Chargeback Threshold Ratio Calculator
What is Chargeback Threshold Ratio (CTR)?
The Chargeback Threshold Ratio represents the percentage of chargebacks a merchant has compared to their total number of transactions over a specific period, usually a month. It helps determine if a merchant’s chargeback levels are within acceptable limits set by card networks and payment processors.
The Chargeback Threshold Ratio calculator computes the percentage of chargebacks a merchant has relative to their total number of transactions. This ratio helps assess whether the merchant’s chargeback levels exceed the thresholds set by card networks or payment platforms.
Chargeback Threshold Ratio Calculation
Formula:
The Chargeback Threshold Ratio (CTR) is calculated using the following formula:
\[ \text{CTR} = \left(\frac{\text{Number of Chargebacks}}{\text{Total Number of Transactions}}\right) \times 100 \]
Where:
- \(\text{Number of Chargebacks}\) = Total chargebacks in the period
- \(\text{Total Number of Transactions}\) = Total transactions processed in the same period
Example:
Suppose a merchant had 150 chargebacks in July and processed 10,000 transactions in June.
Step 1: Calculate the Chargeback Threshold Ratio
Using the formula:
\[ \text{CTR} = \left(\frac{150}{10,000}\right) \times 100 = 1.5\% \]
Step 2: Interpretation
The calculated Chargeback Threshold Ratio is 1.5%. This percentage shows the proportion of chargebacks relative to total transactions. By comparing this ratio to the threshold limits set by card networks or payment processors, merchants can determine if their chargeback rate is within acceptable limits or if action is needed to reduce it.
Chargeback Thresholds for Payment Gateways and Card Networks
| Payment Gateway/Card Network | Chargeback Threshold | Details |
|---|---|---|
| Visa | 0.9% of monthly transactions | For merchants under Visa's Dispute Monitoring Program. |
| Mastercard | 1.5% of monthly transactions | For merchants with at least 100 chargebacks. |
| American Express | 1% of monthly transactions | Exceeded if the chargeback ratio is above 1% for three consecutive months. |
| Discover | 1% of monthly transactions | Threshold based on observed merchant practices. |
| PayPal | 1% of total transactions | Exceeding this may result in additional fees or account restrictions. |
| Stripe | 0.5% of total transactions | Exceeding this may result in additional fees or account restrictions. |
| Authorize.net | 1% of total transactions | Exceeding this may result in additional fees or account restrictions. |
| Braintree | 1% of total transactions | Exceeding this may result in additional fees or account restrictions. |
| Shopify Payments | 1% of total transactions | Exceeding this may lead to additional fees or restrictions. |
| WooCommerce | 0.5% of total transactions | No set threshold but maintaining below 1% is encouraged. |
| BigCommerce | 1% of total transactions | Exceeding this may lead to additional fees or restrictions. |
| Magento | 1% of total transactions | Exceeding this may lead to additional fees or restrictions. |
| Squarespace Payments | 1% of total transactions | Exceeding this may result in additional fees or restrictions. |
FAQs
What is Chargeback Threshold Ratio?
The Chargeback Threshold Ratio refers to the maximum allowable proportion of chargebacks a merchant can have relative to their total transactions before facing penalties or additional scrutiny from payment processors and card networks. It’s a critical metric for managing chargeback risks and maintaining a healthy merchant account.
Importance of Chargeback Threshold Ratio
Monitoring your chargeback threshold ratio is crucial because exceeding set limits can lead to increased fees, stricter scrutiny, or even account termination by payment processors or card networks. Keeping this ratio in check helps maintain a good standing with payment processors and minimizes financial penalties.
Chargeback Threshold Ratio vs. Chargeback Ratio
While both metrics relate to chargebacks, the Chargeback Ratio refers specifically to the percentage of transactions that are chargebacks, whereas the Chargeback Threshold Ratio often includes additional criteria and thresholds set by card networks and payment processors for merchant account management.
Common Causes of High Chargeback Threshold Ratios
High chargeback ratios can result from issues such as poor customer service, unclear billing descriptors, inadequate fraud protection, or issues with product quality. Identifying and addressing these underlying causes can help lower your chargeback ratio.