1% Anxiety: When Chargeback Rates Can Be Higher for Subscription Sites

For a while, paid content sites have been told to keep their chargeback rates below 1%. (Chargebacks, for those of you who don’t know,

For a while, paid content sites have been told to keep their chargeback rates below 1%. (Chargebacks, for those of you who don’t know, occur when a customer calls their credit card company to say a charge was unauthorized–they are not cancellations or refunds.)It’s a good-enough rubric, since high chargeback rates can get you flagged for merchant malfeasance by credit card companies. However, it may not be as applicable for niche publications.I recently spoke with leading payment processing expert Paul Larsen, who informed me that the 1% rate is really for high-volume businesses — sites with more than 10,000 transactions a month. That’s because credit card companies take volume into account when flagging merchants. For example, Visa only flags a merchant with 100 individual chargebacks in a month when those 100+ chargebacks make up at least 1% of the merchant’s total transactions. If you have fewer transactions — say a subscription base of 3,000 — and 100 chargebacks, you’re probably not going to get flagged (although you may want to read how to minimize your chargebacks on our sister site, Subscription Site Insider).Of course, rates vary by credit card company, and some, like American Express, have a complex algorithm that’s impossible to predict. And any chargeback is bad news, since you’re not only refunding money, but also paying a transactional fee and steep fine. Better to issue a cancellation and/or refund and ensure customer goodwill than wait for a chargeback. But a few here and there shouldn’t put you out of business.

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