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What is a Chargeback Ratio?

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A chargeback ratio is the number of chargebacks compared to the number of transactions for a business.  A low chargeback ratio means that out of all the transactions the business has, only a small amount request for a refund.  Credit card associations and banks / processors will drop businesses with excessive chargeback rates.

The maximum accepted chargeback ratio for a normal merchant account is 1%.  This means that of all a merchant’s transactions, no more than 1% can request for chargebacks.  However, many high risk merchants have chargeback ratios at or above 1%, and that does not mean that they can not continue doing business.  It is more difficult for merchants in certain industries to avoid a high chargeback ratio.  These merchants must apply for a high risk merchant account.   And to ensure approval in a difficult industry, high risk merchant account specialists are able match merchants with the appropriate processors who are willing to accept high risk businesses with chargeback ratios at or above 1%.

The MATCH List

If the chargeback ratio for a low risk merchant account rises to or above 1%, usually the processor will give them a period of time to stabilize it.  However, if this business has continual problems with their chargeback ratios and has been given many warnings, they could end up on the MATCH list.  The MATCH list is a list of companies that have been terminated by their processors for either having excessive chargebacks (a high chargeback ratio) or other bad behaviors, such as money laundering and illegal transactions.  Once a business is on the MATCH list, they are labeled as a risky business and it is very difficult for them to get approved for a merchant account.

To avoid being put on the MATCH list, high risk businesses should apply for a high risk merchant account to begin with.  Also, by seeking help from a high risk merchant account specialist, merchants can be matched with the appropriate processor from the start.

How to Calculate Your Chargeback Ratio

What is a chargeback ratio?

All processors calculate chargeback ratios differently.  Each processor is a part of card network associations (i.e. Visa, MasterCard) and the associations each have their own chargeback calculations.  These associations closely monitor the chargeback ratio of merchants using their card networks.  If the chargeback ratio for a business becomes excessive, they expect the sponsoring banks to take action. Some processors will focus on the MasterCard guidelines, some will focus on the Visa guidelines, and other will focus on both.

 

MasterCard takes the monthly total of chargebacks and divides it by the total transactions for the previous month.  Example: If you had 20 chargebacks in February and you had 9,000 total transactions in January, then your chargeback ratio would be: 20/9,000 = .22%.

Visa takes the monthly total of chargebacks and divides it by the total transactions for the same month.  Example: If you had 20 chargebacks in February and you had 5,000 total transactions in February, then your chargeback ratio would be: 20/5,000 = .4%.

How Limitless Can Help

It is important for a high risk business to apply for a high risk merchant account so that are not put on the MATCH list by low risk merchant account processors. And if they are in an industry that has a history of high chargebacks, many processors may decline them without even looking into their business.

If you are in a high risk industry, that has a history of high chargeback ratios, but are not on the MATCH list, Limitless can help you get approved by the appropriate processor from the start.  Do not risk being put on the MATCH list by applying for a low risk merchant account if you are in a high risk industry. Limitless can match you with the right processor to get your business up and running in no time.   Call us at (800) 971-6221 or use the easy apply now form on this page to get started!

 

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