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Mastercard Rules and Fee Assessments

Visa Rules and Fee Assessments | Mastercard Rules and Fee Assessments | American Express Fee Assessments

For today's Mastercard® merchant, accepting Mastercard payment cards has become simultaneously easier and more complex.

The MasterCard Merchant Rules Manual provides merchants with MasterCard rules applicable to merchant acceptance of MasterCard cards and Maestro cards. MasterCard believes that merchants are important participants in the MasterCard and Maestro payment programs and are vital to the continued success of the MasterCard and Maestro brands. MasterCard also believes that merchants and consumers benefit if merchants have access to, and are encouraged to be aware of and conform to, rules that pertain to merchants' acceptance of MasterCard cards and Maestro cards. A MasterCard member is obligated at all times to comply with MasterCard rules and to cause any merchant from which it acquires MasterCard transactions to at all times comply with MasterCard rules. A MasterCard member may require a merchant to adhere to additional and/or more stringent standards than MasterCard rules require.

Perpetual Payments strongly recommend all Merchants read this guide which is available from MasterCard's website at:
http://www.mastercard.com/us/wce/PDF/MERC-Entire_Manual.pdf

Fee Assessments

If a Merchant is receiving a large percentage of disputed Transactions or chargebacks they are required to take corrective actions to prevent disputes arising, or they may face Card Scheme Fee Assessments from MasterCard.

Thresholds

Excessive Chargeback / dispute Merchant: =1% CB ratio*

Fee Assessments: If the CB / dispute ratio is =1% for 2 consecutive month's Fee Assessments may be levied against the account and may range from a few thousand dollars to the tens of thousands.

Chargeback Monitored Merchant: = 0.50% CB ratio*

* Current month's CB and dispute #/ Previous month's settlement # = CB / dispute % ratio

Threshold

More than 1% or 100 basis points of chargebacks / disputes to Sales (by count) per month continuing over a consecutive 2 months.

MasterCard, at its sole discretion, reserves the right to request that an Acquirer terminate an Excessive Chargeback Merchant that consistently exceeds the thresholds.

MasterCard recently made changes to its Excessive Chargeback Program (ECP). As a result, we advise all Merchants of our new requirements.

Program Summary

Under the revised ECP Standards, each calendar month the Bank/Processor is responsible for calculating the Chargeback-to-Transaction Ratio (CTR) in basis points for each of their Merchants.

The CTR is the number of Chargebacks / Disputes that the Acquirer receives for a Merchant location in a calendar month, divided by the number of sales transactions received from that Merchant location in the preceding month. (A CTR of 1 percent equals 100 basis points.)

If a Merchant location has a CTR in excess of 50 basis points and at least 50 Chargebacks / Disputes in a calendar month, MasterCard considers it a Chargeback-Monitored Merchant (CMM).

If in each of two consecutive calendar months (the "trigger months"), a Merchant location has a CTR of at least 100 basis points and a minimum of 50 Chargebacks / Disputes, the Merchant location is an Excessive Chargeback Merchant (ECM).

The Merchant location maintains the designation of ECM until its CTR is below 100 basis points for two consecutive months. There is a $300 fee applied by MasterCard, which will also be applied to any Merchant in question designated as an ECM, in addition to the non-compliance assessments below.

Program Assessments

There are two assessments, card issuer reimbursement fees and violation assessments, for excessive Chargebacks / Disputes arising from an ECM. These card issuer reimbursement fees and assessments apply in each calendar month that the ECM exceeds a CTR of 100 basis points, including the two trigger months. The assessments are calculated as follows:

The card issuer reimbursement fees are calculated in steps 1, 2, and 3, and the violation assessment is calculated in step 4.

