Monitoring Chargeback Rates

Merchants should make it a point of monitoring their chargeback rates on a regular basis. Chargebacks usually result from improper debit and credit card payment processing procedures and a regular review can help identify the problematic areas. It is well known that chargeback levels vary by merchant type and some industries require more stringent chargeback monitoring procedures than others. MO/TO and eCommerce merchant account users typically generate higher chargeback levels than retail merchant account holders. The difference, of course, is that the former operate in a "card-not-present" environment while the latter physically process the card payments.

We have a few simple suggestions for your chargeback monitoring program:

• Set up your monitoring system to group chargebacks by reason code. Reason codes represent specific risk issues and chargebacks labeled with the same code usually require the same remedies.


• Separate initial chargebacks from net chargebacks after representment. This will help you evaluate the strength of your representation program and the proportion of chargebacks for which you have supporting documentation.


• Separate chargebacks resulting from card-present transactions from these resulting from card-not-present ones. If your business accepts both types of payment modes, separating the resulting chargebacks will help you estimate the proportion that each group represents. Moreover, each type requires unique preventive and remediable measures.

Remember that your merchant processing account is a work in progress. The processing rates that you got when you set it up are only as good as your ability to process transactions in a way that was described in your merchant agreement. Excessive chargeback rates can increase your payment processing costs and, if left unaddressed, these issues can lead to the suspension of your merchant account.