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Watch your chargebacks

Dec 21, 2021

There’s nothing more frustrating for a merchant when your costs suddenly rocket. This unpleasant scenario can happen when you fail to keep an eye on your Mastercard chargeback ratio.

If your chargeback rate is more than 1.5% of your transactions, and if there are more than 100 per month, then that’s when you’ll be added to Mastercard’s Excessive Chargeback Merchant (ECM) Program. Should your rate tip be over 3.0% and 300 transactions per month, then you’ll be in the High Excessive Chargeback Merchant (HECM) Program.

For the first month above the threshold, there will be no penalties incurred. But, as soon you enter month two, there’s a fee of 1000 EUR/USD for both programs, then for the third, 1000 and 2000 EUR/USD respectively. This can increase to 200,000 EUR/USD if the thresholds were to be breached for more than 19 months.

On top of this, Mastercard will charge somewhere between 50 to 300 USD per month for a monthly activity report from your bank, with a 1000 USD fee per day that that each report is not filed. These are charged directly to your bank, which is bound to charge you more than this.

Now, if your chargeback ratio should fall below the set threshold, you are not immediately declassified as an ECM or HECM. This will not happen until the rate is below the limit for at least three consecutive months. Businesses remaining in the ECM or HECM programs for six months are liable to have Mastercard put their acquirer under review or become the subject of an action plan.

However, the type of business you operate, among other factors, can also be considered. Smaller firms with fewer monthly transactions may be treated more leniently than larger organisations more prone to risk. But you should be aware that there is more potential for small business to have a higher chargeback ratio, and a history of this could affect any decision. You should note that any arbitration chargebacks will not affect your chargeback rate, only the first one.

To keep your chargeback ratio at the minimum, take a few steps to ensure your customers know what they are being charged for and what to expect.

  • Make sure you have valid and up-to-date customer care contact information on your web-site;
  • Describe products and services very accurately. Set high quality standards;
  • Provide a clear transaction description. Make the billing descriptor match your business name;
  • Create flexible return and refund policy. Inform customers when they can expect a refund in their statement;
  • Communicate shipping costs and estimated arrival time. Use tracked delivery;
  • Contact customers with suspicious orders (bulk orders, multiple orders, mismatch in billing and shipping addresses);
  • Focus on excellent customer service. Be always available on clients chat, email, phone and social media accounts.

Dealing with chargebacks can be one of the hardest parts of running an online business. When chargebacks go out of control they can seriously harm your business. Therefore, it is in your best interests to keep your chargeback rate as low as possible and in this case, prevention is definitely the best method. Understanding the reasons behind chargebacks will help you to prevent future chargebacks. So, watch your chargebacks, and keep those costs in check.

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