Fraud rate vs. chargeback ratio
Fraud rate and chargeback ratio measure two different problems. Fraud rate shows how much fraud is appearing in your payments. Chargeback ratio shows how many successful payments turn into disputes.
A merchant can improve one metric and still have trouble with the other. That’s why each metric needs separate attention.
What fraud rate measures
Fraud rate measures fraud-side activity. There’s no single fraud-rate formula across every processor.
In Stripe’s fraud analytics, for instance, the fraud view includes transactions that resulted in either a fraud dispute or an early fraud warning that has not escalated to a dispute.
Early fraud warnings include Visa TC40 reports and Mastercard SAFE reports.
What chargeback ratio measures
Chargeback ratio measures disputes against payment volume for the period the processor or network uses. It shows how many successful payments turned into disputes. That includes fraud disputes and non-fraud disputes.
It doesn’t stop counting just because a dispute is later withdrawn or won.
This is why the two metrics can move in different directions. A merchant can cut chargebacks with better customer service, cleaner billing descriptors, or faster refunds, while fraud rate can rise because issuers are still flagging suspicious payments.
How these metrics affect monitoring programs
Even if a chargeback never happens, an early warning can still increase your fraud rate. You avoid the chargeback, but the fraud signal still counts.
If your fraud rate rises, you can still face consequences such as:
Visa Acquiring Monitoring Program (VAMP)
Fraud-specific dispute monitoring programs from other networks
Payment processor restrictions related to fraud
VAMP’s ratio is calculated as (TC40s + TC15s) / total settled transactions.
In most regions, you need 1,500 monthly fraud and dispute cases before Visa places you in VAMP. In Central and Eastern Europe, the Middle East, and Africa, the threshold is at least 150 monthly fraud-and-dispute cases and at least USD 75,000 in volume.
Your biggest risk may come from payment processors and other monitoring programs. Unfortunately, payment processors don't publicly disclose what fraud rates lead to account consequences.
Further reading:
What TC15, TC40, and Mastercard SAFE mean
The terms below matter most in this discussion:
Code | Description | Contributes Toward |
TC15 (Non-fraud) | Visa dispute record with a non-fraud reason code | Chargeback ratio |
TC15 (Fraud) | Visa dispute record with a fraud reason code | Fraud rate and chargeback ratio |
TC40 | Visa fraud report for suspected fraud | Fraud rate |
Mastercard SAFE | Mastercard fraud report for suspected fraud | Fraud rate |
Many other card networks, including American Express, don’t use early fraud warnings like Visa and Mastercard. In many cases, fraudulent disputes from those networks are what contribute to payment processor fraud rates.
JCB also has early fraud warnings that can contribute to fraud rates, but it does not use a specific term like Visa and Mastercard do.
Refunding transactions with early fraud warnings doesn’t remove them from your records.
A transaction can have a TC40 and a TC15. For example, a transaction flagged as suspected fraud will first create a TC40. If it is not refunded and later escalates to a dispute, it also generates a TC15.
What alerts and pre-dispute tools can and can’t prevent
Rapid Dispute Resolution (RDR), Ethoca Alerts, and Cardholder Dispute Resolution Network (CDRN) help prevent TC15s and chargebacks. They don’t prevent TC40s.
RDR can refund a transaction before it becomes a TC15. CDRN and Ethoca Alerts pause the dispute flow, and if the transaction is refunded in time, the TC15 is canceled out.
These tools help prevent chargebacks and the consequences that come with them. They do not reduce the fraud signals themselves. To lower fraud rate, you also need fraud prevention tools such as 3D Secure and fraud screening software.
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