How Often Do Merchants Win Chargeback Disputes?

As I have dealt with chargebacks with my e-commerce store, I often wondered what my chances of winning are. I’m sure you’re wondering as well. Hence, why I wrote this guide.

I’ll first talk about the win rate percentages for chargebacks in various industries and categories. From there, I’ll talk about factors that affect the win rate percentage, improving the chances of winning chargebacks, net recovery rate and more.

Prepare yourself for disappointment (if you’re a business) and read more.

Key Takeaways

• Merchants have a roughly 30% average win rate for chargeback disputes.
• Industries like apparel and travel see higher merchant win rates.
• Providing strong evidence is crucial for merchants to win chargebacks.
• Merchants must respond quickly to chargeback disputes to increase their win chances.
• Merchants should track win rate and net recovery rate for full insights.

How Often Do Merchants Win Chargebacks?

The following sections will cover merchant win rate percentages (from chargeback disputes) in the following areas:

• General win rate
• Different industries
• Transaction value

Let’s dive in.

1. Merchant Chargeback Win Rate

The industry average for chargeback win rates is 30%. Midigator suggests that 77% of merchants reached this win rate percentage (or above) [1].

Another source suggests that merchants win 43.82% of all friendly fraud cases [2]. However, merchants only won 9.27% of true fraud chargebacks.

The former is when the actual cardholder makes a purchase using the card, but claims the transaction was fraud. The latter is when another person uses the cardholder’s card without their permission.

2. In Different Industries

Varying industries/sectors have different win rates due to their products’ nature. I’ll provide percentages of multiple industries that merchants win and explain why they win/lose in those categories.

Industries Where Merchants Win Chargebacks the Most

Industries where businesses have the highest potential to win chargebacks include [3]:

• Apparel: 35.81%; it’s easier to provide evidence of delivery or quality compared to digital goods.
• Travel: 30.47%; documentation like cancellation emails strengthens the merchant's case.

I’m sure other sectors have higher win rates as well. But travel and apparel are the only areas that I could find with quantifiable data.

These seem like low win rates, but they’re above the industry average of 30%.

Industries Where Merchants Lose Chargebacks the Most

Industries where merchants have the lowest potential to win chargebacks include:

• Electronics (Consumer): 16.59% win rate; often face chargebacks due to their high value, potential for fraud, and disputes over functionality that are difficult to prove.
• Health: 29.17% win rate; lack of results are often subjective and difficult to prove.

These win rates fall under the industry average (30%). Hence, why they’re considered “lower” win rates.

3. Chargeback Win Rates by Transaction Value

Chargebacks on products prices under $29.99 have the highest win rate percentage of 46.85% [4]. Transactions of more than $300 have the lowest win rate (27.64%). 

Here’s more information on win rate percentage by transaction values:

The higher the transaction rates go, the lower the win rate percentage.

Chargeback Rates: How Many Chargebacks Usually Happen?

Chargeback rates vary across industries such as [5]:

• Travel: 1.10%; International bookings can create confusion with currency exchange and miscommunications.
• Retail: 0.90%; Returns and exchanges can sometimes lead to chargebacks if not handled properly.
• Telecommunications: 0.80%; Recurring billing models can lead to disputes over unauthorized or forgotten charges.
• Healthcare: 0.40%; Patients might not fully understand complex medical bills, leading to chargebacks.
• Education: 0.30%; Chargebacks might occur due to disputes over tuition or course fees.
• Utilities: 0.20%; These have very low chargeback rates due to the recurring, essential nature of services.

For instance, 1.1 chargeback disputes will surface every 100 transactions in the travel industry. Most businesses will have a 0.60% chargeback rate.

Merchants remain on the “good sides” of most payment processors and card companies if their chargeback rate remains less than 1%. Some companies, like Discover, have higher thresholds (2% of transactions). And others have lower rates like WooCommerce and Stripe (0.5% of transactions).

This varies by processor.

These rates are important because they’ll help businesses understand how likely their business is to incur a chargeback.

What Is a Chargeback Win Rate?

A chargeback win rate reflects the merchant's effectiveness in challenging and overturning unjustified chargebacks through representment. “Winning” a chargeback means the merchant recovers the sale revenue.

