Ratio Visa