Inside Mastercard’s Excessive Chargeback Program

Most merchants don’t hear about Mastercard’s Excessive Chargeback problem unless there’s a problem. And it typically doesn’t come directly from Mastercard, either. 

If you landed here, there’s a good chance it’s from a processor email that mentions it, along with your ratio and fines ahead. Or you missed that notice and the excessive chargeback fees have already hit your statements.

Whatever the case may be, this post will help you understand exactly what’s happening in ways your processor communication probably leaves out. 

How Mastercard Calculates Your Chargeback Ratio

Generally speaking, your chargeback ratio is your total number of chargebacks in a month divided by total transactions in a month, multiplied by 100.

But Mastercard’s calculation in terms of its Excessive Chargeback Program is a bit different:

• Mastercard measures chargebacks in basis points
• And it only applies to Mastercard transactions (no Visa, Amex, Discover)
• The formula is all of your Mastercard chargebacks in a calendar month divided by total Mastercard transactions in the preceding month, multiplied by 10,000.

The prior-month denominator is a key detail that merchants often miss.

For example, October chargebacks are measured against September sales. Meaning if September was slow and you’ve got a chargeback spike in October, your ratio can appear higher. So a seasonal merchant coming out of a dead month can trip an excessive chargeback threshold count that would look perfectly normal against the current month’s volume. 

And the chargeback count side also has a catch. Mastercard counts first-presentment chargebacks in the ratio calculation. Which is the initial chargeback, regardless of what happens after. Winning the dispute later on doesn’t remove it from the ratio.

One more detail worth understanding is that Mastercard identifies a merchant based on the merchant ID assigned by your acquirer because that’s the MID that shows up in the transaction clearing data. 

So a business with multiple MIDs doesn’t have a single blended number. Each MID is measured on its own, which is significant if you have separate MIDs for online and in-person sales, and your online sales are where the chargebacks are coming from. Anything you processed in-person wouldn’t dilute your chargeback ratio in the eyes of Mastercard if you have separate MIDs. 

ECM and HECM Thresholds

Mastercard’s Excessive Chargeback Program has two tiers:

Excessive Chargeback Merchant (ECM): Applies when a MID hits at least 100 chargebacks in a month and has a ratio of at least 150 basis points (1.5%). 

High Excessive Chargeback Merchant (HECM): When you reach 300 chargebacks and 300 basis points (3%). 

Both conditions need to be met in the same month.

For example, if a merchant has a 4% ratio (400 bps) on 40 chargebacks, it wouldn’t put them into the program. Neither would a merchant who has 500 chargebacks and a 0.80% ratio (80 bps).

Mastercard’s Chargeback Fine Schedule

The first month at either threshold is free. It’s essentially a warning. 

From there, the ECM fines are:

• $1,000 per month in months 2-3
• $5,000 per month in months 4-6
• $25,000 per month in months 7-11
• $50,000 per month in months 12-18
• $100,000 per month in months 19 and on

HECM fines are even steeper, roughly double at each stage:

• $1,000 per month in month 2
• $2,000 per month in month 3
• $10,000 per month in months 4-6
• $50,000 per month in months 7-11
• $100,000 per month in months 12-18
• $200,000 per month in months 19 and on

HECM merchants are also hit with a $5 issuer recovery assessment for every chargeback over 300 in that month, which is honestly a drop in the bucket compared to what the fines can be.

How to Off Mastercard’s Excessive Chargeback Program

You need three consecutive months below ECM thresholds to get out of the program. Mastercard won’t hit you with fines during months you’re below the thresholds, but you’re not officially out until you have three clean months.

For example:

• January: flagged, month 1 ($0)
• February: under thresholds = ($0)
• March: flagged again, month 2 ($1,000)
• April: HECM, month 3 ($2,000)
• May: under thresholds ($0)
• June: under thresholds = ($0)
• July: under thresholds = ($0)
• August: flagged again, back to month 1 ($0)

A couple of other rules can factor in how long you’re on the hook.

Extensions Can Delay the Bill or Get it Waived: Mastercard may grant extensions on a case-by-case basis. If they give you one, they’ll pause all fines for six months while they continue accruing. If you’re below the ECM thresholds when the six months is up, none of the fines get assessed. But if you’re over, the whole balance is due at once. 

Fraud Overlap: If you’ve been flagged in both ECP and Mastercard’s Excessive Fraud Merchant Program in the same month, you’ll pay the fraud program’s assessments but the chargeback program fines are suspended until you exit the fraud program. 

Mastercard may also ask for a remediation plan that covers:

• What caused the spike in chargebacks
• What you’ve changed to address this
• Fraud tools you’re using

This stuff gets considered when fines are assessed, so it’s definitely worth taking seriously. 

What Happens After Six Months on the Program

Once a merchant has been on ECM or HECM for six months (consecutive or not), Mastercard can step in with the acquirer directly. 

They can advise the acquirer on an action plan to bring your numbers down or require the acquiring bank to go through a Franchise Management Program risk review at the acquirer’s own expense. 

That second option can have serious implications for you because it gives your acquirer a reason to act faster. 

If you’re getting close to Mastercard’s ECM or HECM thresholds, then your processor may choose to cut ties with you to avoid added costs. Even if they don’t terminate your account, they could potentially hit you with reserves, volume caps, or hold your funds as a way to limit their risk.

Trust me, these are headaches you don’t want to deal with. You need to get your chargebacks under control if you’re anywhere close to six months on the program. 

Excessive Chargeback Fines on Your Merchant Statement

Technically, Mastercard hits the acquirer with ECM and HECM penalties. But your processor will almost certainly pass those costs to you.

I don’t know of a single processor that’s going to eat the cost of a network penalty for a merchant. 

But this pass-through concept is worth understanding for a few reasons:

• Verify the Amount: The line item may not specifically say ECM, HECM, or excessive Mastercard chargebacks. So you need to check that whatever you’re being charged aligns with Mastercard’s penalty for the month you’re in. Otherwise, your processor could be adding extra fees that’s pure margin for them and has nothing to do with Mastercard. 
• Per-Chargeback Fees: Most processors will charge a fee on every chargeback before any program fines come into play. This is your processor’s pricing and separate from Mastercard, which puts it on the table during negotiations. 
• Internal Limits: Your own merchant agreement may give your processor the right to act at ratios below Mastercard’s thresholds. It’s worth knowing where these are before you find out the hard way. 

The biggest takeaway here is that your chargebacks are an operational problem, but what your processor charges for them is a pricing issue that’s a separate conversation altogether.

So whether you’ve been warned about Mastercard’s Excessive Chargeback program, you’re already on it, or you just have lots of different chargeback fees on your statement that you can’t make sense of, it’s all worth a closer look.

Let us take a look to ensure your processor is charging you fairly, and we can even offer some suggestions of how you can limit chargebacks moving forward to get off the program.

Just book a free consultation to chat with me or my team here at MCC.