How to calculate chargeback and fraud ratios

Asides ensuring that disputes are resolved as quickly as possible to avoid losses, it is also important to keep track of how many disputes (chargebacks or fraud claims) your business is receiving.

Certain dispute metrics can be indicators that there may be a larger problem that you need to be paying attention to. For example, there may be a consistent yet unintended delay in service delivery after payments have been completed or cardholders from a particular bank may be falling victim of scams perpetrated using your mobile app.

Here are some of the most important metrics you should be keeping track of:

• Chargeback Volume - the total number of chargebacks logged against your business
• Chargeback Value - the total (monetary) value of the chargebacks logged
• Fraud Volume - the total number of fraudulent transactions reported
• Fraud Value - the total (monetary) value of the fraudulent transactions reported
• Transaction Volume - the total number of transactions processed
• Transaction Value - the total (monetary) value of the transactions processed

The metrics listed above can be gotten from data exports on your Paystack dashboard and the following metrics can be derived from them:

Chargeback Ratio represents the proportion of transactions that result in chargebacks. It is calculated by dividing the chargeback volume by the total transaction volume in the same time period (usually monthly). It is typically expressed as a percentage:

Chargeback ratio = (Chargeback Volume / Transaction Volume) * 100%

Fraud-to-sales ratio or Fraud ratio represents the percentage of the total transaction value that is reported as fraudulent. It is calculated by dividing the total fraud value by the transaction value in the same time period (usually monthly). It is also expressed as a percentage:

Fraud ratio = (Fraud Value / Transaction Value) * 100%

Acceptable thresholds

• Less than 0.1% - This is a normal level.
• 0.1% to 0.49% - This requires close monitoring.
• 0.5% to 0.99% - This requires changes to be implemented.
• Above 1% - This is above manageable levels across the industry and urgent action is required.

Sample scenario

In June 2022, here are the dispute-related metrics for Merchant A:

• Chargeback Volume = 133
• Chargeback Value = NGN 2,000,000
• Fraud Volume = 259
• Fraud Value = NGN 12,000,000
• Transaction Volume = 100,569
• Transaction Value = NGN 100,000,000

Chargeback ratio = 133/100,569 = 0.13%

Fraud ratio = 12,000,000/100,000,000 = 12%

Verdict: The chargeback ratio indicates that Merchant A needs to monitor their chargeback numbers closely and optimise any processes associated with ensuring customers get value for payments.
Merchant A’s fraud ratio indicates that there may be a serious issue with their onboarding process and urgent action is required.