MasterCard's Excessive Chargeback Program

At UniBul we can work with high-chargeback businesses, but here I will explain exactly what that term refers to. MasterCard considers a chargeback level to be excessive if in each of two consecutive calendar months (the "trigger months"), the merchant has a minimum chargeback-to-transaction ratio (CTR) of 100 basis points and at least 50 chargebacks in each month. This designation is maintained until the merchant's CTR is below 100 basis points for two consecutive months. The CTR is defined as the number of chargebacks received by the credit card merchant processor for a merchant in a calendar month divided by the number of the merchant’s sales transactions in the preceding month acquired by that processor. (A CTR of 1% equals 100 basis points.)

Credit card processing companies are responsible for monitoring their merchants' chargeback levels, calculating the CTR for each calendar month and reporting to MasterCard any merchant that is a Chargeback-Monitored Merchant (CMM) or an Excessive Chargeback Merchant (ECM). In addition, credit card payment processing service providers must submit separate reports for each of their Chargeback-Monitored Merchants (CMM). A merchant qualifies as a CMM if it has a CTR in excess of 50 basis points and at least 50 chargebacks in a calendar month.

Within 30 days of the end of the second trigger month, and on a monthly basis thereafter, the credit card processing service provider must submit a separate ECM report for each of its ECMs (in lieu of a CMM report) until that ECM’s CTR is below 100 basis points for two consecutive months. The acquirer also must provide a copy of the ECM report and these ECP Standards to the specific ECM merchant. MasterCard will assess the acquirer a reporting fee of $300 for each ECM report submitted.

In addition to any applicable assessments for CMM reports, ECM reports, or late report submissions, MasterCard may assess the merchant account processor for issuer reimbursement fees and violation assessments for excessive chargebacks arising from an ECM. The issuer reimbursement fees and assessments are applied in each calendar month that the ECM exceeds a CTR of 100 basis points, including the two trigger months. The reimbursement fees are calculated as the number of chargebacks that account for the CTR above 100 basis points are multiplied by $25. The violation assessment is calculated as the issuer reimbursement fees are multiplied by the CTR (expressed as basis points) and divided by 100.

It is clear that merchant account service providers have a powerful incentive to rigorously monitor their merchants' chargeback levels. Typically, if your chargeback levels exceed a CTR rate of 100 basis points for more than two consecutive months, your small business merchant account will be suspended.

Billing Descriptor

The way your company's name appears on your customer's credit card statement is called a billing descriptor. In order to qualify for the lower interchange rate offered to merchants operating in a card-not-present credit card payment processing environment (Visa: CPS; MasterCard: Merit 1), the company name and a customer service number must appear in this field. If your company offers a single product or service this descriptor would be sufficient. For example:

ABC SERVICES 800-111-2345.

This is the default billing descriptor. Your small business merchant accounts provider will set it up for you. There is also the soft billing descriptor which allows the description field in the cardholder’s statement to be modified to include a more detailed description of the transaction. The merchant’s name is usually truncated to three letters plus an asterisk followed by a short description of the service or product that your company provides. Keep in mind that this field is usually limited to 25 characters plus the phone number. Be sure to check with your credit card merchant processor to see if they support this feature and for their format requirements. For example:

ABC* Instant Oil Change 800-111-2345.

The importance of using the correct billing descriptor in your merchant account processing activity cannot be overstated. If your customer does not recognize your company's name on his or her credit card statement, the transaction may be disputed and lead to a chargeback. Consult with your credit card processing account provider on the most appropriate way to set it up.

Are merchants responsible for fraudulent orders placed with them?

Unfortunately, in the case of a fraudulent transaction, the merchant it was placed with bears certain financial responsibility (this is an especially big problem for certain industries). The merchant is just as much a victim as the cardholder whose card information was used to place the order is, yet there are certain transaction fees that have been incurred in processing the payment.

When you set up a small business merchant account, you agree to pay certain credit card payment processing fees and charges on every transaction that you accept. It is important to understand that payments are not actually at your processor until you submit your daily batch at the end of your day. The reason it is important is that it gives you some extra time to try and verify the validity of every payment that you accepted that day. Your credit card processing company will provide you with a set of tools to help you fight fraud. They have a financial incentive to minimize fraud, just as you do. If you employ these tools, along with CVV2 and AVS verification services, you will be sure to reduce and possibly, eliminate fraud.

It is a good idea that you establish a set of credit card transaction processing best practices to fight fraud. Make it a point of always using AVS but try not to use voice authorizations because they bypass the credit card merchant processor’s system and cannot be used as supporting evidence in chargeback representments. Also, personally check a new customer's payment details and make sure there is nothing suspicious. Often, common sense is your most effective fraud protection asset.