Processors set limits, or thresholds, that determine how they will respond to high chargeback rates, including chargeback monitoring programs with high fees and consequences.
Payment processors measure chargeback rates by tracking raw numbers and what’s called a chargeback ratio – the number of chargebacks in a single month divided by the total number of transactions in the same month. Processors set limits, or thresholds, that determine how they will respond to high chargeback rates, including chargeback monitoring programs with high fees and consequences.
Take Visa’s program as an example. When a business’s chargeback ratio is 0.65% or its monthly chargeback count hits 75, Visa’s early warning system notifies the business that its chargeback rate is concerning. This is the business’s chance to implement a chargeback management strategy.
If the business’s rate increases to 0.9%, or 100 chargebacks in a month, it will be placed in Visa’s Dispute Monitoring Program. Businesses then have four months to reduce their chargeback rate before a hefty fee structure kicks in.
The fees get higher and higher once a business’s chargeback ratio hits 1.8% or 1,000 per month. This is considered “excessive,” and fees accrue even faster.
Getting out of a monitoring program is even more difficult. To be removed from a monitoring program, businesses must consistently maintain a low chargeback rate. With Visa’s program, that means staying below 0.9% for three consecutive months. Even then, businesses are subject to an additional three months of tracking. Crossing the 0.9% threshold during the tracking period will land businesses right back where they left off in the program. This can mark the point of no return, and Visa may eventually sever its relationship with the business.
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