Chargeback thresholds are essential for merchants of all sizes to understand. There are severe consequences for merchants who break the chargeback threshold and benefits for merchants who remain well below chargeback thresholds.
Merchants below the chargeback threshold typically run successful operations, have established trustworthy customers, and have built a great relationship with their payment processing partners.
Let’s look at why chargeback thresholds are critical, discover what they are for each network/platform, and give you tips on how to lower your chargebacks by working with a chargeback management company.
- Exceeding a chargeback threshold can result in a terminated merchant account and placement on the MATCH list.
- PayPal, Authorize.net, and Braintree have a chargeback threshold of 1% of total transactions, while Stripe has a threshold of 0.5%.
- E-commerce platforms like Shopify, WooCommerce, BigCommerce, and Magento aim to keep their chargeback thresholds below 1% of sales.
- Credit card companies like Visa, Mastercard, American Express, and Discover have different chargeback thresholds ranging from 0.9% to 1.5%.
- Implementing clear refund policies, recognizable billing descriptors, prompt customer complaint resolutions, and fraud prevention can help prevent chargebacks.
- CB-ALERT can help reduce your chargebacks, save you time and money, and identify why chargebacks are occurring.
What Is A Chargeback Threshold?
A chargeback threshold is the maximum allowable percentage of chargebacks to total transactions. Exceeding this threshold can have significant consequences from banks and networks. It serves as a benchmark for businesses to monitor and manage their chargeback ratios effectively.
Chargeback thresholds vary depending on the platform/network.
For example, PayPal has a chargeback threshold of 1% of total transactions, while Stripe and Authorize.net have thresholds of 0.5% and 1%, respectively. E-commerce platforms such as Shopify, WooCommerce, BigCommerce, and Magento aim to keep their chargeback ratios below 1%.
Businesses must stay within these thresholds to avoid costly consequences and maintain a good reputation.
What Happens If You Go Over The Threshold?
Exceeding the predetermined limits on chargebacks can result in significant consequences for businesses, leading to financial losses and tarnished reputations, and placement on the MATCH list, which is nearly impossible to get off of.
Chargeback Thresholds For Common Payment Platforms
You must know their chargeback thresholds if you’re using popular payment platforms like PayPal, Square, Stripe, Braintree, or Auth.Net.
These platforms will freeze or terminate your account should you exceed their chargeback threshold.
To effectively manage chargebacks, it is important to be aware of PayPal’s chargeback threshold of 1% of total transactions. If your chargeback ratio exceeds this threshold, you may face the consequences from PayPal.
Keeping this threshold in mind, monitoring and preventing chargebacks on your PayPal account is crucial. Implementing strategies to minimize chargebacks, such as clearly communicating refund policies to customers and promptly addressing customer complaints, can help maintain a low chargeback ratio.
Maximize the efficiency of your chargeback management process by exploring how Square, a popular payment processor for small businesses, handles chargebacks and implements fraud prevention measures.
Square has a chargeback threshold of 1% of sales for Stripe users. To prevent chargebacks, Square recommends clearly communicating refund policies to customers and promptly addressing any complaints. They also advise implementing fraud prevention measures such as strong passwords and two-factor authentication.
Stripe sets the chargeback threshold at 1% of total transactions, making it one of the lowest in the industry.
Braintree sets a chargeback threshold of 1% of the total monthly transactions. If a merchant’s chargeback rate surpasses this threshold, they could face potential consequences, including extra fees or restrictions on their account.
Auth.Net understands the importance of protecting your business from chargebacks and offers a chargeback threshold of 1% of total transactions, ensuring you can control your finances and reputation.
By integrating with major e-commerce platforms, Auth.Net streamlines the entire process of managing and preventing chargebacks.
Chargeback Thresholds For Ecomm Platforms
If you’re an e-commerce business owner, knowing the chargeback thresholds for popular platforms like Shopify, WooCommerce, BigCommerce, Magento, and Squarespace is important.
Shopify aims to keep its chargeback ratio below 1% for users of Shopify Payments. This means that for every 100 transactions, they work towards ensuring that no more than one results in a chargeback.
WooCommerce aims to keep the chargeback ratio below 1%, which aligns with industry standards.
BigCommerce is dedicated to helping you protect your online store and maintain a positive reputation, ensuring that chargebacks won’t hinder your business growth.
Although Magento does not enforce a specific chargeback threshold, merchants are strongly advised to maintain a chargeback rate below 1%. This practice is crucial to prevent penalties or potential restrictions on their account.
Squarespace aims to keep chargebacks below 1% of sales.
Wix aims to keep the chargeback ratio below 1%, just like other popular e-commerce platforms.
Credit Card Netowork Chargeback Thresholds
Visa, Mastercard, Discover, and American Express each have their own chargeback thresholds that businesses must be aware of. These thresholds determine the maximum percentage of monthly transactions attributed to chargebacks.
Visa’s threshold is set at 0.9% of monthly transactions. This means businesses should keep their chargeback rate below this limit to avoid any penalties or consequences from Visa.
Mastercard, on the other hand, considers a chargeback rate of 1.5% as its limit.
American Express takes a slightly different approach and looks at the chargeback ratio over three months. If a business’s chargeback ratio exceeds 1% for three consecutive months, it may face consequences from American Express, such as increased fees or restrictions on their account.
Discover sets its chargeback threshold at 1%, and the same type of restrictions follow should merchants break the threshold.
Keeping your chargeback ratio below 0.9% of your monthly transactions is essential to stay in good standing with Visa.
Verifi chargeback alerts were created to help with Visa-related credit card chargebacks. These alerts significantly lower your chargebacks and can help reduce you beneath the threshold.
When it comes to Mastercard, it’s essential to understand the chargeback rate and its impact on your business. Mastercard sets a threshold of 1.5% for the chargeback rate. Exceeding this percentage can have consequences for your business.
Discover offers a chargeback ratio of 1% for their services, ensuring that businesses can maintain a low risk of disputes and protect their reputation.
American Express Threshold
American Express sets a chargeback ratio benchmark of over 1% for three months to ensure merchants using their services maintain a low risk of disputes and protect their business reputation.
One effective way to minimize chargebacks is by clearly communicating your refund policies to customers. This helps set expectations and reduces the likelihood of misunderstandings or dissatisfaction that can lead to chargebacks.
To further prevent chargebacks, you should also ensure clear and recognizable billing descriptors on customers’ credit card statements, as this helps them quickly identify their purchases.
Additionally, addressing customer complaints promptly and resolving any issues they may have can help prevent them from resorting to a chargeback as a solution.
By implementing fraud prevention measures such as strong passwords and two-factor authentication, you can also protect yourself from unauthorized transactions that can result in chargebacks.
Choose CB-ALERT To Keep You Below Chargeback Thresholds
If you want to grow your business, stay below chargeback thresholds, and save time, fill out the application below.
We have helped hundreds of brands grow their business and reduce their chargebacks significantly over the years, and we are confident we can do the same for your business.