1. Calculate the CTR for each calendar month that the ECM exceeded a CTR of 100 basis points (which may also be expressed as 1% or 0.01).
2. From the total number of Chargebacks / Disputes in the above CTR calculation, subtract the number of Chargebacks / Disputes that account for the first 100 basis points of the CTR. (This amount is equivalent to 1% of the number of monthly sales transactions used to Calculate the CTR.) The result is the number of Chargebacks / Disputes above the threshold of 100 basis points.
3. Multiply the result from step 2 by USD 25. This is the card issuer reimbursement.
4. Adjust the result in step 3 to reflect the extent that the Acquirer has exceeded the 100 basis points threshold by multiplying the value in step 3 by the CTR (expressed as basis points). Divide this result by 100. This amount is the violation assessment.

Steps 1-4 are repeated for each calendar month that the ECM exceeded a CTR of 100 basis points or 1%.

Key Points

Clearly, the method of calculating the applicable Card Scheme Fee Assessments is not easy, but the calculation of chargeback thresholds remains to be simple, except for the fact that your business must base those calculations on current month's Chargebacks / Disputes vs. previous month's sales. It is important to note that while MasterCard has a 50 chargeback threshold before getting into the ECP program, it continues to be the position of most Banks/Processors that all Merchants should keep their MasterCard Chargebacks / Disputes thresholds below 1% at all times, notwithstanding the actual number of Chargebacks / Disputes.

MasterCard Audit & Excessive Counterfeit Programmes

The MasterCard Audit and Excessive Counterfeit programmes identify Merchants that have exceeded a critical percentage of fraud to interchange i.e. Fraud to sales ratio. All MasterCard reports are shown in US $ values.

The Merchant Audit Programme includes the following two reports:

Merchant Watch Programme

This identifies Merchants whose fraud exceeds 4% of total interchange sales or a fraud-to-sales ratio of 4 to 100, in any two months in a six-month period. This programme does not require immediate action by Acquirers, but acts as a warning. However, MasterCard strongly suggest that Acquirer's implement a fraud control programme with each Merchant identified by this programme.

Merchant Violator Programme

This identifies Merchants whose fraud sales by value exceeds 8% of total interchange sales, or a fraud-to-sales ratio of 8 to 100 or more, in two consecutive months during a six-month period and an automatic chargeback liability window is opened for 12 months. Acquirers must either accept liability for all fraud related Chargebacks / Disputes for a minimum of one year or terminate the Merchant agreement.

For each Merchant identified under this programme, Acquirers are required to either: -

1. Accept liability for all fraud related Chargebacks / Disputes for a minimum of one year, or
2. Terminate the Merchant agreement and enter the Merchant into MATCH

8% Rule

MasterCard calculates fraud percentage based on an Acquirer's fraudulent percent of interchange sales in relation to its total sales (interchange and On-Us) with respect to a Merchant location. Interchange sales refers to non-on-us transactions. An On-Us transaction has the Acquirer and the card issuer as the same institution.

Note - The Merchant Audit Programme does not include any transactions attributed to a fraudulent credit card application in the calculations of the fraud-to-sales ratio.

Excessive Counterfeit Special Merchant Programme

This programme has a tiered approach and identifies Merchants that have exceeded either of the following excessive counterfeit transaction standards within a six-month period:

  • Tier 1 - At least 3 counterfeit transactions in 1 month totalling a minimum of $1,000 and a maximum of $2,999
  • Tier 2 - At least 3 counterfeit transactions in 1 month totalling a minimum of $3,000 and a maximum of $5,999
  • Tier 3 - At least 2 counterfeit transactions in one month totalling a minimum of $6,000

Under Tier 1, MasterCard mandates no action. However, it is felt prudent to look at what Merchants have broken parameters to see if a remedial fraud control programme can be put in place. I.e. Merchant education, Code 10 etc.

Under Tier 2, Acquirers are afforded two options. They can either provide a fraud education/training programme or they must terminate the Merchant's facility.

Under Tier 3, an automatic chargeback liability window is opened for 12 months. Acquirers must either accept liability for all fraud related Chargebacks / Disputes for a minimum of one year or terminate the Merchant agreement.

