High Risk Merchant Account Visa Chargeback Management

Each Credit Card Association (Visa and MasterCard), as well as Discover and American Express, have designed and implemented their very own high risk merchant account programs for monitoring and handling of the chargeback ratios of the card acceptors processing their cards.

Visa, for example, monitors the chargeback rates of all commercial and non-profit entities processing their cards on a monthly basis and informs the affected acquiring banks (also known as processing or merchant banks or simply an acquirer) any time one of its merchants reaches or goes above the level of excessive chargeback rates. Visa views a chargeback ratio of one percent or more as excessive.

Whenever it is notified of a retailer with an excessive chargeback ratio, acquiring banks are mandated to take strong actions in order to lower the business' chargeback level. Exactly how this is achieved will depend on the mutual interaction among a number of factors, including the business type, processing amounts, geographic location, and other high risk merchant account factors. Often retailers are mandated to provide their sales staff with additional training on payment processing procedures. Retailers can also be requested to work with their processing banks to devise and implement a convincing chargeback-minimizing plan.

Visa can assess severe penalties on acquiring banks that are not able to decrease their retailers' excessive chargeback ratios. Visa has devised two different chargeback management programs:

• Merchant Chargeback Monitoring Program (MCMP). MCMP keeps track of chargeback levels for all merchant banks and retailers on a monthly basis. If a retailer exceeds excessive chargeback rates, Visa contact the affected merchant bank in writing. MCMP is applicable to all high risk merchant account users who have more than 100 total monthly transactions, including sales, credits, etc., over 100 chargebacks, and an overall chargeback-to-sales rate of 1 percent or greater. The initial notification for an excessive chargeback level for a given retailer is viewed as a warning. Visa charges fines only if corrective actions are not provided within a pre-determined period of time to get the chargeback level back to lower rates.
• High-Risk Chargeback Monitoring Program (HRCMP). HRCMP is precisely developed to minimize excessive chargeback ratios by high-risk merchant account holders. Such retailers include ticket brokers, timeshare advertising services, travel agents, tour operators, pyramid or multi-level marketing distribution, outbound telemarketing merchants, payment facilitators, internet payment services, etc. HRCMP is applicable to all high-risk merchant account holders with more than 100 total transactions per month, including sales, refunds, etc., greater than 100 chargebacks, and a total chargeback-to-transaction ratio of 1 percent or higher. Unlike the MCMP, under the HRCMP, there is no warning period and fees of $100 per sale are imposed right after a retailer has been caught with an excessive chargeback ratio.

Visa additionally monitors international sales and chargeback ratios through its Global Merchant Chargeback Monitoring Program (GMCMP).