Key takeaways

Average E-Commerce Chargeback Rate - Benchmarks & What’s Normal

The average chargeback rate across all industries is 0.60%. To avoid penalties, don’t chargeback rates of 0.9% (for Visa) and 1.5% for other card networks. Keep reading for more vital information.

Author

Theodore Covey

Key Takeaways

Average e-commerce chargeback rate is 0.60% across all industries.
Travel and education sectors face higher rates due to unique challenges.
Chargeback calculation methods vary by card network (current vs. previous month).
Exceeding chargeback thresholds leads to penalties, fines, and potential account termination.
Fraud prevention tools and enhancing customer experience reduces chargeback risks.

Normal Chargeback Rates & In Different Industries

Here are the average chargeback rates we’ll see in various industries [1].

I’m a visuals kind of person and like to see things in charts:

Screenshot from Clearlypayments.com

Why do travel and education have such high chargeback rates?

Travel involves high transaction values, attracting fraudsters. Moreover, bookings allow unforeseen events to cause dissatisfaction.

I have an example of this. During the pandemic, I had a flight to South Korea that the airline canceled out of nowhere. And they wouldn’t refund me.

I escalated the situation until I got my money back. This is how other customers will likely react.

Regarding education:

The duration of the program provides enough time for learners to get dissatisfied.
Subjective service quality leads to unmet expectations.

Most of you who are reading this are likely in retail. Thus, you should have almost half the chargeback rate as some industries on this list.

Summary: The travel and education sectors face unique challenges contributing to higher chargeback rates, such as high costs, long durations, subjective experiences, and financial complexities.

Average Rate in Different Countries

Most of us do business in different countries. Let’s see what the chargeback rates look like outside the US:

The United States is pretty far down this list, but these numbers don’t account for all industries.

What You Should Know About Calculating Your Average Chargeback Rate

Important: Second chargebacks (aka arbitration chargebacks) won’t affect your chargeback rate. Only first chargebacks.

Number of chargebacks in a month / Total number of transactions in the same/previous month * 100 = Chargeback rate

You’d calculate the average chargeback rate by dividing the number of chargebacks received in a month by the total number of transactions processed.

The way you’ll calculate depends on the card network. We would calculate the current month for Discover, American Express (AMEX) and Visa. Conversely, we’d calculate for the previous month with Mastercard.

Let’s look at a couple examples:

Visa Example (Current Month):

Number of chargebacks received in April: 120
Total number of transactions processed in April: 8,000
Chargeback rate (Visa) = (120 / 8,000) * 100% = 1.5%

Mastercard Example (Previous Month):

Number of chargebacks received in April: 150
Total number of transactions processed in March: 12,000
Chargeback rate (Mastercard) = (150 / 12,000) * 100% = 1.25%

While you’re calculating your chargeback rate, consider also calculating these KPI to know how effective your chargeback mitigation efforts are.

1. There’s also a chargeback win rate.

Number of successfully disputed chargebacks / Total number of chargebacks disputed * 100% = Chargeback win rate

The chargeback win rate is the percentage of chargebacks that we successfully dispute out of the total number of chargebacks fought. It's a metric for determining how good our representment strategy is.

2. Now we should talk about net recovery rates.

I found these to be important because it helps me determine the percentage of chargebacks that I successfully disputed and recovered funds for.

It's calculated by dividing the number of successfully disputed chargebacks by the total number of chargebacks received:

Number of successfully disputed chargebacks / Total number of chargebacks * 100 = Net recovery rate

The average net recovery rate among merchants is 12% [2]. That’s not too high, but it’s a good rate to aim for.

A high net recovery rate indicates that you can successfully challenge and reverse a significant portion of chargebacks, which can help to reduce overall chargeback rates.

Should We Avoid a Specific Chargeback Rate?

A “high” chargeback rate is when we’re near or exceed a card network's chargeback threshold. You could even say that exceeding the industry average of 0.60% is too high.

Here are the different chargeback thresholds for various card networks and payment processors:

Visa: 0.9% or 100 chargebacks in the current month.
Mastercard: 1.5% in the previous month.
Discover: They don’t publish specific numbers, but recommend avoiding a 1% rate or 100 chargebacks in a month.
American Express/AMEX: 1% per month for 3 consecutive months.
PayPal: More than a 1.5% chargeback rate or 100 chargebacks within a 3-month period.
Stripe: 0.5% of transactions for the current month.

