Chargeback Rate KPI

Chargeback Rate

The Chargeback Rate KPI quantifies the proportion of transactions that lead to chargebacks. This metric varies by card network, with Visa using transactions from the same month and Mastercard using the previous month’s transactions, which can result in slightly different rates for each network.

This KPI is critical for merchants as it serves as a key performance indicator used by credit card processors and acquiring banks to assess the risk associated with a merchant’s account. A high chargeback rate, often exceeding thresholds like 1% for Visa or Mastercard, can lead to severe consequences, including fines, higher processing fees, placement in chargeback monitoring programs (e.g., Visa’s VDMP or Mastercard’s ECM), or even termination of the merchant account.

For merchants, monitoring this KPI helps identify operational issues, such as unclear billing descriptors or inadequate customer service, which can trigger disputes. It also informs strategies to reduce chargebacks, such as improving fraud filters or enhancing customer communication. For issuers, a merchant’s chargeback rate reflects potential liabilities, especially in cases of fraud. Customers may indirectly bear the cost of high chargeback rates, as merchants may raise prices to offset losses, with nearly a third of merchants reporting price increases due to chargeback expenses. By tracking and optimizing this KPI, merchants can mitigate financial risks, maintain compliance with card network rules, and improve customer trust and retention.