High chargeback rates can potentially disrupt the flow of your business, impacting your profits and maybe even how you accept payments. This topic opens up a lot of questions, such as what counts as an “acceptable” or “at-risk” rate?
How can you calculate your chargeback rate? And most importantly, how can you reduce or prevent high chargeback rates?
Let’s discuss the basics of a chargeback rate and the simple yet effective ways of keeping the percentages low.
What are Chargeback Rates?
A chargeback rate is basically the percentage that represents the proportion of transactions that end up in chargebacks.
Most payment processors follow this standardized formula in calculating the chargeback rate:
Here's an example to understand it better:
Let's say you own a clothing store that processes 2,000 credit card transactions in a specific month. During the same month, there were 15 transactions that ended up as chargebacks. Maybe the customer claimed they never received their order or that their card was used without their permission. These are just some of the common reasons why a customer would request chargebacks.
Using the formula above, let’s input the following numbers in their respective places to get the percentage.
This means 0.75% of all transactions were reversed through the chargeback process.
At first glance, the percentage may not seem high.
While 0.75% may not seem high, Visa’s acceptable threshold is 0.9%, which means that your online business is approaching the risk threshold and could soon face increased scrutiny or penalties if it continues.
What's an Acceptable Chargeback Rate?
As a general rule of thumb, an acceptable chargeback rate falls below 1% of the business's total transactions. However, the exact threshold will depend on the payment network or the acquiring bank. These "limits" act as guidelines for businesses and merchants in order to maintain the integrity of the payments ecosystem.
Merchants who go past these thresholds could face serious consequences like increased processing fees, enrollment in chargeback monitoring programs, or even termination of being able to accept credit card payments.
Even though staying under the threshold sounds good enough, it's recommended by industry experts to aim for, at most, a 0.5% chargeback rate, ideally. This is to make sure that the business can sustain itself in the long run, as well as reduce costs and avoid reputational damage.
A low chargeback rate means the business is implementing strong fraud prevention, effective dispute handling, and high customer satisfaction, all of which are important for building trust and maintaining healthy relationships with payment partners.
How to Reduce Chargeback Rates Significantly
Use Clear Billing Descriptors
One of the most common causes of chargebacks is confusion. If a customer looks at their bank statement and sees a charge they don't recognize, they might think it's fraud, even if it's a legitimate transaction. Using a clear, recognizable billing descriptor that matches your business name or website helps customers connect the dots and prevents unwanted disputes.
Offer Hassle-Free Refunds
Sometimes, people just want their money back. Customers are looking for the ease of requesting a refund directly from the merchant without having to jump through hoops. Otherwise, they would go straight to their bank. If they know you're responsive and fair, then they're more likely to reach out to you first rather than filing a chargeback.
Implement Fraud Detection Tools
While you can't prevent every fraudulent transaction, you can make it much more difficult for these scammers through fraud detection tools. Tools like address verification (AVS), CVV checks, and 3D Secure add layers of protection. Plus, setting up fraud filters to flag suspicious transactions (like large orders from unfamiliar countries) can help stop problems before they even begin.
Use the Correct Merchant Category Code
Your Merchant Category Code (MCC) tells banks and processors what type of business you are. If it’s wrong or misleading, it can raise red flags and even affect how disputes are handled. Make sure your MCC accurately reflects what you sell so you’re not put in the wrong risk category.
Set Clear Return & Cancellation Policies
Be upfront about how returns and cancellations work. Put the policy where customers can see it: on the product page, during checkout, and in the confirmation email. If expectations are clear from the start, people are less likely to feel misled or frustrated, meaning fewer chargebacks.
Use Chargeback Alerts
Some services offer real-time chargeback alerts that let you know when a dispute is coming in. With this early warning, you have the chance to refund the customer or resolve the issue before the chargeback is processed. It’s not a cure-all, but it gives you more control.
Respond Immediately to Inquiries
Nobody likes poor customer support. Have you ever gotten discouraged from making a purchase from a merchant because no one could attend to your concerns? This makes all the difference. Whether it be a question or a delivery issue, responding promptly builds trust. If customers feel heard and supported, they’re much more likely to work things out with you than with their bank.
Chargeback rates might seem like just another metric, but they have a big impact on your business’s bottom line and reputation. Keeping them low means less lost revenue, fewer fees, and a better relationship with your payment processors. As merchants, it’s necessary to understand what causes chargebacks and take proactive measures to either prevent or respond to them effectively. This is key for the long-term success of your business.
How Chargeblast Can Help With Your Chargebacks
Chargeblast makes handling chargebacks way easier. Instead of digging through emails or spreadsheets every time a dispute comes in, it pulls together everything you need (receipts, order details, shipping info, and customer messages) into a clean, ready-to-send response. It saves you time and seriously ups your chances of winning.
You’ll also get real-time alerts when a chargeback is on the way, so you can jump in early and maybe even resolve it before it hits. Plus, Chargeblast gives you insights into what’s causing disputes so you can fix the problem at the source.
And the best part? It plugs right into the tools you’re already using, like Shopify, Stripe, and even your CRM. Regardless of which stage your business is at, Chargeblast helps you cut down chargebacks, win back revenue, and keep your payments running smoothly.
Contact us, and let's work together to reduce chargebacks for your business.
