Costs in payments – part 4: the costs of card scheme programs

Welcome to another part of our series on costs in payments! Take a look at our previous posts to learn about chargebacks, different pricing models, and more. Now that we've discussed the true factors and costs of chargebacks, let's dive into the different programs merchants utilize. In part 4 we'll analyze different card scheme programs and their effects on costs.

Card scheme programs

Card scheme programs are initiatives and systems established by major payment networks (like Visa, MasterCard, American Express, and others) to manage and mitigate risks associated with payment processing. These programs aim to protect both merchants and consumers by monitoring transactions for fraud, managing chargeback rates, and ensuring compliance with industry standards. These programs are available and differ between merchants and acquirers and usually address sectors like chargeback management, transaction processing, and security. Here's a breakdown of what these programs typically entail:

Acquirer programs

These programs mainly affect acquirers on the whole portfolio, but because of that they might have certain limitations and some internal thresholds for merchants monitoring programs. Here are Visa and Mastercard's programs: Visa Acquiring Monitoring Program Acquirers get placed in this Visa program if they meet or exceed any of the following monthly thresholds for card-absent environment disputes, card-absent environment fraud activity, or enumeration attacks:

Beginning April 1, 2025, Visa will phase out its Visa Fraud Monitoring Program (VFMP) and Visa Dispute Monitoring Program (VDMP) for merchants operating in the Visa Europe region. The Visa Acquirer Monitoring Program will be enhanced to effectively replace these two programs. Mastercard Acquirer Chargeback Monitoring Program (ACMP) The ACMP consists of two Mastercard monitoring programs:

Each of these programs notifies the merchant's acquirer when the thresholds are met. The acquirer is then responsible for notifying its merchant and working with that merchant to take appropriate steps to bring the merchant's chargeback levels down to acceptable levels.

Fraud Monitoring Programs

These focus on identifying and mitigating fraudulent activities. They use advanced algorithms and real-time monitoring to detect suspicious transactions. Major programs include:

Visa Fraud Management Program (VFMP)

This program applies to users who have an excessive amount of fraud on their account. Through utilizing early fraud warning (EFW) data, Visa is able to gage qualifications for the program; specifically when they exceed certain monthly thresholds in both their:

• total USD volume of EFWs (Fraud Volume)

• ratio of the USD volume of EFWs to the USD volume of all captured payments (Fraud Rate)

Visa then monitors merchant outlets that generate an excessive amount of fraud. This is split into three timelines: standard, high-risk, and excessive. Then Visa will identify merchant outlets under the VFMP standard timeline that meets or exceeds any of the following monthly program thresholds:

• $75,000 fraud amount

• 0.9% fraud-dollar to sales-dollar ratio

Aside from these general standards, there are also more case specific rules pertaining to things like digital goods Merchant assigned MCC 5735 (Record Stores), MCC 5815 (Digital Goods Media - Books, Movies, Digital artwork/images, Music), 5816(Digital Goods - Games), 5817 (Digital Goods - Applications [Excludes Games]), or 5818 (Digital Goods - Large Digital Goods Merchants), with these thresholds:

• USD 25,000 fraud amount

• 300 fraud count

• 0.9% fraud-dollar-to-sales-dollar ratio

And Region specific rules like in the US Region: For domestic Visa Secure Transactions:

• USD 7,500 in US Issuer-reported fraud in the previous calendar month

• 0.75% fraud-dollar-to-sales-dollar ratio in the previous calendar month

MasterCard Excessive Fraud Merchant Compliance Program

Similar to Visa's program, the EFM compliance program targets merchants with high fraud rates. When their fraud rates cross Mastercard's predetermined thresholds they are at risk of facing penalties like fines or being denied Mastercard services. Here are a few of the EFM compliance program's thresholds:

• 1000 e-commerce transactions

• $50000 fraud amount

• 50 fraud chargeback ratio basis points (BPS)

Chargeback management programs

Chargeback management programs monitor the frequency and nature of chargebacks received by merchants. They help ensure that merchants stay within acceptable chargeback thresholds and provide tools and resources to address disputes effectively. Here are a few examples: Visa Dispute Monitoring Program (VDMP) Visa identifies merchant outlets under the VDMP when they meet or exceed both of the following monthly program thresholds:

• 100 dispute count

• 0.9% ratio of disputes-to-sales transactions

Merchant outlets will be monitored for any of the following reasons:

• The merchant exceeds the standard program thresholds and is categorized by a high – integrity risk MCC

• For merchants not categorized by a high-integrtiy risk MCC: The merchant meets or exceed the VDMP monthly excessive dispute threshold of both:

  • 1000 dispute count

  • 1.8% of disputes-to-sales transactions

• Visa determines the merchant caused undue harm to the goodwill of the Visa payment system

• The merchant's acquirer is subject to risk reduction measures for poor merchant management practices

MasterCard Excessive Chargeback Program (ECP)

This program flags users as excessive chargeback merchants (ECM) when they meet or exceed the monthly thresholds for both of the following criteria:

• 100 chargebacks

• 150 basis points

The merchant's acquirer will then be notified and they must review the merchant's identification details. Non performance assessments will be implemented when the merchant is considered ECM for 2 months. They will remain in the program until their chargebacks or basis points fall back below thresholds for 3 consecutive months.

Transaction processing programs

These card scheme programs are implemented to make sure that merchant and acquirer behaviors are consistent during card transactions. This is to avoid behaviors that could harm the network or be not consistent to the expected transaction processing strategies. The main programs from visa and mastercard are the ones shortly described below:

• Visa system integrity: This monthly fee consists of two parts, the Visa Excessive Retry Fee and the Visa Data Quality Fee. Visa has clustered the existing decline response codes into four categories for decline code management related to excessive retries, enumeration and fraud attacks.

• Mastercard TPE excessive authorizations: The Mastercard Transaction Processing Excellence (TPE) Excessive Authorizations Fee is a monthly fee charged for excessive account testing of a single Payment Account Number (PAN) on the same MID within 24 hours and within a 30-day window.

• Mastercard TPE Merchant Advice Code: The Merchant Advice Code Transaction Processing Excellence program is a monthly fee designed to reduce unnecessary authorization declines.

For more information about the cost impact on your business take a look at our previous blog post or consult the available documentation from card schemes.

Conclusion

Monitoring and understanding the true factors behind costs is strategic and imperative for businesses nowadays. While the exact costs of card scheme programs can be difficult to calculate, it is important to understand the different factors and standards merchants and acquirers need to uphold to optimize their costs. Proactively upholding card scheme standards helps businesses minimize risks, enhance operational efficiency and resilience, and bolster relationships between acquirers and card schemes. Learn more on how you can effectively manage card scheme program costs by scheduling a call with us today!