What is The Dispute Watching Program?

So here’s where it gets expensive – if you cross Visa’s VDMP threshold (that’s 0.9% dispute ratio) it means that you’ll suddenly pay $25,000 a month in fines. And the payment processors? They want detailed plans showing precisely how you’ll fix the issue, with updates each week. Merchants can spend almost a full work week just handling compliance paperwork – time they desperately need for actually running their business. Some smaller shops have had to shut down because they couldn’t maintain compliance.

But those fines aren’t even the worst part. You typically get four to six months to bring your dispute rates back down. Miss that deadline and the processing account gets shut down.

The most frustrating part is that merchants usually don’t know they’re in the program until they get that dreaded notification letter – by then, it’s already too late. Monthly dispute ratio monitoring reveals warning signs early. When rates creep above 0.65%, that’s the time to take action. Stay below that threshold and you’ll probably avoid the entire program.

How It Works

Card networks don’t just check dispute ratios once and move on. They actually track these numbers month after month and run calculations to see if merchants are heading into risky territory. Processors run these reports around the same time monthly – somewhere between the 5th and 10th – and they’re looking back at the previous three months to see if anything’s going sideways.

The math itself is straightforward. They take total disputes and divide by either transaction count or volume. When that percentage creeps above their limits, you’re on their radar. Visa tends to draw the line at 0.9% for most merchants and Mastercard’s a bit more lenient at 1%. But if you’re selling online goods or downloads, they’ll hold you to tighter standards since those businesses naturally see more disputes.

When merchants get flagged, it doesn’t mean instant termination. The networks have these tracking programs with different tiers – it’s a warning system no one wants to climb. A merchant might land in Visa’s “Early Warning” first and it’s their way of saying merchants need to turn around fast. If the numbers don’t improve, they’ll graduate to their standard tracking level where every dispute costs $50. It gets worse at the excessive level ($100 per dispute) and by then the processor’s probably already shopping for a replacement.

What makes this tough is how merchant status changes month to month. I’ve worked with merchants who cleaned up their act in January, saw actual progress in February, then had one rough March that pushed them back into tracking. And it takes time to get out – at least four months for most programs, though Mastercard wants six consecutive clean months before they’ll let merchants off the hook. Merchants pay dispute management firms $5,000 to $10,000 monthly because the alternative (losing their ability to process payments) would destroy their business.

How it Affects Chargeback Prevention

Once you get flagged, you’re paying $25 to $100 for each dispute – win or lose. And that’s before your normal chargeback fees even come into play.

I’ve watched these programs force merchants to rebuild their entire customer service system in a matter of weeks. Your processor wants to see a concrete plan – with numbers and timelines for bringing disputes down. They’ll check in every month, and vague intentions won’t cut it. One merchant had to rush in new customer service protocols, fraud detection software, and a whole dispute management setup. Between everything, they dropped about $8,000 just to get compliant.

After processors tag you as high-risk (which they usually do pretty fast), your rates can climb by half a percent or sometimes a full percent. Then comes the rolling reserve – they’ll hold back somewhere between 5-10% of what you process each month, and you won’t see that money for half a year. Most processors just won’t work with monitored merchants anymore and leave you with limited options and no room to negotiate.

Merchants who hover around 0.5% are doing great. They’re actually negotiating lower fees and get their money faster, and they spend time on their business instead of always fighting with their processor. That small difference – going from 0.8% to 1.2% – decides if you’re building something sustainable or just losing money trying to fix banking problems.

Example Scenarios

I’ve worked with a costume shop owner who makes most of their money in October – we’re talking about 70% of their yearly revenue. Come November, they’re dealing with something seasonal businesses encounter all the time. Customers start to complain that their Halloween orders never showed up, or the costume looked nothing like the website photos. Their dispute rate went from almost nothing – around 0.3% – to 1.5% in what felt like a day. Because the owner was busy with thousands of orders to get out the door, they missed all the warning signs that were building up.

The frustrating part is these compliance programs don’t care about your story. They just look at numbers. Hit certain marks and you’re in the program – that’s it. This happens with subscription businesses too. A customer signs up for a free trial, forgets about it, and then can’t find how to cancel – some businesses make that cancellation button pretty hard to find. So customers go straight to their bank and dispute it. Pretty soon, those disputes are piling up month after month.

The worst part is discovering you’re already in a compliance program. Clients have called after they receive this official letter that says they’ve crossed some threshold, now they owe $25 to $100 extra every month to each card network, and their merchant account might get shut down completely if their numbers don’t improve. Then they remember that email from their processor a few months back that mentioned their disputes were “a bit high” – didn’t seem urgent at the time.

All kinds of businesses run into this. Supplement businesses get hit when customers expect their vitamins to work like prescription drugs. Gaming businesses see it when kids grab mom’s credit card and rack up charges. Visa starts to watch at 100 disputes if that’s also 0.9% of sales. Mastercard waits until 1.5%. Once you’re on their radar, you’re looking at extra fees and more paperwork, and usually three to four months of keeping your numbers down before they’ll even think about taking you off the watch list.

Requirements and Timeframes

Once a merchant hits their radar for review, they’ll hear back very fast – usually somewhere between two and five days after they finish running their monthly numbers.

When that alert lands in the merchant’s inbox, they have 10 business days to send their remediation plan. Merchants who miss this deadline can have their accounts frozen or get dumped straight into the excessive dispute category. The plan needs substance (concrete steps the business is taking, goals they can measure) and deadlines that make sense. Processors have seen every excuse in the book, so they want to see training schedules for staff and how transactions are being watched – those kinds of measures.

The way these programs work, there’s a ladder merchants climb if matters don’t improve. If a business sits under 1.5% dispute ratio with less than 100 disputes per month, they’ll put them in early intervention for four months. Go above those numbers and the merchant faces standard tracking for another four months. But now they’re watching much closer. Hit 2.5% or rack up 300 disputes and that’s when they start talking about shutting the business down. These aren’t arbitrary numbers either – the networks have years of data showing that merchants who cross these lines usually fail.

To exit means that merchants need to keep the ratios down for as long as the program runs. Even after a merchant technically qualifies to exit, they’ll watch them for another three to six months. I’ve watched businesses panic and make hasty changes, only to see their dispute rates shoot back up within three months.

While merchants are in these programs, the costs start piling up. The processor might hold back 10-20% of what gets processed each month as a reserve. Monthly fines usually start around $25,000. The rates for processing transactions go up. Some processors want weekly compliance calls or transaction reviews every day. And every month they’re reporting the status to the card networks which becomes part of the permanent merchant record. Later when the merchant applies with a new processor down the road, they’ll pull these reports and see everything.