Chargebacks happen to every merchant at some point, but when they happen too often, they can land a merchant in serious hot water. Both card networks and acquirers want to avoid doing business with disreputable or fraudulent merchants, and a merchant's chargeback ratio is one of the metrics they look at to decide when they want to terminate their relationship or impose restrictions to correct bad behavior.
While not all chargebacks are the merchant's fault, your chargeback ratio can say a lot about your business. If your ratio is unusually high, it probably means you're either doing something wrong or simply not putting enough effort into preventing chargebacks.
Understanding chargeback ratios, how they're calculated, and what consequences merchants might face if theirs climbs too high is crucial for any merchant who faces chargebacks regularly. If you ignore your chargeback ratio for too long, you might be out of business before you know it.
Visa's is called the Visa Dispute Monitoring Program, and Mastercard's is called the Excessive Chargeback Program.
These programs have different thresholds for merchants. Mastercard, for example, has a 1% chargeback threshold. Having a 1% or higher ratio can qualify you as a chargeback monitored merchant. If your chargeback ratio exceeds 1.5%, you might be categorized as an excessive chargeback merchant, the second tier of the program.
With Visa, merchants who have 0.9% or higher chargeback ratios fall under its standard program, while merchants with a ratio of 1.8% or higher fall under the excessive program.
Both networks also have a minimum number of total chargebacks per month that must be reached to be enrolled in these programs, preventing smaller merchants from being added on the basis of only a handful of chargebacks.
Each card network calculates a merchant's chargeback ratio based solely on the transactions on its network, so merchants should keep track of both their overall chargeback ratio and their ratio for each individual network. While rare, it's possible to exceed a card network's threshold without being anywhere near 1% when all chargebacks are considered.
If a merchant maintains a high chargeback ratio for too long, their acquirer may terminate their merchant account. This can also result in the merchant being added to the MATCH list, an industry blacklist maintained by Mastercard.
While having a good track record for winning chargebacks may look good, these numbers don’t affect your chargeback ratio.
Processors and card networks don’t take into account how many chargebacks you’ve won.
Delving into your business’ chargeback data analytics can yield surprising results. Begin analyzing your data by breaking down your chargebacks into different categories based on their transaction characteristics.
You can use this information to streamline your operations and take proactive steps to lower your chargeback ratio. Additionally, merchants can observe the following guidelines to further reduce the number of chargebacks they encounter:
Every credit card network has different protocols for processing card-based transactions. Familiarizing yourself with the protocols for the card brands that you process can save you from chargebacks.
A merchant descriptor (or billing descriptor) should include a business name your customers will recognize along with other identification details to help customers recall or identify a purchase in the event of a dispute. Failure to recognize a merchant’s business name can lead to a costly misunderstanding. If customers see a name they don’t recognize on their statement, they’ll tend to question the validity of the transaction.
Dealing with your customers’ inquiries and concerns promptly can help you avoid chargebacks. If a customer is dissatisfied with your product or service, reach out to them immediately to address the issue. Make sure that your customers are able to reach you using any platform at any given time by offering 24/7 customer support.
Fraudulent transactions are one of the leading causes of chargebacks. Criminals use stolen credit cards to purchase goods, which the customer doesn’t recognize once they receive their billing statement. Establish protocols and standards that will help you detect fraud early on, such as coming up with steps to verify credit card information.
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