What’s a Chargeback Ratio?

Emily VuittonChargeback Basics11 Comments

what's a chargeback ratio?

It's a good thing to know your chargeback ratio. This applies to all high-risk and low-risk merchants. And it's great to how it's calculated on a monthly basis. This post will first explain what is a chargeback ratio. We'll provide its formula momentarily.

So, What’s a Chargeback Ratio?

A chargeback ratio is the number of chargebacks-to-transactions that a merchant has earned. The industry-wide maximum is 1%. In other words, a chargeback ratio that's greater or equal to 1% can harm your business. Your chargeback ratio may be differ from another business in another industry. So, calculate your average chargeback ratio. And take preventative measures to safeguard it from reaching 1%.

What Happens if a Chargeback Ratio Goes Above 1%?

It depends. Processors will provide a time interval for merchants to get their ratio under control. But merchants will have problems if they ongoing issues. Especially if they've been warned several time. That may place them on a risk list. One example is the MATCH list. And you don't want to see your business on that list. Basically, it’s a blacklist of merchants who were ‘fired’ by processors for excessive chargebacks. They may been added to the list for illegal transactions, money laundering, or other fraudulent behavior.

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Does Win-Rate Impact Chargeback Ratio?

This is a question that we field frequently at Chargeback. And the answer may not be ideal, but it's true. Processors and card networks don't look at your chargeback win rate. They look at your chargeback-to-transaction ratio. 

In other words, you could win nearly every chargeback. But it doesn’t remove the chargebacks that were counted in your ratio. When your chargeback volume is too high, it signals to processors that the business itself could be questionable.

How To Calculate a Chargeback Ratio

Both Visa and MasterCard calculate the ratio the same way. But they use different numbers. Visa takes the number of chargebacks from the current month. And divides it by the number of transactions from the current month.

MasterCard takes the number of chargebacks from the current month. And divides it by the number of transactions from the previous month.

Here's how Visa calculates the ratio:

Month Transactions Chargebacks Chargeback Ratio Calculation Visa Chargeback Ratio
May 12,678 23 23/12,678 0.18%
June 10,627 15 15/10,627 0.14%
July 11,834 72 72/11,834 0.61%

And here's how MasterCard calculates the ratio. Remember, they use the current month’s chargebacks, and divide it by the previous month’s transactions:

Month Transactions Chargebacks Chargeback Ratio Calculation MasterCard Chargeback Ratio
May 12,678 23 Not Enough Data Not Enough Data
June 10,627 15 15/12,678 0.12%
July 11,834 72 72/10,627 0.71%

In conclusion, your ratio can differ from the current and previous monthly transactions. But it still needs to be below 1%. Period. There are measures to safeguard your chargeback ratio. For instance, you can intercept disputes before they happen. That's the only way to stop disputes from negatively impacting your ratio.

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