A higher chargeback win rate (or chargeback success rate) signifies a merchant's ability to mitigate financial losses and maintain favorable relationships with payment processors and card networks.

To calculate the chargeback win rate, divide the number of successfully disputed chargebacks by the total number of represented chargebacks. From there, multiply the result by 100 to obtain the percentage.

Say a business won 30 chargeback disputes and fought a total of 75 chargebacks. Their win rate would be: (30/75) * 100 = 40%.

Merchants use chargeback win rate percentages to help tweak their chargeback prevention strategies. It helps them see what’s working and how to invest their time and resources better.

Summary: A chargeback win rate is a percentage that shows how successfully a merchant disputes chargebacks.

Factors That Influence Chargeback Win Rates

The following sections will explain in-depth why the following factors affect chargeback win rate percentages:

• Evidence Provided: More evidence increases the merchant’s chance of winning.
• Nature of Transaction: High-risk transactions require more scrutiny and reduce the business’ chance of winning.
• Merchant Fraud Prevention: Deploying fraud-prevention strategies makes merchants more trustworthy and helps prevent chargebacks entirely.
• Timeliness of Response: Too slow of a response will result in an automatic loss.
• Type of Business: Certain industries and transaction values will affect a business’ win rate due to various factors.

Let’s begin with the evidence.

1. Evidence Provided

The evidence a merchant provides heavily influences their chargeback win rate because it's the primary tool for refuting the cardholder's claim.

Card issuers determine the dispute's outcome based on this evidence. For instance, a customer claims they never received a product, but the merchant can provide proof of delivery. The issuer is more likely to side with the merchant.

Merchants must offer clear, compelling proof to support their claim. In rare cases, a merchant might win without evidence if the cardholder's claim is obviously flawed.

However, providing evidence is always the best strategy.

Let’s say someone runs an e-commerce store and is disputing a transaction. Here are examples of the evidence they’d need to provide to increase their odds of winning:

• Delivery confirmation: This shows the item reached the customer's address.
• Signed receipts: This proves the customer authorized the transaction in person.
• Photos: Images can help confirm the product's condition upon delivery.
• Customer correspondence: This documents any communication regarding the order or purchase.

I wish there was quantifiable data to show how much of a win chance they’ll have depending on how thorough their evidence is. That would require a lot of time and resources to manage, though.

Summary: The quality and thoroughness of evidence a merchant provides greatly influences their chargeback win rate.

2. Nature of the Transaction

Card networks categorize transactions based on factors like how the sale occurs. They might scrutinize chargebacks more if there’s a high risk involved.

One example includes card-not-present transactions, where fraud is easier. Physical transactions involve checks like verifying the card and ID. Card-not-present transactions lack these traits, making it easier for fraudsters to use stolen card information.

Or there are transactions with large amounts, which are more attractive targets for fraudsters. Why? Because they might target high-value goods, fraudsters can resell them on the black market. Resulting in a bigger payoff.

Merchants selling services or digital goods can also face challenges. This is because they lack the physical evidence present with tangible items, such as delivery confirmations or signed receipts.

Summary: Certain categories are inherently riskier in the eyes of card issuers. Merchants should be aware of how their business model might affect their ability to successfully fight chargebacks.

3. Merchant's Fraud Prevention System

Robust fraud tools can stop disputes before they become chargebacks. These systems analyze transactions for red flags, like unusual shipping addresses. It also shows the bank that the merchant actively takes steps to prevent fraud.

Potentially making merchants look more responsible.

Some systems allow merchants to set their own risk parameters. Fraud prevention might also involve verifying billing and shipping information.

By stopping fraudulent transactions early, merchants boost their chargeback win rates indirectly.

Summary: Strong fraud prevention systems directly impact a merchant's chargeback win rate by stopping fraudulent transactions before they result in chargebacks.

4. Timeliness of the Response

Card networks set strict deadlines for merchants to provide evidence. For instance, Visa gives merchants 31 days or less to respond [6 PDF link]. Failing to meet these deadlines often results in an automatic loss.

A timely response demonstrates the merchant is engaged and actively fighting the dispute. It might also help prevent additional chargebacks from related fraud activity.

This is because investigating and responding quickly can help identify patterns or connections to a larger fraud scheme. The merchant can potentially stop other fraudulent transactions and protect themselves from further losses.

