My Merchant Account Blog

Chargeback Ratios

Sunday, July 22, 2007

To determine the chargeback ratio, a number of factors are usually considered.  Of course, you want to do all you can to prevent chargebacks, but they do happen from time to time.  Most providers will provide an online solution for your to respond to chargebacks in a timely manner.  Always respond to chargebacks in a timely manner.

Time Limit to File a Chargeback

Most issuing banks have a time limit for consumers to file a chargeback.  This varies per issuing bank if the card is a debit or credit card.  A good rule of thumb is 180 days from the date of the transaction.  With a signature debit card, Regulation E of the Federal Law states the consumer has 60 days from the statement date to notify the issuing bank of an error.  Most issuers will return an erroneous transaction for as long as they are permitted under applicable network rules (120 to 180 days).  Regulation Z governs the credit card issuers and states consumers should notify the issuing bank within 60 days of the receiving the statement.  Issuers will generally leverage the chargeback procedures of the associations and assist consumers who discover an error for as long as they are permitted American Express seems to be the most lenient with chargebacks, almost always favoring the consumer with the time limit sometimes going over 180 days.  This can sometimes be a deciding factor for a merchant to accept American Express or not.

The Numbers

Let's assume you have a product that you sell for $50.00.  And you have 200 transactions that month, totaling $10,000.  If you have one consumer call their issuing bank to do a chargeback, your chargeback ratio would be .5%.  Most merchant account providers would like you to stay under one per cent. 

When a chargeback happens, always make sure you respond in a timely manner and send the information the provider asks for.