The chargeback ratio is the percentage of a merchant’s total processed transactions that are reversed through chargebacks during a given period. It is calculated by dividing the number of chargebacks by the total number of transactions over that same timeframe:

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Chargeback Ratio = (Chargebacks ÷ Total Transactions) × 100

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For example, if a merchant processes 1,000 transactions in a month and receives 5 chargebacks, the chargeback ratio is 0.5%. Most card networks require this ratio to remain below a set threshold, often around 0.9% to 1.0%. Exceeding this limit may lead to penalties, enrollment in card brand monitoring programs, or eventual loss of processing capabilities.

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For acquirers, ISOs, and PayFacs, the chargeback ratio is a key risk metric. A rising ratio can point to poor merchant practices, product issues, deceptive marketing, or fraud exposure. Merchants with consistently high chargeback ratios are often reclassified as high-risk, may be required to implement mitigation strategies (e.g., 3D Secure, reserves, enhanced monitoring), or face processing limits.

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In short, a merchant’s chargeback ratio is a critical indicator of their health and trustworthiness within the payments ecosystem. Keeping it low is essential not only for the merchant’s longevity but also for maintaining the integrity and profitability of the acquirer’s portfolio.

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