The fraud rate is measured as the ratio of the total amount of fraudulent transactions in U.S. dollars to the total amount of successful transactions in U.S. dollars over a certain time period.
Download the checklist to protect your revenue and keep your business thriving by avoiding costly fraud and chargeback.
Calculate fraud rate
Understanding this methodology allows to accurately track and analyze fraud levels, enabling to implement effective strategies to mitigate risk and secure transactions.
USD in current month / sale amount USD in current month
- Metrics are calculated at the account level:
- Numerator: The total amount in
USDof fraud notifications received in the current month. - Denominator: The total amount in
USDof revenue for the current month.
- Numerator: The total amount in
- Sale date is determined by the settlement date (not the authorization date).
- Transactions are only considered for card brands VISA and Mastercard since they provide fraud alerts.
- Only acquiring banks that fully transmit fraud notifications are considered.
Analysis of fraud causes
solution Ensure clarity of terms and ease of subscription management.
Product issues: The received product does not meet expectations or is of poor quality.
solution Analyze customer reviews and improve quality.
Misleading descriptions: Discrepancies between descriptions and the actual goods/services.
solution Standardize descriptions to reflect the content of the purchase accurately.
solution Implement restrictions on the number of payment attempts from a single user or IP address.
Account takeover: Illegal account acquisition through phishing, brute force attacks, and other methods.
solution Apply multi-factor authentication and monitor for abnormal user behaviour.
Affiliate fraud: Manipulation of traffic or payments to gain undue benefits.
solution Work closely with affiliate networks, conduct traffic audits, and traffic source.
Visa uses descriptors to group and calculate fraud rates, allowing transactions to be linked to specific merchants, goods, and services. The formula for fraud rate is the percentage or amount of fraud per month divided by the total sales or amount for that month. Only the first 10 chargebacks or fraud alerts per card are counted, excluding fraud type code 3 (application fraud). Visa’s
Glossary
The VDMP monitors merchants for excessive dispute activities, promoting fair business practices by requiring those with high dispute rates to implement corrective actions to comply with Visa's standards.
Dispute Monitoring Program (VDMP)
and
Glossary
The VFMP targets merchants with high levels of fraud, enforcing stringent fraud controls and requiring detailed remediation plans to mitigate and manage fraud risks effectively.
Fraud Monitoring Program (VFMP)
set thresholds whose breach can lead to fines and require actions to reduce disputes or fraud levels.
Mastercard uses Merchant IDs (MID) to group transactions and assess fraud levels. The formula is the number of chargebacks per month divided by the total number of successful transactions the previous month, considering only the first 35 chargebacks from the same card. Mastercard’s
Glossary
The ECM categorizes merchants into tiers based on their chargeback rates, enforcing measures to maintain transaction integrity.
Excessive Chargeback Merchant (ECM)
and
Glossary
The EFM targets e-commerce fraud by setting strict thresholds for fraud-related chargebacks, enhancing merchant accountability and transaction security.
Excessive Fraud Merchant Compliance Program (EFM)
are key regulations for managing chargebacks and fraud.
Other card systems like American Express, Discover, Diners, and JCB identify merchants by their account ID and calculate fraud rate using the formula: either the number of chargebacks or the amount of fraud in a month divided by the total number of successful transactions or total sales amount for the same month.
To fully understand these processes, it’s essential to study the threshold
Glossary
Prevent risk by keeping chargeback and fraud ratio below monitoring thresholds.
monitoring programs
individually for each card network.
Tracking fraud rates
Solidgate leverages TC40 (Visa) and SAFE (Mastercard) data to effectively monitor credit card fraud. These reports encompass cardholder fraud claims along with detailed transaction information.
When a TC40 or SAFE report is received, it indicates a claim of a fraudulent charge and necessitates an immediate review. It’s important to note that not every TC40 report results in a chargeback.
Gain a better understanding of chargebacks nature and manage them effectively. reason codes . Pagination is achieved using next_page_iterator , with a null value indicating full data retrieval.
Alternatively, you can set up fraud alert Webhook to receive notifications. Webhooks send data to a URL when specified events occur. In Solidgate, set up the fraud alert webhook for secure, real-time fraud notifications. Prevent duplicate processing by logging event IDs for idempotent event handling.
Access fraud notifications under the Payments tab, available to specific roles. Customize displayed parameters, search filters, and export notifications by entering a file name and extension. Download the file through Hub exports or the Reconciliation section.