Visa Fraud Monitoring Program (VFMP)

Introduction to VFMP

The Visa Fraud Monitoring Program (VFMP) is Visa’s system for tracking merchants with high fraud rates. Its goal is to protect the payment network by encouraging businesses to reduce fraudulent transactions. The program imposes penalties on merchants exceeding specific fraud thresholds, which can significantly impact their operations.

How VFMP Works

VFMP tracks the value of fraudulent transactions relative to total transaction volume. A merchant’s fraud rate is calculated by dividing the total value of fraudulent transactions by the total value of all transactions within a given period. Visa monitors fraud rates each month to determine whether merchants should be enrolled in VFMP.

VFMP Thresholds:

• Early Warning Phase: Merchants with a fraud rate of 0.65% or more and at least $50,000 in fraud receive a warning but are not yet enrolled.
• Standard Phase: Merchants enter this phase when their fraud rate reaches 0.9% and they have processed $75,000 in fraudulent transactions.
• Excessive Phase: Merchants with a fraud rate of 1.8% and $250,000 in fraudulent transactions are immediately penalized.

Phases of VFMP

The VFMP operates in phases, with specific consequences at each level:

1. Monitoring Phase: When fraud rates are below 0.65%, merchants are simply monitored. There are no penalties or interventions.
2. Early Warning Phase: A fraud rate of 0.65% triggers a warning. The merchant is notified and expected to take action to prevent escalation.
3. Standard Phase: Merchants in this phase have a fraud rate of 0.9% and at least $75,000 in fraud. They are enrolled in VFMP, and failure to reduce fraud within four months leads to fines.
4. Excessive Phase: Immediate fines are imposed on merchants with a fraud rate of 1.8% or more.

Merchants enrolled in the program must reduce their fraud rates quickly to avoid further penalties. Visa closely monitors businesses that remain in the Standard or Excessive phases and may ultimately restrict their ability to process payments if compliance isn’t achieved.

Merchants seeking chargeback prevention services can rely on Merchanto, an official Visa and MasterCard partner specializing in fraud and chargeback reduction. Merchanto provides valuable tools that help merchants avoid penalties by staying below the VFMP thresholds.

Consequences of Breaching VFMP Thresholds

Merchants enrolled in VFMP face various consequences for non-compliance:

1. Fines: Merchants in the Standard phase incur fines after the fourth month. Penalties start at $25,000 and increase over time. Merchants in the Excessive phase face fines immediately, beginning at $10,000 in the first three months and rising to $75,000 after 12 months.
2. Loss of Liability Protection: Merchants enrolled in VFMP may lose their liability shift for fraud-related chargebacks. This means they are responsible for chargebacks even on transactions secured by 3D Secure (3DS) technology.
3. Business Impact: Failure to reduce fraud rates could lead to Visa restricting or even revoking a merchant’s ability to process Visa payments. This can have severe financial consequences, especially for businesses heavily reliant on Visa transactions.

How to Avoid VFMP

Avoiding VFMP enrollment is critical for maintaining smooth payment operations. Here are proven strategies:

1. Implement 3D Secure (3DS): Visa’s 3D Secure technology helps reduce fraud by adding an extra layer of authentication. Merchants using 3DS see reduced chargeback rates, which can help them avoid VFMP. However, merchants must still keep their fraud rates below VFMP thresholds to maintain protection.
2. Fraud Detection Tools: Automated fraud detection systems, such as those that use machine learning and AI, can help identify high-risk transactions in real time. These systems analyze transaction data, flagging suspicious activity and preventing fraud before it happens.
3. Manual Review of High-Risk Transactions: Although automated systems are useful, manual reviews are essential for identifying fraudulent transactions. This approach is particularly valuable for large or high-risk transactions. Merchants can avoid unnecessary chargebacks by manually reviewing flagged transactions.
4. Work with Acquiring Banks: Merchants enrolled in VFMP should collaborate with their acquiring banks to develop fraud remediation plans. Visa may require merchants in the program to submit formal plans showing how they intend to lower fraud rates.

Exiting VFMP

Exiting VFMP requires merchants to consistently reduce their fraud rate below the program’s thresholds. Visa allows merchants to leave the program if they maintain a fraud rate below 0.9% for three consecutive months. This is critical for avoiding fines and regaining full payment privileges.

Steps to exit VFMP:

• Reduce Fraud Levels: Use a combination of fraud detection tools and manual review to consistently reduce fraudulent transactions.
• Submit Fraud Remediation Plans: Work with acquiring banks to submit a formal plan detailing the measures taken to lower fraud rates.
• Monitor Transactions: Continuously track transactions to ensure fraud rates remain low and prevent re-enrollment in VFMP.

Visa closely monitors merchants even after they exit VFMP to ensure fraud rates do not rise again. If a merchant’s fraud rate increases within a short period after leaving, they can be immediately re-enrolled.

Conclusion

The Visa Fraud Monitoring Program is designed to protect the payment ecosystem by reducing fraud. Merchants must take it seriously, as non-compliance can lead to substantial fines and the loss of Visa payment privileges. Understanding how VFMP works and using preventive measures—such as 3D Secure, fraud detection tools, and manual transaction reviews—can help merchants stay below Visa’s fraud thresholds and avoid penalties.

By implementing the right tools and strategies, merchants can avoid VFMP enrollment, reduce fraud, and maintain their ability to accept Visa payments without interruption.