How do you calculate your chargeback ratio as a merchant service provider?

1 What is a chargeback?

A chargeback is a form of customer protection that allows cardholders to dispute a transaction if they are unhappy with the product or service, or if they suspect fraud. The card issuer then investigates the claim and decides whether to reverse the transaction and refund the customer. The merchant service provider, or the acquirer, is responsible for processing the chargeback and deducting the amount from the merchant's account.

2 Why is chargeback ratio important?

Chargeback ratio is important because it reflects the quality and satisfaction of your transactions. A low chargeback ratio means that you have fewer disputes and more happy customers. A high chargeback ratio means that you have more complaints and potential fraud. Card networks, such as Visa and Mastercard, have thresholds for acceptable chargeback ratios. If you exceed these thresholds, you may face higher fees, penalties, or even termination of your account.

3 How to calculate chargeback ratio?

To calculate your chargeback ratio, you need to divide the number of chargebacks by the number of transactions in a given period. For example, if you have 10 chargebacks and 1,000 transactions in a month, your chargeback ratio is 1%. However, different card networks may use different formulas and time frames. For example, Visa uses a rolling 12-month period and counts the number of chargebacks and transactions based on the month of processing, not the month of occurrence. Mastercard uses a rolling 3-month period and counts the number of chargebacks and transactions based on the month of occurrence, not the month of processing.

4 How to reduce chargeback ratio?

To reduce your chargeback ratio, you need to take proactive steps to prevent and resolve disputes. Start by providing clear and accurate product or service descriptions and policies on your website or store, as well as secure and reliable payment processing systems and fraud prevention tools. Additionally, it is important to communicate with customers, providing confirmation, tracking, and delivery information. When customers have inquiries or complaints, respond promptly and professionally. If appropriate, issue refunds or exchanges and follow up with customers. Lastly, monitor your chargeback ratio to identify the common causes and sources of disputes.

5 How to dispute chargebacks?

Sometimes, you may receive a chargeback that you believe is unjustified or fraudulent. In this case, you can dispute the chargeback and provide evidence to support your claim. The process of disputing a chargeback may vary depending on the card network, the reason code, and the acquirer. Generally, you will need to submit a chargeback rebuttal letter and relevant documents, such as receipts, invoices, contracts, delivery confirmations, or customer communications. The acquirer will then forward your case to the card issuer, who will review it and make a final decision.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?