In 2019, Mastercard implemented two new programs: The Excessive Fraud Merchant (EFM) and the Excessive Chargeback Merchant (ECM) program. Both were intended to help merchants and financial institutions monitor fraud and keep chargebacks at a manageable level.

Mastercard first announced the Excessive Chargeback Merchant program in April 2019. As the name suggests, it’s a chargeback compliance scheme that oversees eCommerce merchant activity. ECM also imposes a penalty on merchants who fail to meet compliance standards.

Mastercard aims to use network data to automatically track chargebacks resulting from both card-present and card-not-present transactions conducted by your merchants. The card network will then notify you if an individual merchant threatens to breach the compliance threshold.

It’s important to understand the rules of the program and to work with clients to help them maintain compliance. This article walks through the purpose and parameters of ECM. We’ll also see what it means when one of your clients surpasses the acceptable chargeback threshold.

What’s the Reason Behind ECM?

Despite a merchant’s best efforts, not every chargeback can be prevented. Mistakes happen and there are some situations, like friendly fraud, that are completely outside of their control. At the end of the day, though, merchants are still liable for chargebacks. Thus, need to try to cut down on risk and minimize the number of disputes they receive.

There are a few primary reasons that should motivate merchants to keep their chargeback rate under control. For instance, excessive chargebacks will damage a merchant’s reputation and make card networks hesitant to do business with them. Increased chargeback activity more broadly could also destabilize the payments industry and negatively affect consumer confidence. This is where the Mastercard Excessive Chargeback Merchant programs enters the picture.

The purpose of ECM is not to punish merchants. Rather, the program exists to provide negative reinforcement and motivation to keep chargebacks under control. It also serves a dual purpose of identifying and removing bad actors from the Mastercard system.

Unfortunately, some legitimate merchants who do business with your organization may suffer from excessive chargebacks and find themselves at the mercy of ECM. Being penalized takes a toll on the merchant. That said, it’s important to understand that the goal of the program is not to publish merchants. Instead, ECM exists to create a fair and sustainable payments ecosystem for cardholders, banks, and merchants alike.

How Do Card Networks Determine Program Thresholds?

Merchants who find themselves breaching compliance may take it personally and react with anger or frustration. But noncompliance penalties associated with chargeback thresholds are not new to the industry. In addition to Mastercard, Visa also had a similar program that outlined acceptable chargeback levels.

We can split the Mastercard program into two categories:

• Excessive Chargeback Merchant (ECM)
• High Excessive Chargeback Merchant (HECM).

Merchants who breach Mastercard chargeback thresholds may be sorted into one or the other program. The card network filters noncompliant merchants based on whether they surpass certain predetermined thresholds for monthly chargeback issuances.

Merchants who see between 100 to 299 chargebacks, and whose chargeback issuances represent between 1.5% to 2.99% of the total transactions, will be entered into the ECM program. Merchants with 300 or more monthly chargebacks, representing 3% or more of total transactions, will be entered in the HECM program.

Penalties for Noncompliance

The penalties for both the Excessive Chargeback Merchant and High Excessive Chargeback Merchant programs increase based on the number of months that a merchant remains in noncompliance. Even when they get their chargeback rate under the acceptable threshold, though, they won’t be immediately removed from the program.

You should remind your clients to keep their chargeback rate below the threshold for three consecutive months for their status to be reset as “compliant”.

Mastercard began assessing fees in May 2020. These penalties are based on the number of chargebacks reported in the previous month. Keep in mind that if a merchant has been in the ECM or HECM for six months, Mastercard might turn their attention to you, the acquirer. They have the power to review your process, and if at the end of 12 months the situation hasn’t improved, fees of up to $50,000 per month can be enforced.

This could incentivize you to terminate noncompliant merchants’ accounts, rather than risk the potential consequences of remaining in business with them. The takeaway here is that it’s equally important for merchants and financial institutions to understand the rules and work together to remain compliant with Mastercard chargeback thresholds.

It Starts with Chargeback Prevention

Merchants have the option to request an extension through the Data Integrity Online application for individual merchant IDs. An extension might be the right move for your client. However, Mastercard will only review and grant extensions on a case-by-case basis and at their own discretion.

You will need to comply with Mastercard to protect your own organization, as the card network might also exact penalties on acquirers for noncompliance. Keep in mind, though, that once a merchant enters the ECM program, their only option is to get their chargeback rate below the acceptable thresholds.

The real issue comes down to protecting a merchant’s business from chargebacks, saving you the cost of associated fees and a poor reputation. It all begins with chargeback prevention. At Fi911, we have the insights, technologies, and expertise that acquirers need to help their merchants understand and respond to ECM challenges.