What is a Good Credit Card Chargeback Rate for Merchants?

Credit card chargebacks remain a prevalent concern for merchants, impacting their financial stability, reputation, and ability to accept credit card payments. Achieving and maintaining a favorable chargeback rate is crucial for businesses. In this article, we'll delve into the concept of a good credit card chargeback rate and provide insights into effective chargeback rate management.

Understanding Chargebacks

Chargebacks are a consumer protection tool that allow consumers to get their money back for fraudulent charges or purchases that don’t live up to standards by submitting a dispute with their card issuer. ^[1] Consumers typically initiate chargebacks by contacting their credit card company and providing reasons for disputing a charge. Common reasons for chargebacks include unauthorized transactions, fraud, billing errors, or dissatisfaction with a product or service. Credit card companies endorse chargebacks to protect consumers, emphasizing the fundamental consumer protection aspect of credit cards.

Measuring Chargeback Rate

A chargeback rate is a metric that shows the ratio between the total number of transactions a merchant processes and the total number of chargebacks the merchant receives. ^[2]  It represents the percentage of total transactions resulting in chargebacks and is calculated using the formula:

Chargeback Rate (%)=(Number of ChargebacksTotal Transactions)×100Chargeback Rate (%)=(Total TransactionsNumber of Chargebacks​)×100

For instance, if a merchant experiences 9 chargebacks out of 1,000 transactions, the chargeback rate would be 0.9%.

Determining a Good Chargeback Rate

Defining a universally accepted "good" chargeback rate is challenging, as it varies by industry, business size, and risk factors. Generally, an acceptable chargeback rate should be below 1%, with rates at or above 1% considered high risk. ^[3] High-risk industries may tolerate slightly higher thresholds based on industry standards set by payment networks like Visa and Mastercard.

Considerations for determining an appropriate chargeback rate include industry type, business model (online or in-store), geographic reach, customer service quality, product or service quality, and fraud prevention measures.

Average Chargeback Rates by Industry

Different industries or business types may experience varying average chargeback rates due to factors such as fraud rates and consumer behaviors.

Strategies to Manage and Reduce Chargebacks

While aiming for a low chargeback rate is crucial, implementing effective strategies to manage and reduce chargebacks is equally important:

• Clearly Display Policies: Transparency in return, refund, and cancellation policies can reduce disputes.
• Strong Customer Service: Prompt and professional resolution of customer inquiries and issues is key.
• Fraud Prevention Tools: Utilize fraud detection and prevention tools to identify suspicious transactions.
• Secure Payment Processing: Ensure secure and compliant payment processing.
• Transaction Descriptors: Use recognizable descriptors on statements to reduce confusion.
• Data Collection and Analysis: Monitor transaction data for potential issues.
• Dispute Resolution: Actively resolve disputes in favor of the customer when possible.
• Chargeback Alerts: Sign up for alerts to respond swiftly to potential chargebacks.

Footnotes:

1. "What is a chargeback—and how to dispute credit card transactions", CNBC, 2023. CNBC
2. "Chargeback rate: Learn how to calculate this all important KPI", Chargebacks911, 2023.  Chargebacks911
3.  "Average Chargeback Rates: How Does Your Business Compare?', Sift, 2023. Sift