A chargeback ratio indicates the proportion of chargebacks a merchant experiences compared to their overall transactions, represented as a percentage. In the travel industry, it is crucial to keep this ratio low, as a high rate can result in penalties, higher fees, and the risk of losing a merchant account. By keeping an eye on this ratio, travel companies can detect customer disputes and possible fraud, enabling them to tackle problems early and reduce both financial and reputational risks.
The chargeback-to-transaction ratio (CTR) measures the percentage of transactions that result in chargebacks. It is calculated by dividing the number of chargebacks by the total number of transactions, then multiplying the result by 100 to express it as a percentage, providing an overview of average chargeback rates.
For travel companies, monitoring the chargeback ratio is essential for effectively managing disputes and maintaining operational efficiency. A high chargeback ratio can signal ongoing issues, such as problems with service delivery or instances of fraud, which can undermine customer trust and affect profitability. Card networks vigilantly track chargeback ratios, and if a travel business surpasses acceptable thresholds, it risks being labeled a “high-risk merchant” and may be subjected to a chargeback monitoring program. These programs come with significant fees and require merchants to promptly reduce their chargeback rates, intensifying the urgency to address the root causes of the issues.
For example, Mastercard’s Excessive Chargeback Program mandates that acquiring banks provide monthly updates on the chargeback activities of any high-risk merchant, with fees ranging from £50 to £300 for each report. Failing to submit a report can result in penalties of up to £1,000 per occurrence. Similarly, Visa implements its Fraud Monitoring Program, which charges nearly £100 per chargeback for merchants classified as high-risk. Although these fees are imposed on the acquiring bank, they are often passed down to the merchants, further straining the finances of travel companies already grappling with high chargeback ratios.
In addition to financial repercussions, being designated as a high-risk merchant can lead to more serious outcomes, such as the suspension or termination of a merchant account by the acquiring bank. For a travel company, the inability to process card payments would be catastrophic, effectively bringing operations to a standstill. Therefore, it is vital for travel companies to maintain a low chargeback ratio by closely monitoring trends and swiftly resolving disputes to safeguard their business.
Reducing the chargeback ratio in the travel industry necessitates addressing fundamental issues such as service problems, cancellations, and unauthorised transactions. Given that travel bookings typically involve significant amounts, they are susceptible to customer disputes if expectations are not fulfilled or if there are inaccuracies in the booking process. To mitigate these challenges, it is essential to implement fraud prevention strategies that can identify and prevent unauthorised transactions, enhance customer service for swift complaint resolution, and ensure that booking processes are accurate and transparent.
Effectively managing chargebacks requires a thorough understanding of regional compliance standards and the diverse requirements set by card networks. For travel businesses operating on a global scale, navigating different regulations can complicate dispute resolution and fraud management, making it difficult to sustain a low chargeback ratio without advanced monitoring solutions.
For businesses, a significant chargeback-to-transaction ratio can lead to major issues. When a travel business faces an increase in chargebacks, it risks being labeled a “high-risk merchant” and may be subjected to a chargeback monitoring program by the card networks. This classification indicates that the business is under scrutiny for high chargeback levels and must implement corrective measures. Card networks establish these monitoring programs to motivate merchants to reduce their chargeback rates, but joining such a program can incur substantial expenses.
It is essential for businesses to keep their chargeback-to-transaction ratio low in order to avoid financial repercussions and safeguard their merchant account status. Ideally, businesses should strive for a chargeback ratio significantly below 1%, as exceeding 0.9% can raise red flags with card networks and result in various penalties. Each card network—such as Visa, Mastercard, or American Express—has its own specific thresholds and guidelines regarding acceptable chargeback ratios, which can differ slightly among them. For example, while one network may permit a somewhat higher ratio, others could enforce stricter limits, making it vital for companies to remain updated on the policies of each network.
Reducing chargeback rates begins with the implementation of robust fraud prevention strategies. Numerous third-party payment processors provide tools aimed at minimising the risk of fraud, including CVV (Card Verification Value) and AVS (Address Verification System) checks. These tools assist in verifying the identity of the cardholder and ensuring that billing information is accurate. Furthermore, ensuring that shipping and billing addresses match, along with incorporating phone verification during the checkout process, adds an additional layer of security. These measures are effective in decreasing the occurrence of fraudulent transactions that can lead to chargebacks.
Another significant strategy for preventing chargebacks involves revising your terms of service and return policy to ensure they are clear and easily comprehensible for customers. A considerable number of chargebacks arise from misunderstandings or confusion regarding a company's policies. A transparent and user-friendly return policy not only fosters trust but also diminishes the chances of disputes, as customers will have a clear understanding of what to expect when returning a product or requesting a refund.
A prevalent cause of non-fraudulent chargebacks is buyer’s remorse. Customers may feel dissatisfied if the product does not meet their expectations or may regret their purchase shortly after completing it. Providing customers with a simple process for returning products for a full refund can deter them from initiating chargebacks. When the return process is straightforward, customers are more inclined to resolve issues directly with you rather than disputing the charge with their card issuer.
Lastly, it is essential to ensure that your product descriptions and marketing accurately reflect the quality and features of your offerings. While engaging marketing can generate interest, it is crucial to establish realistic expectations. Clearly articulating product details across all platforms—such as your website, social media, product descriptions, and advertisements—helps prevent situations where customers feel misled. When products consistently meet their advertised promises, customers are less likely to perceive they have experienced a “bait and switch,” which is a frequent cause of chargebacks.
If you find yourself in an excessive chargeback program due to a high chargeback ratio, you will face an extra fee for each chargeback, in addition to a monthly penalty. These charges are designed to motivate you to reduce your chargeback ratio.
Typically, being placed in the monitoring program allows you a four-month window to lower your ratio to an acceptable level before incurring further fines and fees. Once you achieve this, you need to maintain the improved ratio for three consecutive months to be removed from the program.
On the other hand, if your chargeback ratio stays elevated for a prolonged period, the card network may sever its ties with your business, potentially placing you on the MATCH list, which is a blacklist managed by Mastercard within the payment industry.
Felloh offers travel companies a robust solution for monitoring and managing their chargeback ratios, ensuring compliance with industry regulations and minimising the risk of penalties. By providing real-time transaction insights, Felloh helps businesses detect potential risks early, such as irregular transaction patterns or high-risk bookings, enabling proactive dispute resolution. Its advanced analytics and reporting features give travel companies a comprehensive view of chargeback trends, allowing them to track changes over time and identify the underlying causes of disputes.
Additionally, Felloh’s platform simplifies the chargeback dispute process, making it easier for travel businesses to contest unjustified chargebacks and mitigate their financial impact. With tools designed for efficient dispute resolution, Felloh empowers travel companies to manage their chargeback ratios more effectively, preserving a strong reputation with card networks and acquiring banks. The platform emphasises fraud prevention and enhancements to customer experience, helping travel companies adopt a more effective chargeback management strategy that ensures compliance and boosts customer satisfaction.
Through this approach, Felloh enables travel companies to take charge of their chargeback ratios, safeguarding their profits while providing a secure and dependable payment experience for customers. With Felloh’s assistance, travel businesses can adeptly handle the intricacies of chargeback management, lower costs, and concentrate on sustainable growth.
Felloh’s automatic reconciliation feature matches and verifies transactions from three payment methods—card payments, Open Banking, and bank transfers—ensuring that every transaction is tracked and settled accurately with your back-office systems.