Summary: A prompt response to a chargeback demonstrates diligence and can improve a merchant's chances of winning.

5. Type of Business

The type of business a merchant operates in can influence their chargeback win rate. Apparel stores, for example, often have higher win rates than consumer electronics stores.

Apparel disputes often involve subjective claims like poor fit or sizing issues. Merchants can often provide evidence like size charts or return policies to counter these claims. Electronic disputes might involve malfunctions or defects, which can be harder to disprove without physical examination by the issuer.

Summary: The type of product sold can influence win rates.

Chargeback Win Rate vs. Net Recovery Rate

The chargeback win rate reflects the percentage of successfully disputed chargebacks out of total disputes initiated by the merchant. A higher win rate suggests better dispute resolution capabilities. 

Businesses would measure a net recovery rate by the total number of chargebacks—represented and not. This metric provides a more comprehensive look of the merchant's ability to mitigate losses and manage disputes.

A merchant might have a high win rate but still have a low net recovery rate if they only fight a small portion of their total chargebacks. Businesses must consider both metrics to gauge their overall success in handling chargebacks efficiently.

Summary: Net recovery rate offers a comprehensive view of chargeback losses, while chargeback win rate indicates success in actively disputing chargebacks.

What Is a Net Recovery Rate?

Net recovery rate is a metric for tracking chargeback success. It measures recovered funds against the total volume of chargebacks or effectiveness in mitigating losses and managing disputes. And it assesses how well a business recovers from chargebacks

This matters because:

• Reveals the financial impact of chargebacks on business.
• Shows areas for improvement in the dispute process.
• A higher net recovery rate means better protection against losses.

A business would figure out this number after accounting for arbitrating chargebacks and potential second chargebacks.

How does one figure out a net recovery rate?

Net recovery rate = Chargebacks won divided by total chargebacks issued.

Let’s see this in an example:

An online clothing retailer experienced 500 chargeback requests in a month. They represented 250 of those chargebacks and won 52. They have a 20% win rate, but a 10% net recovery rate. This isn’t an ideal win (avg. 30%) or net recovery rate (avg. 12%).

Summary: Net recovery rate shows the percentage of chargeback funds a merchant successfully recovers after the entire dispute process. Including second chargebacks and arbitration.

How to Improve Chargeback Win Rates

The following sections are strategies and tools to help improve business’ chances of winning chargeback disputes:

1. Chargeback Prevention Tools: Prevents chargebacks entirely and makes businesses appear as more trustworthy to banks.
2. Avoid Accepting American Express Cards: Merchants lose more disputes that involve these cards compared to other card networks.
3. Gather and Organize Data: Provide details regarding the transaction to prove they’re in the right.
4. Understand Timeframes for Different Payment Processors: Avoid automatically losing chargeback disputes by submitting data on time.
5. Know Each Chargeback Reason Code: Knowing specific codes will help businesses understand how to prepare for the chargeback at hand.

There’s nothing else to explain here. Let’s begin with chargeback prevention tools.

1. Use a Chargeback Prevention Tool

These tools analyze orders for signs of fraud before they get processed. This might involve verifying billing and shipping addresses, or analyzing purchase behavior patterns. Some tools offer real-time monitoring for suspicious activity.

Examples of tools include:

• Address Verification Service (AVS): Matches the address on file with the card issuer to the customer's billing address.
• Card Verification Value (CVV): Verifies the security code on the back of a credit card.
• 3D Secure: Requires a password or biometric confirmation.
• Fraud Scoring Systems: Assess the risk of a transaction based on numerous data points and behavioral patterns.
• Velocity Checks: Monitor order volume and transaction frequency to identify suspicious activity.

By stopping fraudulent transactions early, merchants can avoid chargebacks altogether. Additionally, a strong prevention system improves a merchant's reputation with processors.

Summary: Utilizing chargeback prevention tools demonstrates risk awareness, which can improve a merchant's standing and potentially influence their win rate.

2. Don’t Accept American Express Cards (If Possible)

It’s more difficult for merchants to win chargeback disputes against customers who use American Express (AMEX) cards for these reasons:

• It’s an Issuer and Network: This gives them greater access to customer data and transaction details.
• They have a Customer-Focused Reputation: The company often sides with cardholders in disputes.
• Burden of Proof Heavily Favors the Cardholder. Merchants need to provide extensive evidence to win a dispute.