These are for the most common payment processors and providers. If you accept other card networks or providers, reach out to them to understand what their limits are.

What Happens if We Pass These Thresholds?

Each card network has specific thresholds and consequences for exceeding acceptable chargeback rates. Because once businesses exceed their threshold, they’re labeled “high risk.”

Hence, why we should practice caution regarding situations that involve chargebacks.

1. Visa Dispute Monitoring Program (VDMP): Visa has a multi-level program based on the merchant's chargeback-to-transaction ratio and the number of chargebacks. Exceeding the 0.90% or 100 chargeback threshold will label you as a “Standard” high risk.

Surpassing 1.80% or 1,000 chargebacks will label you as “Excessive [3 PDF link].

Businesses in the Standard tier won’t need to pay additional fees for the first 4 months in the program. When remaining in this tier for 5-9 months, you’ll pay an additional $50 per dispute. Then, months 10-12 will incur $50 fees plus a $25,000 review fee.

Landing in the Excessive tier will incur $50 fees per dispute from months 1 to 6. Months 7-12 will also have these fees and the massive review fine.

In short, you start accumulating fees quicker in the Excessive tier.

If you don’t improve your chargeback rates after 12 months, Visa will terminate your account. This prevents you from being able to process transactions from Visa cards. This could kill your business.

2. Excessive Chargeback Merchant (ECM): Similar to Visa, Mastercard has a multi-level program based on chargeback-to-transaction ratio and number of chargebacks.

1.5% or higher (100+ chargebacks): Monitoring and potential fees.
High Excessive Chargeback Merchant (HECM): 300 or more chargebacks in the previous month. Same consequences as ECP.
Exceeding thresholds for multiple months: Increased monitoring, mandatory remediation programs, and potential termination of Mastercard processing.
Fees: $1,000 for staying in the program for 2-3 months. $5,000 fine for staying 4-6 months. Additional $5 per chargeback.
Termination: After remaining in the program for 12 months, Mastercard will terminate your account.

HECM and ECM do have a difference. HECM accumulates fees faster. Instead of paying you’ll pay $10,000 for remaining in the program for 4 to 6 months instead of $5,000.

3. Chargeback Monitoring Program: Discover monitors merchants based on their chargeback rates and may require them to submit mitigation plans if they exceed certain thresholds.

Fees: Discover may impose chargeback fees and other penalties for excessive chargebacks.
Account Termination: In severe cases, Discover may terminate a merchant's account if they consistently exceed acceptable chargeback rates.

4. Excessive Chargeback Fee: American Express has a similar monitoring program to Visa and Mastercard. There isn’t too much information other than that if you breach the threshold for 3 consecutive months, you’ll pay $25 per chargeback.

Fees for all of these programs stack.

Just because you’re in, for instance, the VDMP doesn’t mean you also won’t suffer from consequences of the HECM. Thus, you need to prioritize reducing your chargeback rates on all platforms.

The specific thresholds, fees, and penalties can vary depending on your industry, processing history, and other factors. Familiarize yourself with the chargeback policies of each card network you work with and manage your chargeback rates to avoid negative consequences.

These Factors Will Influence Your Chargeback Rate

Based on my experience, along with a lot of other business’, these factors will influence our chargeback rates:

Customers: They’re responsible for initiating the chargeback.
Industry: Some industries will post more risk than others.
Fraudulent Activity: Some product types and industries are more at risk for fraud.

I won’t cover how to reduce and prevent chargebacks within these factors because many of the solutions will overlap. I’ll cover those in a separate section.

Let’s get these factors over with.

1. Customer Experience

If a customer is unhappy with their purchase or feels misled by the product description or advertising, they are more likely to dispute the charge, resulting in a chargeback.

Here are factors that can disappoint shoppers and raise their chances of disputing a transaction:

Product quality: If the product received is different from what was advertised or is of poor quality.
Delivery issues: Late deliveries, lost packages, or incorrect items.
Misleading advertising: If the product or service doesn't live up to the claims made in advertising or on the website.
Poor customer service: Difficulty contacting customer service or receiving unsatisfactory assistance can make a customer more frustrated.
Unauthorized transactions: If a customer sees a charge on their statement that they don't recognize.

Or you could have a complex refund process. 81% of surveyed shoppers believe that filing a chargeback is more convenient than dealing with a business’ refund process.

Here’s an example. Look at the way that Discover talks about chargebacks…

With that in mind, 70% of customers don’t even believe there’s a difference between refunds and chargebacks. I’ve asked my family members and they feel the same (they aren’t the interviewees for that 70%).

