High Risk Merchant Account Excessive Chargeback Basics

Visa and MasterCard have each designed an excessive chargeback program (ECP) of their own to prompt each processing bank that offers high risk merchant account services to carefully monitor, on an recurring basis, the chargeback ratios of every single one of its card acceptors and to estimate quickly whenever any one of them has exceeded, or is likely to do so, the permitted monthly chargeback level.

High Risk Merchant Account Excessive Chargeback Basics

The designations that are used in the high risk merchant account excessive chargeback programs are defined as listed below:

• Merchant is defined as being any card acceptor or a location, whether it is a retail store or a website that is individually recognized by the high risk merchant account provider, as mentioned in the processor's payment record.
• Chargeback-to-sales ratio (CTR) is calculated as the number of charged back sales that are processed by the merchant account provider for a given merchant in any single individual month, divided by the total count of the merchant's payment card transactions in the previous month, as accepted by that processor. (A CTR of 0.46 percent is equal to 46 basis points.)
• Chargeback-Monitored Merchant (CMM) is defined as a merchant that has a CTR level that is in excess of 0.5 percent and at the very least 50 chargebacks for any single month.
• Excessive Chargeback Merchant (ECM) is a retailer that, in every one of two successive months (called the trigger months), has at a very least a CTR level of at least 1 percent and no less than 50 total charged back transactions in every one of the examined months. The CMM designation is in force until the ECM's CTR level decreases to less than 1 percent for two successive months.
• ECM Claim Period is defined as the time period that begins on the very first day of the very first trigger month and goes on all the way until the merchant is no longer defined as an ECM.

Reporting Excessive Chargebacks

Each processing bank is required to closely monitor on an ongoing basis each of its card acceptors specifically for the purposes of estimating the chargeback ratios of every single one of them. All processing banks are mandated to calculate, for every individual month, the CTR level in basis points for every single one of their merchants and issue a report to the affected Card Association (Visa or MasterCard) regarding any location that is either a CMM or ECM.

Every month all processing banks are required to send, within 45 days from the end of each month, to the Associations an individual CMM report for every one of its merchants that is labeled as a CMM for the previous month. In order to establish whether a merchant bank is required to send a CMM report or not, the merchant bank must calculate the CTR as shown above.