Chargeback Thresholds That End Accounts
Visa and Mastercard run programs that watch chargebacks. Here is what each says about the limits and what can follow.
You got a warning about your chargeback ratio. The first thing to know is where that number comes from. Visa sets thresholds in its own programs.
What a chargeback threshold is
A chargeback threshold is a limit on dispute activity that a card network sets for merchants and for the banks that sign them. Visa and Mastercard each run monitoring programs.
Visa's side: VAMP
Visa's standards describe a program called VAMP. Its key measure requires acquirers to stay below 30bps and to keep their merchants below 150bps. Those are Visa's numbers. Visa's guide says Visa holds the acquirer responsible when a program flags a merchant for too many disputes.
Visa's monitoring programs
Visa runs three programs that matter here.
The Dispute Monitoring Program finds merchants who go over set limits. It looks at your dispute count each month and your disputes compared to your number of sales.
The Fraud Monitoring Program watches merchants who go over set limits. It looks at your fraud dollar amount each month and your fraud dollars compared to your sales.
The Acquirer Monitoring Program watches acquirers and their agents. It looks at the fraud and dispute activity of all their merchants added together. Your account is part of that portfolio.
Mastercard's side
Mastercard's manual includes an Excessive Chargeback Program. Mastercard built it so each acquirer watches chargebacks for each merchant, one by one. The manual also covers the Merchant Monitoring Program, called MMP. These are Mastercard's programs. Do not assume a Visa number applies to them.
Why the acquirer watches your numbers
Visa's standards say acquirers flag merchants that exceed VAMP thresholds and generate a monthly report on disputes by merchant category and merchant level.
The same standards say acquirers must check merchants with high dispute rates for sales and marketing that trick or mislead. They must also monitor that a merchant's dispute patterns fit its operating sector.
Visa's standards also say acquirers must watch every merchant for risk. That starts the day you sign up and ends only when the deal ends. The goal is to catch risk early. That means fraud, credit trouble, disputes, money laundering and illegal activity. You are being watched from day one, not just after a problem.
What crossing a threshold can lead to
Each of these comes from a named source.
Visa's rules let acquirers end the deal with merchants whose disputes run far above the average.
Visa's standards say the merchant must be notified in writing if the acquirer terminates the merchant agreement.
Visa's standards say a merchant terminated for cause is listed on the Terminated Merchant File. Visa's standards also say your past matters when you apply somewhere new. A history of being shut down, of too many chargebacks, of fraud or illegal activity can affect the decision.
Visa's rules include a table of non-compliance assessments for excessive disputes or fraud activity-to-sales ratio.
How the thresholds are measured
Visa's Dispute Monitoring Program counts two numbers. One is your dispute count each month. The other is your disputes compared to your number of sales. Watch both.
Why padding volume does not work
Merchants have tried to lower their ratio by running more transactions. Visa's guide says sellers have inflated transaction counts with one- or two-cent transactions using prepaid cards to stay below program thresholds. Visa knows this trick. Its guide says all sellers must be watched for fraud and disputes that get near the program limits. Do not do it.
Card testing attacks
Visa's guide says a spike in authorization attempts and decline responses may indicate an enumeration attack. That is someone testing stolen card numbers against your payment page.
Mastercard's rules require an acquirer to analyze each BIN attack to identify its method of operation and implement corrective measures. So the acquirer must look into each attack.
What to do before you get close
Visa's guide says dispute activity is a key indication of merchant risk. Treat every dispute as a signal, not a nuisance.
Start with why disputes happen. If you sell by phone, get billing authorization right on phone sales.
Second, understand the chain above you. Your processor has a bank, and that bank watches it. Read why banks watch payment processors to see how your numbers reach the top of that chain.
Third, answer your processor's questions fast.