Exceptions

Acquirers may request that a Merchant is made exempt from either the Merchant Audit or Excessive Counterfeit Programmes if any of the following situations exist:

  • The Merchant is chain store, and the Merchant cannot identify from the violation notification which location in the chain has been identified - the Acquirer must submit the necessary response form and clearly indicate the number of chains associated with the Merchant.
  • The Merchant is a department store. The Acquirer must submit the necessary response form and clearly indicate the number of departments, as well as the number of employees, at the Merchant location.
  • If the Merchant identified by the Merchant Audit Programme has additional sales volumes that lowers its fraud to sales ratio below 8%, the Acquirer must submit the necessary response form showing the actual sales volume for the Merchant (MasterCard sales only). Acquirers must submit the actual sales volume in US Dollars.
  • If the Merchant identified on the Excessive Counterfeit Fraud Programme has additional sales transactions that lower its transaction count of counterfeit to sales transactions below 5% the Acquirer must submit the necessary response form showing the actual number of sales transactions for the Merchant (MasterCard sales only). However, if the Merchant is identified by the programme as having two or more transactions in one month totalling a minimum of US $2,500, the Acquirer cannot apply this exemption.
  • If the Merchant identified by the Excessive Counterfeit Fraud Programme is a mail-order/telephone order (MOTO/Internet) Merchant, the Acquirer must submit the necessary response form and provide the Merchant Category Code (MCC). In addition, the Acquirer must enter the following into the comment field on the response form: 'MOTO/Internet Merchant, please exempt from Excessive Counterfeit Special Merchant Programme'

Merchants identified with a MOTO/Internet MCC are not exempt from the Merchant Audit Programme.

Some exemptions are unique to each programme. MasterCard will grant exemptions only within the scope of each programme.

MasterCard will grant additional exemptions only if an Acquirer has evidence that clearly distinguishes why a Merchant should be considered exempt. The Acquirer must submit the necessary response form and include all information that MasterCard should consider. MasterCard will not grant exemptions for responses such as 'good customer', 'Merchant education undertaken', 'on code 10', 'Merchant is not a problem' etc

If MasterCard does grant an exemption, the exemption is valid for only the reporting period in which that particular identification was made. If either programme identifies a Merchant in future reporting periods, exemptions are not automatic. Acquirers must request an exemption each time a Merchant is identified by either programme.

All exemptions are made at MasterCard's discretion and are not automatic.

Penalties for Non-Compliance

If a Merchant does not meet any of the criteria described in the previous section, the Acquirer must make a decision either to accept chargeback liability or terminate the Merchant. If an Acquirer submits a response that does not show clear evidence as to why MasterCard should consider the Merchant exempt from these programmes, a follow-up notification requiring them to make a decision to either accept chargeback liability or terminate the Merchant agreement may be issued. If the Acquirer does not respond in an acceptable manner within the response time designated on the notification, MasterCard will list the Acquirer and Merchant in a Global Security Bulletin to notify the card issuers of its chargeback rights.

MasterCard MO/TO Programme

On a monthly basis, Acquiring Banks receive a report from MasterCard in respect to Merchants who have processed MO/TO transactions that have breached the programme parameters.

Parameters

  • 3 fraudulent MOTO/Internet (type loss 6) transactions
  • Or $20,000 Fraud value
  • Or 1% MOTO/Internet fraud (type loss 6) to sales ratio

Actions Required

  • The Merchant or Acquirer will have 160 days from notification to implement CVV2, or an alternative fraud prevention tool including SecureCode.
  • Merchants may implement AVS in addition to CVV2.
  • Termination of a Merchant is at the discretion of the Acquirer.

Penalties for Non-Compliance

Card Scheme Fee Assessments will then be levied at $25 per fraudulent transaction, until such time as CVC2 or SecureCode is implemented.