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Direct Response Marketing

Guest Opinion: How MasterCard’s Revised Chargeback Thresholds Affect DR

1 Oct, 2012 By: Alan Kleinman, Meritus Payment Solutions Response


Mastercard and Guest OpinionOn August 15, MasterCard revised the rules for its Excessive Chargeback Program (ECP), shifting the definitions behind Chargeback-Monitored Merchants (CMMs), Excessive Chargeback Merchants (ECMs) and Merchants. Master
Card is increasing the thresholds and the amount of chargebacks allowed by 50 percent.

Giving merchants more flexibility, MasterCard is becoming more aggressive in the marketplace and may be encouraging merchants to promote the acceptance of MasterCard over Visa. The revised chargeback thresholds are good news for merchants. But, make no mistake, the changes in MasterCard’s chargeback limits still mean that direct response merchants must take care to prevent chargebacks.

MasterCard’s Revised Chargeback Program

MasterCard created the Excessive Chargeback Program (ECP) for acquirers to monitor merchant chargebacks with a formula to determine whether a merchant has surpassed its monthly chargeback limit. The chargeback ratio is calculated as the number of MasterCard chargebacks received for a merchant in a calendar month divided by the number of the merchant’s MasterCard sales transactions in the preceding month.

What changed? The following are the revised definitions as determined by MasterCard:

  • Merchant: MasterCard redefined the title as any distinct merchant location, either physical or a merchant’s Internet site or URL that is identified by a distinct billing descriptor.
  • Chargeback-Monitored Merchant (CMM): A CMM is a merchant that has a chargeback ratio higher than 1 percent and at least 100 chargebacks during one calendar month. Previously, merchants were classified as CMM when their chargeback ratios were over 0.5 percent and at least 50 chargebacks in a month.
  • Excessive Chargeback Merchant (ECM): A merchant is an ECM if in each of two consecutive calendar months the merchant has a minimum chargeback ratio of 1.5 percent and at least 100 chargebacks in each month. It was previously 1 percent and at least 50 chargebacks in each month.

What This Means for DR Merchants

MasterCard’s extra wiggle room could leave DR merchants a bit lax, resulting in chargebacks, fraud and questionable transactions. If a merchant isn’t careful, there won’t be enough time to resolve or fix the issues before MasterCard begins assessing fees. By then, the merchant runs the risk of being an ECM, snowballing into larger trouble like being labeled “high risk” by banks, or losing their merchant account.

Merchants can consider increasing marketing efforts to drive more revenue and promote the use of MasterCard over Visa to take advantage of the recent changes. However, merchants must proceed with caution. Increased marketing efforts must still be paired with best practices for preventing chargebacks, including the implementation of multiple fraud filters: Address Verification System (AVS), Card Verification Code (CVC/CVV2), and an internal process that reviews repeat customers, declined transactions, product delivery locations and processing trends.

Merchants can also prevent chargebacks by using clear and properly formatted descriptors. If a customer does not recognize the business on his or her statement, it will lead to confusion and a subsequent chargeback. Fulfillment issues represent another set of common chargebacks. Merchants must be sure to use shipment tracking numbers for physical goods and make non-physical good offers absolutely clear.

Chargebacks due to refund issues are another common issue and are closely tied with service issue chargebacks. In refund chargebacks, customers requested a refund and did not receive one. The best way to prevent these types of chargebacks is to maintain a liberal refund policy and to make the refund process very simple.


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