When you must apply for a high-risk merchant account that accepts and processes credit and debit card payments, it is because the payment processor sees your business as vulnerable to fraud and chargebacks. Occasionally, these high-risk business types will have to register with the MasterCard high-risk merchants program.
Fortunately, being one of the leading card companies in the world, it has come up with a chargeback and anti-fraud friendly program to protect customers that transact with high-risk businesses.
The credit card industry is dominated by only a few companies and Mastercard is one of those companies.
According to a recent survey, there are over 300 million Mastercard credit cards in circulation in the United States and an estimated 725 million cards in circulation worldwide.
Since credit cards are used in card-not-present transactions, purchases are easily disputed and fraud is also prevalent because criminals can steal credit card information or assume other people’s identities.
This scenario is particularly detrimental for high-risk businesses and is the reason why Mastercard has introduced merchant compliance programs for high-risk merchants to keep these problems under control.
What is the Excessive Fraud Merchant Program for Mastercard High-Risk Merchants?
The Excessive Fraud Merchant program (EFM) is a fraud compliance scheme for Mastercard high-risk merchants. This is meant to reduce the number of fraud cases occurring on the Mastercard network and impose penalties on Mastercard high-risk merchants that do not comply with their anti-fraud policies.
Even though the Excessive Fraud Merchant program is a global program, there are some countries where this compliance scheme does not apply:
- Ascension and Tristan Da Cunha
The Excessive Fraud Merchant program is particularly beneficial for high-risk eCommerce transactions that lose billions of dollars every year to excessive chargebacks and fraud.
Mastercard high-risk merchants are expected to protect the credit card information of Mastercard cardholders on their platforms and in cases where they fall short of this responsibility, Mastercard sends a notification to their acquiring bank.
This notification usually means that a fine or penalty would be imposed on the high-risk merchant by the card network and if there are no changes. Occasionally, even after the fine has been paid, Mastercard could withdraw its services from the Mastercard high-risk merchant altogether.
Excessive Fraud Merchant Program for Higher-Risk Merchants: How It Works
A Mastercard high-risk merchant that meets any of these conditions in a calendar month that ends up in an EFM program:
- 1,000 Mastercard sales transactions in the preceding month
- A minimum of $50,000 in Mastercard fraudulent disputes or chargebacks under these reason codes (4863-cardholder does not recognize–potential fraud and 4837-no cardholder authorization)
- Less than 50% of transaction volume going through 3-D Secure in regulated countries
- Less than 10% of transaction volume going through 3-D Secure in non-regulated countries
- A minimum of 0.50% in fraud chargeback and sales ratio
Regulated countries are countries that require regulatory requirements for cardholder authentication. These countries include Singapore, Bangladesh, Nigeria, India, and South Africa.
Non-regulated countries, on the other hand, refer to countries that do not require any legal requirement for strong cardholder authentication. These countries include the U.S., Sweden, Denmark, and the United Kingdom.
Why Does the Card Network Do This to Merchant High-Risk Merchants?
The popular card network knows that it is impossible for Mastercard high-risk merchants to fully clamp down on fraudulent activities, but they do not want merchants taking the matter lightly as well.
Mastercard’s reputation is at stake if they do not minimize the fraud cases that occur on their network.
If they fold their hands and do nothing to curb fraud cases on their network, it eventually damages a cardholder’s confidence and inevitably results in long-term losses.
Since Mastercard’s reputation is tied to the stability and security of card payments, they always go all out to ensure that Mastercard high-risk merchants do not jeopardize their activities.
Though fines and penalties are imposed on erring high-risk Mastercard merchants, the aim of the Excessive Fraud Merchant program is not to punish merchants.
Instead, the real aim of the program is to make Mastercard high-risk merchants accountable and make sure the interests of customers that patronize their businesses are protected.
Serious-minded high-risk Mastercard merchants have nothing to worry about if they go all out to put the necessary parameters in place to whittle down fraud and chargeback ratios.
The high-risk merchants that need to worry about are those who do not see card-not-present challenges as a priority. The Excessive Fraud Merchant scheme is a match listing service that identifies the business owner, terminates the merchant account, and removes them from the Mastercard network system altogether if they fail to change their ways.
How Mastercard High-Risk Merchants Can Avoid EFM Fines
When Mastercard high-risk merchants are contacted by their acquiring banks and financial institutions about breaching the rules of the card network, these high-risk merchants can lodge an appeal and hope for a reversal.
However, if the card network establishes that the high-risk Mastercard merchant breached the rules of the EFM program, it will be difficult to reverse the decision.
The best solution is always for a high-risk Mastercard merchant to comply with the fraud thresholds put in place by the Mastercard credit card network from the very beginning.
Additionally, payment processors like SecureGlobalPay always recommend the following anti-fraud measures for their high-risk accounts and Mastercard clients:
- 3-D Secure 2.0 technology
- Velocity limits
- Fraud blacklists
- CVV verification
- Address Verification Service (AVS)
These anti-fraud tools are supported by dynamic fraud scoring. Dynamic fraud scoring works by appraising the level of risks posed by each transaction by using an array of indicators.
Depending on your Mastercard high-risk merchant settings, suspicious transactions can be flagged for manual review or rejected automatically.
According to recent estimates, the global high-risk e-commerce industry is expected to lose at least 20 billion dollars in 2021, this is an increase of $17.5 billion from 2020.
Fraud is not going away anytime soon as criminals keep on coming up with sophisticated ways to steal credit card information or personal identities.
This is why it is crucial for the technology and business practices of Mastercard high-risk merchants to also evolve and keep up with these fraudulent schemes.
An ever-evolving and multi-layer protective strategy guarantee high-risk Mastercard merchants a fighting chance of keeping fraud cases to the barest minimum and steering clear of Excessive Fraud Merchant program fines and penalties.