The Mastercard Excessive Chargeback Merchant (ECM) program monitors and helps rehabilitate merchants that have passed a certain threshold of chargebacks. The ECM program is part of the larger Excessive Chargeback Program (ECP). If a high number of customers experiences issues when paying with their Mastercard, it can negatively impact the Mastercard brand.
When you open a merchant account with an acquiring bank, the bank assigns you a merchant ID (MID). This MID is how Mastercard keeps track of your business’ transactions. When a merchant passes a pre-defined threshold, Mastercard sends a notification to their acquiring bank.
When is a merchant placed in the ECM Program?
A merchant has to cross a specific threshold in order to be entered into the ECM program.
- Meeting or exceeding 100 chargebacks in a calendar month
- Meeting or exceeding 150 basis points in a calendar month
How does Mastercard calculate your basis points? They take the number of first presentment chargebacks in a calendar month and divide that number by the amount of transactions in the preceding month. They multiply that number by 2000. Mastercard calculates this number every month.
When are the consequences of being placed in the ECM Program?
The goal of the ECM program is to help merchants get the right systems in place, so they can become a more trusted member of the Mastercard network. As a result, there are specific consequences meant to serve as motivators.
An assessment is a number that is used to determine how much you’ll pay in fees based on the number of chargebacks you accumulate.
The issuer recovery assessment only begins to apply in the fourth month. The assessment applies at 5 USD for every chargeback that you get over 300. For instance, if your merchant ID has 500 chargebacks, Mastercard would first calculate how many you have over 500 (500 minus 300) which is 200. They would then multiply this number by 5 to get 1000.
Table 1: List of assessments by calendar month from JP Morgan.
Consider this example from JP Morgan. Suppose your merchant ID exceeds ECM status in January. This would be considered Month 1. If you then stayed below the threshold in February, you would still be in the program, because you haven’t spent 3 consecutive months under the ECM limits. If you then exceed the threshold in March and April, March will be assessed using the Month 2 penalty and April will be assessed using the Month 3 penalty.
Table 2: Example of how assessments are applied by calendar month from JP Morgan.
How do you exit the ECM Program?
Your months in the ECM reset once you’ve spent three consecutive months below the thresholds. For example, if you enter the ECM in January, but you are below the thresholds in February, you’ll still remain in the program. If you stay below the threshold in March and April, you’ll exit the program.
If you’re uncertain how to tackle your high chargeback problem, there are a few key steps that you can take:
Invest in a chargeback monitoring tool
A chargeback monitoring tool can help you identify disputes before they become chargebacks and either issue a refund or put together a compelling representment package if you wish to challenge the dispute.
Improve your customer support channels
Make it easy for customers to reach you if they have a problem. Often, customers take disputes to their bank, because they can’t get in touch with the merchant.
Include clear terms and conditions on your website
If your customers have to check a box saying that they have reviewed the terms and they’re happy with the conditions, you have proof that it was an honest sale.
Which industries are highly susceptible to ECM Program inclusion?
While anyone can be entered into the ECM program, there are a few industries that have a higher likelihood of excessive chargebacks:
- Online gambling
- Debt collection
- Healthcare
- Credit repair
- Airline
- Hospitality
- Restaurants
- Online SaaS tools
What are the different ECM tiers and consequences?
Early Warning / Monitoring Phase
The first three months are considered an Early Warning or Monitoring phase. During these months, merchants are not charged a fee and these months give the vendor an opportunity to fix the issues causing the high number of disputes.
Excessive
If you are unable to get your chargeback rates under the specified threshold, Mastercard enters you into the High Excessive Chargeback Merchant (HECM) program. In this program, the fines are higher.
How to Prevent Entering the ECM Program
Monitor Your Chargeback Ratio
The first thing you can do is use a chargeback management solution to stay on top of your chargeback ratio. This is especially important if you’re already in the Excessive Chargeback Merchant Program (ECM) program or the High Excessive Chargeback Merchant (HECM) program.
A chargeback management platform can also help you monitor any incoming disputes, so you can give the customer their money back before the dispute becomes an official chargeback. If you believe the dispute is unfair, there are some chargeback management solutions that can help you prepare a strong representment package.
Improve Customer Experience
Another way to prevent chargebacks is to improve your customer experience. The best way to do this is by making it easier for customers to reach you – either online or by phone – and making sure that you have enough staff to answer their inquiries. Often, customers take their concerns to the bank, because they can’t get in touch with the vendor.
Awareness is the first step towards staying out of the ECM program
Often, merchants don’t realize that their transactions are being monitored. They may even think that if they can pay the chargeback fees, having a high chargeback ratio isn’t a big deal. As a matter of fact, a high chargeback rate can compromise your business’ ability to accept credit card payments. An unwillingness or inability to fix a high chargeback ratio could lead to a merchant losing their Mastercard network privileges. A chargeback management solution can help ensure that this does not happen.
To learn more about how a chargeback management solution can help you grow fast while keeping chargebacks low, book a call with a member of the ChargebackStop team here.
