Chargeback Rates by Industry

Chargeback rates are one of the quickest ways to get flagged as a high-risk merchant. Most traditional payment processors want their merchants to have a chargeback rate of less than 1%, and they’ll flag, freeze, or even terminate accounts that exceed this parameter with very little warning. Many industries, though, simply can’t keep their chargeback rates under this benchmark. As a result, new firms in these industries unknowingly jump into a partnership with a common generalist payment processor they’ve heard of and end up getting dropped, leaving them without a way to make money.

Firms in these high-risk industries need specialist high-risk payment processors to ensure they maintain their merchant accounts without issue. However, many newer firms don’t know whether or not their industry averages under a 1% chargeback rate. To help businesses better prepare, we’ve broken down chargeback rates by industry and categorized them for low and high-risk examples.

Chargeback Rates by Industry

Below are the chargeback rates for several of the most common industries that rely on payment processors for ACH, eCheck, and credit card processing:

If you have questions about chargeback rates in another industry, contact us now or refer to our supported high-risk industries list to find out immediately if your industry is considered high-risk by payment processors. 

Why Do Some Industries Have Higher Chargeback Rates?

There are several reasons that an industry may have higher chargeback rates, including its payment structure, the subjective nature of the quality of its product, the likelihood of “friendly fraud” in its industry, and more.

High-Risk Payment Structures

One of the most common reasons that an industry or company may be experiencing high chargeback rates is its payment structure. Automatic subscription billing often increases chargeback rates as customers seek to recoup funds they lost to automatic payments they forgot about, and complex refund or cancellation policies can exacerbate this issue. Adult entertainment, gaming, and insurance companies are great examples of this.

Subjective Quality Standards

Many industries in the high-risk bucket suffer from customers who feel as though they didn’t get what they paid for from the product for some subjective reason. This is more common in industries offering products or services with a higher level of subjectivity in their quality, making it easy for customers to claim they’ve been given a bad product without any objective means of proving that is the case. CBD, adult entertainment, and nutraceuticals are common examples of this issue.

“Friendly Fraud”

Friendly fraud refers to a customer knowingly charging back a legitimate credit or debit card purchase. It isn’t as easy to predict the industries where friendly fraud will be more prevalent, but industries with easier dispute systems are the most likely victims since there is very little friction to the chargeback process and, similarly, little recourse for merchants. This is especially true in luxury markets and online travel/lodging companies due to their larger average ticket size.

What to Do if Your Business Has High Chargeback Rates

Businesses experiencing high chargeback rates should take three vital steps to address the issue:

1. Identify the reasons for high chargeback rates: Determine whether your high chargeback rate is due simply to your industry, or if there are things you can do to mitigate the issue.
2. Take corrective measures if necessary: Tweak your payment structures, improve customer support infrastructures, and clarify your purchasing agreements to clearly identify what qualifies for a refund. Also, look for other measures you can take to reduce your chargeback rates and make fraudulent chargebacks easier to dispute.
3. Find a high-risk payment processor: If you’re in an industry that is likely to keep you at a 1%-or-higher chargeback rate, you need to find a high-risk specialist processor that will help you reduce your chargeback rates, dispute illegitimate chargebacks, and ensure your merchant account isn’t flagged, frozen, or terminated over higher rates.

The first two steps require some time and effort to identify and resolve internal issues leading to higher-than-normal chargebacks, but step 3 can be as simple as finding the right payment processing partner. Not only will this give you the confidence to improve your operation at your own pace without worrying about losing your merchant account, but they can also offer high-risk specialty features like advanced chargeback and fraud management.

Industry-Leading Chargeback Support with Seamless Chex

Seamless Chex is an experienced high-risk payment processor that specializes in purpose-driven features like chargeback management tools. Our 99.1% approval rate and comprehensive high-risk industry list mean businesses of nearly all industries and sizes can be confident in our support. We work to truly understand your business from the outset, with upfront underwriting and individualized payment schedules designed to work for each client’s market and business cycle.

‍To learn more about chargeback rates by industry, contact us today.