Fintech Insights

Beware of Monitoring

January 09, 2023

Part One of Three

What is fraud monitoring, and how can it affect you?

Fraud monitoring is a tool employed by credit card companies such as Visa® and Mastercard® to keep merchants’ chargeback rates low. Excessive chargebacks are detrimental to the customer experience and can sully brand reputation. In short, the fewer chargebacks, the better.

Credit card companies monitor fraud and chargeback rates to combat excessive chargebacks and then set thresholds beyond which the rates are deemed unacceptable. Once the threshold has been reached, credit card companies can begin levying recurring fines against a merchant until they can reduce chargebacks. If the merchant cannot reduce its fraud rate to an acceptable level, the card company can terminate them.

Serious business

Fraud monitoring is serious business. Consequences include fines, loss of processing privileges and lost business. Due to the severity of the topics, fraud monitoring comes with very specific rules and remedies. Though some merchants may have never heard of fraud monitoring until they’re the subject of a probe, becoming a target doesn’t come without warning.

For example, credit card companies will initiate a process in which the merchant’s acquirer informs the merchant they are entering a monitoring program. Depending on the circumstances, the company might allow the merchant to get fraud under control before formally placing them in a monitoring program. This notice will explain why the merchant is being monitored for fraud.

Proactive observation

So what’s the first step to avoid being the target of a fraud monitoring probe? Rather than be caught off guard by a notice, merchants should monitor their chargeback rates. Through proactive observation, merchants can recognize better than anyone when they’re headed for trouble. Knowing chargebacks are trending dangerously high allows merchants to correct course before fines and headaches hit.

To learn specifics of Visa’s monitoring programs and how to avoid or navigate them, please read Part Two of this blog.

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