How is the chargeback rate calculated by payment service?
Financial institutions have several parameters for calculating chargeback rates:1) The absolute number of chargeback transactions2) The percentage of the total number of transactions which are chargebacks3) The absolute sum total of revenue4) The percentage from the absolute sum total revenue which are chargebacksTake for example a business that has 100 transactions, each for $1, totaling $100 of revenue. If 20 of those transactions are chargebacks ($20 total revenue), the fee calculation will be different than for a second business with 10,000 transactions of $1, totaling $10,000 of revenue that has 20 chargebacks (or $20 total revenue). For the first of these businesses, chargebacks make up 20% of their transactions and revenue, whereas for the second business chargebacks make up .2% of their transactions and revenue. Even though both businesses have the same amount of chargebacks, the first business will be penalized more heavily, because the chargebacks make up a bigger percentage of their total transaction volumes and revenue value.