Chargeback-to-Transaction Ratio (CTR)
The chargeback-to-transaction ratio (sometimes shortened to chargeback ratio or CTR) analyzes how many of a merchant’s transactions turn into chargebacks.
The metric, which is usually expressed as a percent, is calculated by comparing the number of chargebacks to the number of transactions.
NOTE: Card brands often use different terms to express the same concept. Instead of chargeback-to-transaction ratio, the phrase dispute-to-sales ratio may be used instead.
Brand-Specific Calculations
While the chargeback-to-transaction equation is the same for all card brands, the data source used in the formula varies slightly.
Visa®, American Express®, and Discover® compare chargeback counts for the current month to transaction counts for the current month.
Mastercard® compares chargeback counts for the current month to transaction counts from the previous month.
How the Chargeback-to-Transaction Ratio is Used to Manage Risk
The card brands expect acquirers (banks) to monitor the risk associated with each merchant that processes payment card transactions. There are several different risk metrics that the acquirer must monitor, and the monthly chargeback-to-transaction ratio is one of them.
The brands have set thresholds, or limits, that merchants need to abide by. In most situations, the acceptable limit for the chargeback-to-transaction ratio is about 1%.
If the chargeback-to-transaction ratio is above the acceptable limit, the merchant could be placed in a monitoring program with even greater scrutiny. Merchants enrolled in a chargeback monitoring program may pay additional fees. Penalties can include losing payment processing privileges.
