How do you track and monitor your chargeback ratio and dispute rate?

1 What is chargeback ratio and dispute rate?

Chargeback ratio and dispute rate are two different but related metrics that measure the frequency and severity of chargebacks and disputes in your electronic payment transactions. A chargeback is when a customer requests a refund from their card issuer or bank, usually because they are unhappy with the product or service, or they suspect fraud. A dispute is when a customer contacts you directly to request a refund or a resolution, before escalating to a chargeback. Chargeback ratio is the percentage of transactions that result in a chargeback, while dispute rate is the percentage of transactions that result in a dispute.

2 How to calculate chargeback ratio and dispute rate?

To calculate your chargeback ratio and dispute rate, you need to have access to your transaction data, your chargeback data, and your dispute data. You can obtain these data from your payment processor, your payment gateway, your merchant account, or your own internal records. The formulas for calculating chargeback ratio and dispute rate are:

Chargeback ratio = (Number of chargebacks / Number of transactions) x 100

Dispute rate = (Number of disputes / Number of transactions) x 100

For example, if you had 10,000 transactions in a month, and 100 of them resulted in chargebacks, and 200 of them resulted in disputes, your chargeback ratio would be 1%, and your dispute rate would be 2%.

3 Why is chargeback ratio and dispute rate important?

Chargeback ratio and dispute rate are essential metrics to track as they indicate how well you are managing customer satisfaction, fraud prevention, and payment compliance. Unfortunately, a high chargeback ratio or dispute rate can result in a loss of revenue and fees, damage your reputation and trust with customers and payment partners, increase the risk of losing your payment processor or merchant account, or even face higher fees or penalties. Furthermore, you may lose valuable customer data and insights, as well as waste time and resources on handling chargebacks and disputes. For this reason, it is important to aim to keep your chargeback ratio and dispute rate low, below the industry standards or thresholds set by your payment processor or card networks.

4 How to track and monitor chargeback ratio and dispute rate?

To track and monitor your chargeback ratio and dispute rate, you need to have a system or tool that can collect, analyze, and report your payment data on a regular basis. You can use your payment processor's dashboard, your payment gateway's reporting features, your merchant account's statements, or your own custom-built solution. You should track and monitor your chargeback ratio and dispute rate at least monthly, but preferably weekly or daily, to identify any trends, patterns, or spikes that may indicate a problem or an opportunity. You should also compare your metrics with your industry benchmarks, your historical data, and your goals, to evaluate your performance and progress.

5 How to reduce chargeback ratio and dispute rate?

In order to reduce your chargeback ratio and dispute rate, you must implement strategies and best practices that can prevent or resolve chargebacks and disputes before they worsen. This includes providing clear and accurate product or service descriptions, pricing, and policies on your website or app, using secure and reliable payment methods and technologies to verify and authenticate transactions and customers, communicating with customers throughout the purchase process and after delivery, providing responsive customer service, offering flexible and easy refund, return, or exchange options, honoring your promises and guarantees, educating customers about the benefits of contacting you first before initiating a chargeback or dispute, and monitoring and responding to chargebacks and disputes promptly and professionally with evidence and documentation. By tracking and keeping an eye on your chargeback ratio and dispute rate while taking steps to reduce them, you can improve your electronic payment performance, increase customer loyalty, and grow your online business.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?