As a merchant, your chargeback rate can impact your processing fees, terms, and account availability. Your ideal rate can vary based on your industry benchmark. Some industries, like travel and SaaS, have higher chargeback rates than others.
By understanding major drivers and variations in chargeback rates by industry, you can take the next step toward better controlling your company’s chargeback rate.
TL;DR
- To get the chargeback rate, you must divide the number of chargebacks by the total number of transactions. Then, multiply this figure by 100 to get a percentage.
- There is no set standard that is good for every industry. Instead, the ideal benchmark varies from industry to industry.
- Low-risk, in-person businesses often have lower chargeback rates. For example, restaurants and grocery stores are generally considered low risk.
- Online purchases, especially for digital products, normally have higher chargeback rates. Subscription, e-commerce, and digital goods businesses have the highest rates.
- Travel is known for consistently having one of the highest rates of any industry. A combination of no-shows, cancellations, long booking windows, and customer disputes plays a major role in this industry’s dispute rate.
- Some of the most common chargeback reason codes are related to fraud, customer dissatisfaction, fulfillment problems, and billing confusion.
- In order to prevent future chargebacks, businesses have to understand the major drivers for their industry and how each driver can be mitigated.
How Chargeback Rates Are Calculated
A chargeback is a way for consumers to dispute transactions that they believe are fraudulent or inaccurate. A chargeback results in the transaction being reversed and funds returned to the customer.
Once you include transaction costs, in-house expenses, and processing fees, the average chargeback cost to merchants is $190. However, the industry-standard chargeback rate can vary because fraud, identity theft, buyer’s remorse, and other chargeback causes vary from industry to industry.
The chargeback rate formula is fairly straightforward.
(Total number of chargebacks / Total number of transactions) x 100 = Chargeback Rate
Your company’s customer satisfaction, fraud exposure, and risk level impact your chargeback rate. Each month, card networks calculate a chargeback rate to determine your risk level. If your chargeback rate worsens, it can lead to penalties and account closures.
Why Do Chargeback Rates Vary in Different Industries?
In the United States, the average transaction value per chargeback is $110. Travel and hospitality have the highest chargeback value, at $120. Retail comes in second at $84, while gambling, gaming, and cryptocurrency exchanges have a value of $99. There are different chargeback rates by industry because of a few essential factors.
- Customer Behavior: Each industry has different customer expectations and behavior. For example, customers in the travel industry are used to being able to cancel reservations at the last moment. Meanwhile, e-commerce companies may face higher chargebacks because of shipping delays or misrepresentations in the product description.
- How the Industry Works: Some industries have intangible products, such as online education companies and SaaS subscriptions, so they are more prone to chargebacks. Similarly, complex booking arrangements can make chargebacks more likely.
- Customer Service Standards: When an industry has poor customer service, customers can’t get support or complete returns when they have a problem. As a result, they turn to chargebacks instead. Better return policies, dispute management, and good customer support can prevent chargebacks from happening.
- Fraud Risks: Some industries are more prone to fraud. For instance, online businesses have a higher risk of card-not-present (CNP) fraud. Luxury goods, electronics, and products that can easily be resold are also frequent targets of fraud.
- Regulatory Requirements: Strictly regulated industries, such as finance, have specific rules that change how and if chargebacks are processed.
What Are the Major Drivers of Chargebacks?
In order to prevent chargebacks from happening, it helps to know why they occur. By understanding the drivers for chargeback rates by industry, you can find opportunities for preventing disputes.
Fraud
Fraud is the most common chargeback reason code that merchants typically see. If the customer’s credit card information is stolen or used without permission, they can request a chargeback. For example, transactions will get disputed if identity theft is involved.
Duplicate Charges and Incorrect Amounts
If a card is charged twice by accident or the incorrect amount is charged, the customer may dispute the transaction. To counter these disputes, merchants would need to show receipts, customer account statements, or invoices that show that the charges were correct.
Misrepresentation or False Advertising
These types of issues are more common with online goods that have digital product descriptions. If a product or service does not align with the merchant’s description, customers will file a chargeback after the product is received.
Customer Dissatisfaction
A customer can file a chargeback if they are not happy with the quality or condition of the goods they received. For example, the item may have arrived damaged. Alternatively, they may not have received the services they paid for.