I can’t find any quantitative information to support my point. This information comes from Kount, an Equifax company, along with complaints from other merchants [7].

Deciding on whether to stop accepting AMEX cards depends on if American Express-related chargebacks have made an impact chargeback-wise. If a seller encounters a chargeback from an AMEX card, they have a lot of documentation of improving their chances of winning a dispute [8].

In short…

They say to respond within 20 days, submit supporting documents, and provide an explanation. 

Summary: American Express's structure and customer-centric approach make it difficult for merchants to win chargeback disputes. For some businesses, the risks of accepting American Express might outweigh the sales benefits.

3. Organize & Gather All Data

Keeping clear, detailed records provides essential support for chargeback disputes and helps their odds. This includes customer information, order details, and all communication.

Here's how to improve data gathering for better outcomes:

• Centralize Records: Use a Customer Relationship Management (CRM) system or a dedicated e-commerce platform to store transaction and customer data. This makes information easily accessible for retrieval.
• Detailed Notes: Log every interaction with the customer, including the date, time, and substance of conversations.
• Automate When Possible: Use tools that automatically capture customer information and order details to reduce manual errors.

Providing evidence and data is a seller’s most valuable tool to combating chargebacks because it can prove their innocence in many chargeback-related scenarios.

For instance, if a customer tries to claim that a product isn’t as described, combat this by providing detailed (publicly-available) information on the item or service.

Summary: Detailed and organized data is a merchant's strongest weapon in chargeback disputes, helping them present compelling evidence.

4. Understand All Chargeback Timeframes

Each stage of a dispute has a strict deadline for action. Missing these deadlines can often result in an automatic loss. Familiarizing themselves with these timeframes allows merchants to respond strategically. 

Here are some examples from major payment processors:

• Visa: 20 days to respond from Day One of each phase of the chargeback.
• Mastercard: 45 days to respond to each phase of the chargeback.
• American Express: 20 days to respond.
• PayPal: 10 days.
• Stripe: 7–21 days.

These timeframes will vary by provider and by phase. Merchants must look into every provider’s chargeback response timeframes to determine how much time they’ll have to gather evidence.

Summary: Understanding these timeframes enables merchants to respond promptly and strategically, maximizing their chances of winning.

5. Know Each Reason Code & How to Respond

Card networks and payment processors use codes to categorize disputes. Each code highlights the issue the cardholder raised. Knowing the code allows merchants to tailor their evidence and arguments accordingly.

For example, Visa reason code 13.1—"Merchandise/Services Not Received" often requires proof of delivery or service confirmation. Merchants should respond with tracking info, signed receipts, or any documented customer communication acknowledging receipt.

Summary: Chargeback reason codes pinpoint the customer's complaint and guide the merchant's response strategy.

Why Chargeback Win Rates Are Important

Chargeback win rates are important for merchants because they directly impact revenue.

Each chargeback means the merchant loses the sale and faces added fees. A high win rate shows the merchant is effectively fighting disputes. This allows them to recover lost money and avoid penalties.

However, businesses must also consider their net recovery rate to gauge how well they do with recovering funds from chargebacks.

It also reveals patterns in chargebacks, helping the merchant focus on prevention. A higher win rate might improve the merchant's reputation with processors or banks. This matters because excessive chargebacks can lead to hefty fines or a terminated account.

Summary: Merchants should focus on winning chargebacks to protect their business and improve their bottom line.

FAQs for Merchant Chargeback Win Rates

Read on to find frequently asked questions about winning chargebacks as a merchant.

Is There an “Ideal” Chargeback Win Rate?

There is no “ideal” chargeback win rate due to most merchants losing chargeback disputes. However, some sources suggest that 30% is the industry standard. Aim for that win rate.

Conclusion

By implementing strategies like gathering evidence and responding promptly, businesses can protect their revenue and maintain good standing with payment processors. A focus on win rate and net recovery rate will equip merchants to successfully navigate the complexities of chargebacks.

Improve the chances of eliminating chargebacks entirely by using a chargeback prevention tool we offer. Learn more.