10.5: Visa Fraud Monitoring Program

Code 10.5 shows up after your merchant account has developed what Visa considers to be systemic fraud problems across your whole operation. These problems need to be fixed because the consequences can be severe and long-term.

Enrollment happens automatically once your fraud ratio hits 1.80 percent and your monthly fraud losses top $250,000. These chargebacks are especially frustrating because you can’t fight them through the usual representment process. They’re not actually about single transaction disputes – they’re about the operational problems that Visa believes you have to fix.

Once you’re in the program, the monthly fines start and can climb as high as $75,000. Even worse, if you can’t get your fraud levels under control within twelve months, Visa might end your processing relationship altogether. It doesn’t stop there – other payment processors see the VFMP enrollment as a red flag and it can make it much harder to build relationships with other card networks.

Prevention is what matters if you want to stay out of that expensive enrollment in the first place.

How It Works

Visa keeps tabs on every merchant’s fraud levels with a calculation. They take your total fraud amount and divide it by your total sales volume to get what’s called your fraud ratio. Once that ratio hits 1.80% and there’s at least $250,000 worth of monthly fraud that’s happening, Visa starts to take notice – you’ve officially landed on their radar for something called the Visa Fraud Monitoring Program.

This process feels almost automatic once you cross those thresholds. Visa doesn’t actually notify you directly. They contact your payment processor or your bank first instead. Your processor then has to tell you that you’ve been enrolled in VFMP and this notification usually comes through within a few business days after the month ends.

Operations become harder for merchants at this point. Once you’re enrolled in VFMP, card issuers can start putting reason code 10.5 specifically for fraud chargebacks against your business. Before you were in the monitoring program they would use different fraud-related codes for the same kinds of disputes. They have this particular code that’s designed to flag transactions from merchants that are being monitored.

These 10.5 chargebacks will start appearing in your normal chargeback reports just like any other dispute. They look just like your normal chargebacks when you’re reviewing them. This 10.5 code tells everyone in the payment processing chain that you’re currently enrolled in the monitoring program.

Your processor will also send you monthly VFMP status reports. These reports break down your most recent fraud ratio calculations and they show you how close you are to hitting the different program thresholds. They’re helpful because they let you see if your fraud situation is improving or declining from month to month.

How it Affects Chargeback Prevention

VFMP enrollment puts you in a completely different category than chargeback disputes. Most merchants have no idea how different this gets until it’s too late. Once you land in the Visa Fraud Monitoring Program, these 10.5 chargebacks work completely differently from standard disputes. You can’t fight these through normal representment processes and Visa treats them as proof that your business has big fraud control problems.

Financial pain kicks in once you enter the VFMP. Monthly fines hit fast and they get progressively worse the longer you stay enrolled in the program. Staying in the VFMP for a full twelve months means Visa can completely shut down your payment processing privileges. Your processing bank will also start seeing you as a risky liability and will scrutinize every transaction that you process going forward.

Stopping VFMP enrollment from happening in the first place is your smartest move. Basic fraud prevention tools become critical at this point – features like 3D Secure authentication along with address verification systems. CVV codes need verification on every transaction that comes through. These tools used to seem like nice-to-have features. They become have-to-haves once your fraud ratios start climbing toward Visa’s thresholds.

I recommend checking your fraud ratios at least once per week though looking at them each day works even better for high-volume merchants. You want to see concerning patterns before they push you over Visa’s limits. Once you’re already enrolled in the VFMP, the cost of fixing the problem far exceeds what you would have spent on prevention. Between the mounting fines and all the operational changes you’ll need to make, prevention is the only path that makes financial sense.

Example Scenarios

Merchants most commonly get caught in the VFMP through card testing attacks and it makes more sense with an example. An online clothing store that processes around 500 transactions each month under normal circumstances makes a good illustration. One weekend, fraudsters test stolen card numbers on their checkout page. They’ll place hundreds of small orders for basic items like socks or cheap accessories just to see which cards actually work. Monday morning arrives and the merchant discovers that their fraud ratio has shot up from a healthy 0.5% straight to 4.2% overnight.

Within just a few days, Visa notices that spike and automatically enrolls the merchant in the program. Each fraudulent transaction now comes with an extra $10.50 chargeback fee on top of all the standard dispute costs that they were already paying. They thought they were just experiencing an unusually busy weekend with lots of small orders. Sadly, those test transactions turn into an expensive problem that can take months to resolve.

Subscription services run into a completely different challenge with this program. A streaming platform might give customers a free trial that only needs an email address to get started and which sounds convenient for legitimate users. Fraudsters love these weak authentication systems. They’ll sign up for accounts with stolen card information and then sell those accounts online before the actual cardholders find anything suspicious on their statements.

These first charges process without any problems. Valid cards and small amounts make everything look legitimate. Two months later the chargebacks start rolling in from the actual cardholders who have finally seen the unauthorized charges. Their fraud ratio slowly creeps up from 0.3% to 0.7%, then climbing to 1.2%. Once it crosses that threshold, Visa automatically places them in the standard tier of the VFMP. Every disputed subscription now costs them an extra fee and they have a full four months to get their fraud ratio back under control or get hit with even steeper penalties.

Requirements and Timeframes

Visa’s Fraud Watch Program has some strict entry laws that can takes them by surprise. Automatic enrollment into their standard tier happens once your fraud ratio reaches 1.80% and the monthly fraud volume hits at least $250,000. These two conditions have to happen in the same calendar month for Visa to flag your merchant account.

Once enrollment turns official, the clock starts working against you. Visa gives merchants a full 12 months to get their fraud problems under control and successfully exit the program. Miss the deadline and Visa can shut down your merchant account altogether. They don’t give extensions or any do-overs once those 12 months are up.

Visa runs the numbers on fraud ratios each month using the previous month’s transaction data. Most merchants receive their VFMP enrollment notification during the first week of each month. Once that letter shows up, answering with a remediation plan is a must.

Fines can pile up fast. Merchants can face a $25,000 hit in the very first month. Penalties climb each month that you stay in the program.

This situation becomes especially stressful because Visa watches accounts long before the official enrollment. They keep a close eye on merchants whose fraud ratios hover around 1.5% as an early warning sign. Merchants could be on the watchlist for months without realizing it until that official notification shows up. Once the enrollment letter arrives, every choice carries heavy weight and there are very few ways to dispute or appeal their decision.