The chargeback rate refers to the proportion of chargebacked credit card transactions following an objection by the cardholder. A chargeback is always possible if the cardholder believes that a certain amount was improperly charged to his or her credit card account. In this case, he or she has the amount charged back and thus makes a chargeback. The procedure serves to protect against misuse and is in the interest of the credit card user. At the same time, however, chargeback also incurs considerable costs. The next step is to check whether the chargeback was legal. Online merchants therefore try to keep the chargeback rate, i.e. the proportion of chargebacked amounts, as low as possible.
Low chargeback rate in Germany
The chargeback rate is calculated from the number of chargebacks in relation to the number of transactions posted. This ratio has been very low in Germany for years, which suits the flourishing online retail sector. Nevertheless, according to Deutsche Card Services, there has been an increase in the chargeback rate in the wake of the financial and economic crisis, which is just over 0.3 percent in this country. However, new security procedures, which are making card misuse increasingly unlikely, are keeping the chargeback rate largely in check. Incidentally, the chargeback rate in e-commerce is certainly comparable with shoplifting in the retail sector. In recent years, this fraud rate has usually been around 0.5 percent and is therefore much higher, which means that online retailing ultimately proves to be safer for sellers.
Security procedures depress chargeback rate
One major reason for the declining chargeback rate is the use of the pioneering 3D Secure procedure. Here, the cardholder registers with a card-issuing bank so that additional identification takes place. The security procedure significantly reduces the risk of fraud for online merchants. According to surveys conducted by Deutsche Card Services, the use of 3D Secure reduces the risk of chargeback by around two-thirds for payments made with both Mastercard and Visa. The chargeback rate for Visa is statistically lower than the rate for Mastercard payments.
High chargeback rate brings disadvantages for merchants
Another disadvantage of a high chargeback rate is the position of the online merchant vis-à-vis the acquirer. If the chargeback ratio of a particular merchant is above a set limit, the bank may be able to revoke the merchant’s contract partner number (CC number). Generally, a value of around one percent is considered the maximum permissible here. Incidentally, there is a greater risk of a high chargeback rate for merchants who have expensive products and therefore larger total order sums. According to Deutsche Card Services, the higher the value of the shopping cart, the higher the risk of non-payment for the merchant.
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