Decoding Chargeback to Transaction ratio

Backspace Tech
4 min readApr 7, 2023

Numbers are everywhere,

Right from determining a probability of success to profitability to the health of a business, numbers play a crucial role. They are the markers of a conglomerate or your everyday online merchant who deals with purchases, returns, refunds, and the unseen yet ever-present chargebacks.

And one of the primary markers that determine a merchant’s eligibility to process and accept debit and credit card transactions is Chargeback to Transaction Ratio.

It is also known by many names such as chargeback ratio, chargeback rate or even as dispute to sales ratio.

What is Chargeback to Transaction Ratio?

Also known as CTR in short, this ratio indicates the percentage of chargebacks incurred by a merchant on a monthly basis. The CTR is derived by dividing the number of chargebacks by the total number of transactions processed.

Formula for CTR

In fact, every card network has their standard formula for calculating a merchant’s chargeback ratio. And they consider only the transactions that happen with their cards. In sense, that any chargeback request that is raised on MasterCard powered credit/debit card does not affect the chargeback calculation of Visa powered cards.

Visa’s CTR formula:

Mastercard’s CTR Formula

It is not only the card networks who keep tabs on this ratio, the acquirers have a strict watchout as well. As it is ultimately, the acquirer is who is liable to the card networks when their network of merchants incurs excessive chargebacks. So, when a merchant has a chargeback ratio over 1% and above it will automatically come under acquirer’s and the card network’s lens.

In fact, Visa Dispute Monitoring Program and Mastercard Excessive Chargeback Program exclusively monitors merchants who face a high influx of chargebacks.

So, that brings us to the question, as to what data points should an acquirer keep in mind to safeguard their merchants from stepping into the excessive chargeback category?

Reason codes:

Every chargeback has a unique reason code identifier. By analyzing the same, it becomes easier to find patterns as to how, when and from where the chargeback requests stem. This helps the acquirer and merchant to be prepared with necessary documentation to fight back as when the chargeback requests flow in.


Knowing the source of chargebacks can also help in isolating issues like zeroing in on problems that arise with specific payment methods, or with specific products and services provided.

Time frame:

Analyzing the time frame when chargebacks are occurring can help identify potential issues with the merchant’s business practices or products. For example, if a large number of chargebacks occur shortly after a product is released or during a sale, it may indicate issues with the product, service or delivery.

Product or service types:

Analyzing the chargeback to transaction ratio by product or service type can help identify areas of the business that may be experiencing higher chargeback rates. This can help your merchant focus on improving processes, quality control, and customer service in these areas.

Industry benchmarks:

Comparing the merchant’s chargeback to transaction ratio to industry benchmarks can help identify whether the merchant’s ratio is higher or lower than average. This can help your merchant determine if their chargeback activity is within acceptable limits or if they need to take corrective actions to reduce chargebacks.

And these are not the only reasons, there are many other reasons as to why a chargeback happens. Nevertheless, there is also a fundamental premise that every acquirer must take note of when protecting their merchants from slipping into the abyss of high-risk category.


Almost 90% of the time, chargebacks get accepted because the merchant receives the notification too late or gets lost in the shuffle. There are no reminders or warning bells that notify the merchant to gather the requisite compelling evidence or to send a representment package in time to fight the chargeback.

Even though the merchant might be well-educated on the cycle of chargeback and its consequences, many chose to overlook it as the operational efficiency of fighting a chargeback is too tedious and time consuming.

How to overcome this chargeback request communication gap?

To be concise, it is no longer about educating your merchant about the best chargeback practices rather than making them adhere to the chargeback protocol, so that they are within the threshold. Sending them timely notifications and activating triggers to warn them of deadlines is a must and it is all possible with Unified Dispute Management (UDM).

UDM enables the acquirer to effortlessly connect with their merchant through their preferred communication channels like WhatsApp, SMS and Email. Not only the merchants, UDM also empowers a two-way communication where both the merchant and end customer remain apprised of what’s happening. Thus, facilitating a smooth and timely resolution or response to the chargeback raised.

But that’s not all, UDM has many more capabilities and features that can digitize the chargeback process.

Get in touch with us today to know more about UDM and how it can help your merchants regulate, tailor and modernize their chargeback process and responses.



Backspace Tech

Backspace Tech offers Fintech-as-a-Service to automate,simplify, and disrupt the payment industry by handling chargeback requests through a plug-and-play model.