What is the Visa Chargeback Threshold?

Are you keeping track of your monthly chargeback filings? The relationship between total monthly transactions and monthly chargebacks is called your “chargeback ratio,” or alternately, your “chargeback rate.”

Of course, your chargeback rate isn’t simply a matter of curiosity. Both Visa and Mastercard impose strict limits on the number of chargebacks a merchant can receive each month. Violating these standards could have serious consequences; anything from higher fees to cancelation of your merchant account.

Visa Chargeback Thresholds: Explained

Of course, you don’t have one single, comprehensive chargeback rate; instead, you have a different chargeback-to-transaction ratio for each card brand you accept. Further complicating matters is the fact that Visa and Mastercard both have different methodologies for calculating your chargeback rate on their networks.

To calculate your Visa chargeback rate, simply divide your total number of chargebacks in the most recent month by your total number of transactions. For instance, if you experience 50 chargebacks, against a total of 10,000 transactions in the same period, you’d arrive at a chargeback rate of 0.5% of overall sales.

The purpose of monitoring your chargeback ratio is not simply for your own recordkeeping. Visa’s chargeback threshold sets a hard limit on the number of Visa chargebacks you’re allowed to receive each month. The company’s former chargeback threshold of 1% of monthly transactions remained in place for many years, but as of October 1, 2019, Visa’s chargeback threshold changes to reflect the following:

What does this mean, though? What are the actual consequences of violating these chargeback thresholds?

The Visa Dispute Monitoring Program

The VDMP, or Visa Dispute Monitoring Program (formerly called the Visa Chargeback Monitoring Program), is a program imposed by Visa on merchants who exceed chargeback thresholds. The main idea is to help merchants develop a chargeback mitigation strategy and get their chargebacks under control.

As outlined in the chart above, Visa divides the VDMP into three tiers: Early Warning, Standard, and Excessive. The Early Warning program is intended to give merchants a “head’s up.” If you’re getting close to violating chargeback thresholds, the Early Warning program offers a way to address the matter before it devolves further.

Beyond that point, you could enter the Standard VDMP. This program has an enforcement period of eight months. For the first three months of that period, you’ll be fined $50 for every dispute filed against you, after that period, the fee will increase. The Excessive VDMP, on the other hand, is 12 months, and imposes a $100 per-dispute fee from the beginning. In both the Standard and Excessive tiers, you’re subject to a $25,000 review fee toward the end of the enforcement period.

As part of the program, you’re also likely to be required to create and implement a chargeback mitigation plan. This document outlines the steps you intend to take to reduce your monthly chargeback filings and get back below the established Visa chargeback threshold.

Consequences of Violating Visa Thresholds

If you are unable to control your chargebacks even after participating in the VDMP, you could be added to the MATCH list. This will likely result in your acquirer canceling your merchant account. You’ll also be unable to find a standard merchant account with any other parties as well. You’ll be unable to accept card payments without a merchant processor account, and this often spells “doom” for a business.

Remember: while you ultimately endure the cost of chargebacks, you’re not the only party who’s held accountable. When chargebacks occur, all relevant funds are first withdrawn from your acquirer; the acquirer covers these costs, then in turn, withdraws them from your account.

If you represent a risk to your acquirer, they won’t hesitate to cut you loose. That’s why it’s so important to pay attention to your chargeback-to-transaction ratio and do whatever you can to manage your disputes.