What Is Chargeback Ratio and Why It Matters
The chargeback ratio is the proportion of chargebacks relative to total transactions in a month — by count or by volume. Visa and Mastercard set maximum permissible thresholds. Exceeding these thresholds leads to monitoring programs, fines, and ultimately the loss of the right to accept card payments.
Visa and Mastercard Thresholds
Visa Chargeback Monitoring Program (VCMP):
- Early Warning: 0.65% and 75+ chargebacks per month
- High Risk: 0.9% and 100+ chargebacks per month
- Exceeding the high threshold for 3+ consecutive months → increased fines and risk of account closure
Mastercard Excessive Chargeback Program (ECP):
- Merchant Chargeback Monitoring: 1.5% and 100+ chargebacks per month
- Excessive Chargeback Merchant: 2% and 200+ chargebacks per month (severe sanctions)
Calculation: chargebacks in month N divided by transactions in month N-1.
What Happens When You Exceed the Threshold
- You enter a monitoring program. The processor and payment network notify you of the violation.
- Fines are assessed. From $50 to $100+ per chargeback, plus monthly program participation fees.
- Remediation plan required. You must submit a concrete plan for reducing chargebacks.
- Rolling reserve increase. The processor typically raises the reserve to 10–15%.
- Account termination. For persistent violations — contract termination and placement on the MATCH list.
What to Do
Immediately analyze the causes of chargebacks. Group them by type: fraud, product dissatisfaction, "I don't recognize this charge," technical errors. Each group requires a different solution.
Strengthen fraud prevention. Implement or update 3DS, CVV2 verification, AVS (for the US), velocity checks, and suspicious IP blocking.
Improve your merchant descriptor. Make sure the merchant name on card statements is recognizable. An unclear descriptor is the leading cause of friendly fraud.
Implement Ethoca Alerts or Verifi. These are early chargeback warning services that allow you to refund the customer before an official dispute is filed.
Respond to all chargebacks on time. A successful dispute response removes the chargeback from your statistics.
Prepare a remediation plan. Draft and submit a specific plan to your processor with measurable goals and timelines.
FAQ
How quickly can I reduce my chargeback ratio? With active effort, within 1–3 months. Monitoring programs typically allow 3–6 months to remediate.
What is friendly fraud and how do I fight it? Friendly fraud is a chargeback from a real customer who received the product or service but still disputed the charge. Countermeasures: proof of delivery or usage, a clear descriptor, and improved customer support.
Can a merchant be removed from a monitoring program? Yes. If the chargeback ratio stays below the threshold for 3 consecutive months, the merchant exits the program (specific conditions depend on the program).
Chargeback ratio out of control? Marix — solutions for payment problems can help you build a chargeback reduction plan and protect your merchant account.