By ensuring a positive customer experience, businesses can reduce the likelihood of chargebacks. This includes providing accurate product descriptions, clear communication, prompt customer service, and secure payment processing.

2. Industry

Different industries inherently face varying chargeback rates due to unique characteristics:

Product/Service Nature:

Physical goods: Easier to assess before purchase and lower dissatisfaction risk.
Digital goods: Intangible, harder to evaluate and higher dispute potential.
Services: Subjective experiences and varying expectations.

Transaction Value:

High-ticket items: Greater financial loss for buyers and increased incentive to dispute.
Low-cost items: Lower financial impact and less motivation for chargebacks.

Consumer Behavior:

Impulse purchases: Higher likelihood of buyer's remorse.
Considered purchases: More research, lower risk of dissatisfaction.

Industry-Specific Factors:

Travel: Non-refundable bookings, unforeseen events, and higher industry-wide chargeback rates.
Subscription services: Recurring billing and potential for unauthorized charges.

I talked about the different chargeback rates among various industries earlier and believe it’s unproductive to cover everything that affects their chargeback rate.

Understand the risks of your industry then tailor solutions and preventative measures to your products and services.

3. Fraudulent Activity

Chargebacks due to true fraud are not the merchant's fault but still negatively impact the chargeback rate. They also have a 9.27% win rate. Much lower than the industry average of 30%.

Chargebacks due to true fraud are not the merchant's fault, but they still negatively impact the chargeback rate. They also have a 9.27% win rate. Much lower than the industry average of 30%.

After writing this section, summarize all the information you wrote into 1 sentence. This summary must be concise.

Additionally, there's "friendly fraud," where a customer makes a legitimate purchase but later disputes it, claiming it was unauthorized. This can happen due to buyer's remorse, forgetfulness, or intentional deception.

Friendly fraud also contributes to chargeback rates. However, merchants have a 43.82% chance of winning these chargebacks.

I Recommend These Tips & Tools to Lower Chargeback Rates

Here are all of the fraud and chargeback mitigation and prevention tools that I recommend using:

Alert providers like Ethoca notify merchants of potential chargebacks before they are filed.
Address Verification Service (AVS) checks billing addresses against cardholder information.
Card Verification Value (CVV) requires the 3-digit code on the back of the card.
3D Secure adds an extra authentication step for online transactions.
Fraud detection software analyzes transactions for suspicious patterns.
Detailed product descriptions and transparent return policies manage expectations.
Monitor chargeback data to identify trends and areas for improvement.

I’d like to add a couple of notes.

We offer a tool that combines all major alert providers (RDR, Ethoca, and CDRN) and allows you to manually or automatically refund transactions before they result in chargebacks.

And if you don’t want to refund them, you’ll have an early warning that a customer is disputing a transaction.

3D Secure can reduce fraud from credit cards by up to 40% but can create additional friction for customers during transactions [4]. Because customers need to take an extra step in their transaction, they might shop elsewhere.

However…

It can approve 95% of transactions instantly. You will need to experiment with 3D Secure to see whether it helps or hurts your business.

Summary: Reduce chargebacks by using fraud prevention tools, improving communication, proactively addressing customer concerns, and using alert providers like Ethoca to detect and prevent potential chargebacks.

What is an E-Commerce Chargeback Rate?

The e-commerce chargeback rate measures chargebacks as a percentage of total transactions. It indicates the frequency of transaction disputes by shoppers. And it helps card networks determine whether your business is considered “high risk”.

Monitoring this rate is crucial for e-commerce merchants to avoid penalties.

Excessive chargebacks can lead to fines, program enrollment, and even account termination.

I covered all these points in depth earlier. Go back and read them if you didn’t already.

Summary: E-commerce chargeback rate is a key performance indicator that tells us the frequency of transaction disputes, calculated as a percentage, and essential for merchants to monitor and manage effectively.

Wrapping Up

Maintaining a low chargeback rate is essential to avoid card network penalties, ranging from fees to account termination.

By proactively addressing issues like fraud and customer dissatisfaction and implementing appropriate tools and strategies, merchants can effectively manage and minimize chargebacks, ensuring a smoother payment process and a more positive customer experience.

We also offer a tool that can help reduce chargebacks by up to 91%. Chargeback prevents most disputes from escalating into chargebacks. Learn more today.

Theodore Covey

Educator

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