Image by Hakan Dahlstrom via Flickr, under Creative Commons Attribution 2.0 LicenseTaking effect on August 15, 2012, MasterCard will begin implementing its new chargeback thresholds. But don't worry--this is good news! MasterCard's new standards are making chargebacks more merchant friendly.
The credit card company currently enforces a 1% chargeback ratio rule that will soon be increasing to 1.5% in just two months. Before we dive into the updates, let's cover some basics for our startup merchant readers who may not fully understand MasterCard's chargeback standards.
MasterCard's Excessive Chargeback Program Basics
Several years ago, MasterCard created the Excessive Chargeback Program so acquirers could monitor their merchants' chargebacks. With a simple formula, acquirers are able to determine when a merchant has surpassed its monthly chargeback limit or is approaching the threshold.
If you want to figure out your own chargeback ratio, here's how you can do it: take the total number of chargebacks for one calendar month and divide that number by the total sales transactions (in dollars) for the previous month. Note: A chargeback ratio of 1% equals 100 basis points.
Now that you understand how to determine your own chargeback ratio, let's talk about the different Excessive Chargeback Program merchant categories and MasterCard's new revisions.
Chargeback-Monitored Merchants
MasterCard created this category for merchants who are approaching their monthly chargeback limits. The credit card company currently defines chargeback-monitored merchants as those who have chargeback ratios of more than 0.5% or 50 basis points and more than 50 chargebacks within one month. When the new standards take effect, MasterCard will increase the threshold to 1% or 100 basis points and more than 100 chargebacks within one month.
The chart below represents the chargeback ratio for a chargeback-monitored merchant based on the new standards.
| Month | January | February | March | April | May |
|---|---|---|---|---|---|
| Chargebacks | 558 | 503 | 572 | 607 | 681 |
| Sales Transactions | $47,725 | $47,980 | $47,445 | $47,850 | $47,660 |
| Chargeback Ratio % | — | 1.05% | 1.19% | 1.28% | 1.42% |
| Basis Points | — | 105 | 119 | 128 | 142 |
Excessive Chargeback Merchants
MasterCard created this category for merchants who have surpassed their maximum monthly chargeback limits. Excessive chargeback merchants are those who have a chargeback ratio of more than 1% or 100 basis points and more than 50 chargebacks in each of two consecutive months. Starting August 15, MasterCard's new chargeback limit will be 1.5% or 150 basis points and no more than 100 chargebacks per month. Merchants who have exceeded these limits will be considered excessive chargeback merchants.
The chart below represents chargeback ratio for an excessive chargeback merchant based on the new standards.
| Month | January | February | March | April | May |
|---|---|---|---|---|---|
| Chargebacks | 1,050 | 1,467 | 1,635 | 1,556 | 1,495 |
| Sales Transactions | $95,665 | $95,460 | $95,561 | $95,867 | $95,255 |
| Chargeback Ratio % | — | 1.53% | 1.71% | 1.63% | 1.56% |
| Basis Points | — | 153 | 171 | 163 | 156 |
Preventing and Fighting Chargebacks
Although MasterCard raised its chargeback threshold limit, you still need to learn how to prevent and fight chargebacks. If you become too lax with them, your chargebacks will accumulate so quickly that you won't have any time to fix the issues. For information on preventing and fighting chargebacks, visit the Fraud Protection Page on the Instabill website.
Thanks for this helpful website!!
Hi Sarah, 
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