Each card brand carefully monitors the risk that individual merchants pose. One way the card brands monitor risk is with a chargeback-to-transaction ratio. If the brand’s reputation or revenue seem to be in jeopardy, the merchant may be removed from the network and lose the ability to process transactions.
How the Chargeback-to-Transaction Ratio is Calculated
The formula used to calculate the chargeback-to-transaction ratio varies by card network.
Number of chargebacks received in the current month divided by the number of transactions processed in the previous month.
Visa, American Express and Discover
Number of chargebacks received in the current month divided by the number of transactions processed in the current month.
Chargeback Monitoring Programs
Each card brand has a chargeback monitoring program. Merchants are usually enrolled in these programs if their chargeback-to-transaction ratio exceeds 1% and won’t be discharged until the ratio remains below the threshold for a given period of time.
Additional fees are usually assessed if a merchant is enrolled in a chargeback monitoring program. The longer the merchant remains in the program, the higher the fees will be and the greater the risk of losing processing capabilities with the acquirer.