Items Not Received
Customers can dispute a transaction if they don’t receive the goods or services in a reasonable timeframe. Because of shipping delays, this type of problem is more common with e-commerce shops.
Average Chargeback Rates for High-Risk Businesses by Industry
To get a better understanding of how different industries and risk levels experience chargebacks, let’s take a look at some major industries, the average chargeback rate for each, and common drivers. While most industries have a rate of 0.1% to 1%, high-risk industries have much higher rates.
| Industry | Average Chargeback Rates for High-Risk Businesses by Industry | Main Drivers |
| Education | 4.79% | Course quality and intangible services |
| Travel and Hospitality | 4.68% | Cancellation, no-shows, and not providing refunds |
| Digital Goods | 3.62% | Buyer’s remorse and the ease of friendly fraud |
| Gaming | 3.41% | Unauthorized card use and addiction-related issues |
| Health and Beauty | 2.73% | Subscriptions and claims about product efficacy |
How Benchmarks Vary Across Different Industries
Because of the unique risks involved in each field, industry-standard chargeback rates and benchmarks can vary significantly. The following rates are the benchmarks for the industries as a whole, which is why the rates are lower than the rates for high-risk merchants that are listed above.
Travel
In this industry, chargeback rates are often between 0.7% and 1.5% because of the industry’s long booking windows, cancellations, and frequent customer disputes.
High-Ticket E-Commerce and Electronics
Typically, these high-ticket goods have a chargeback rate of around 0.4% to 0.7%. Their high value makes them attractive targets for fraud and resale. Buyer’s remorse is also a common driver.
Digital Goods and Gaming
Due to the intangible delivery of these goods and cases of friendly fraud, the digital goods and gaming industries often have chargeback rates around 0.6% to 1.2%. Additionally, some disputes occur when a child or family member uses the account without permission.
SaaS and Subscription Services
These industries typically have chargeback rates between 0.5% and 1.0%. The relatively high rates are due to renewal disputes, confusion about the recurring billing, and problems with cancellation.
Low-Risk Retail, Food, and In-Person Services
As a general rule, these in-person industries have relatively low chargeback rates of around 0.1% to 0.3%. Minimal CNP transactions and fast fulfillment timelines help to prevent chargebacks.
Online Marketplaces
Digital marketplaces and platforms often have chargeback rates around 0.5% to 1.0%. Because they rely on third-party sellers, there is a risk of inconsistent sellers and poor order fulfillment.
Grocery Stores
Grocery stores have extremely low levels of disputes. In general, these stores have chargeback rates between 0.05% and 0.2%. Low-ticket values, few CNP transactions, and fast fulfillment times mean there are fewer disputes. When chargebacks do occur, it is likely because of a lost or stolen card that was used in a store, point-of-sale (POS) errors, or duplicate charges.
Restaurants
This industry is also known for having a low chargeback rate benchmark of just 0.1% to 0.3%. There are some CNP transactions, which is one reason why restaurants have a slightly higher benchmark than grocery stores. Chargebacks can also occur because of no-show disputes for pre-orders, third-party delivery problems, unrecognized tip adjustments, and friendly fraud.
How PayCompass Can Help Merchants Address High Chargeback Rates
At PayCompass, we have experience working with high-chargeback payment processing. Our payment experts can evaluate your payment processing setup to determine what is driving your chargeback rate. We’ll compare your rate to the rest of the industry and break down disputes to identify which transaction types are responsible.
By optimizing your payment routing and acquiring setup, we can help you find solutions that match your risk category and industry. This type of approach also helps you avoid unnecessarily high scrutiny and low tolerance thresholds.
Through our advanced chargeback prevention tools and fraud filters, you can flag specific transactions that require additional authentication without creating unnecessary friction for low-risk transactions. Plus, our dispute management tools can help you determine when fighting disputes makes sense and the best type of evidence for a successful outcome.
Final Thoughts
The chargeback rates by industry aren’t just a generic metric. They have a real-world impact on how much you spend on processing fees and dispute management. By understanding the industry-standard chargeback rate, you can figure out how your company performs compared to its peers. You can identify common drivers and work on preventing those reason codes from happening.
To take the next step in your chargeback prevention, reach out to PayCompass today.
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