The four metrics underwriters care about most when evaluating merchant accounts are dispute rates, refund patterns, fraud indicators, and transaction decline ratios. These metrics directly impact your ability to secure and maintain payment processing services, with dispute rates above 1% serving as immediate red flags and chargeback costs reaching $33.79 billion for eCommerce merchants in 2025 alone.
TL;DR Summary:
- Disputes and Chargebacks: Keep your chargeback ratio below 0.9% (Visa’s threshold) to avoid monitoring programs, with 73.6% of disputes becoming costly chargebacks averaging $315 per incident in eCommerce
- Refund Patterns: Maintain refund rates below the 16.9% eCommerce average, as 57% of merchants saw increased refund abuse in 2024, signaling potential operational issues to underwriters
- Fraud Prevention: Implement robust fraud controls as every dollar lost costs merchants $4.61 in 2025, with friendly fraud accounting for 40-80% of total fraud losses
- Transaction Declines: Monitor and minimize decline rates through proper authorization practices, as high decline ratios indicate technical issues or poor customer data quality that concern underwriters
Quick Tip: Start tracking your chargeback ratio today using Visa’s calculation method (monthly chargebacks ÷ current month transactions) and aim to stay below 0.65% to avoid even early warning thresholds—this single metric can make or break your underwriting approval.
Understanding these four metrics isn’t just about passing underwriter review; it’s about building a sustainable payment processing foundation that protects your business from account freezes, excessive fees, and termination. We’ll explore each metric in detail, providing you with industry benchmarks, proven reduction strategies, and real-world examples of how businesses like SmartTalk Mobile achieved a 52% decrease in equipment chargebacks through strategic implementation of fraud detection systems.
Why Do Underwriters Monitor Disputes and How Do They Impact Merchant Accounts?
Underwriters monitor disputes because chargebacks will cost eCommerce $33.79 billion in 2025, with projections reaching $41.69 billion by 2028. Global chargeback volume will reach 324 million transactions in 2028, up from 261 million in 2025. Dispute rates spiked 78% year-over-year in Q3 2024. A chargeback ratio above 1% triggers red flags for underwriters, while exceeding 2% may result in merchant account application decline. High chargeback rates signal poor reputation or fraud susceptibility to underwriters. Acquirers may temporarily freeze merchant accounts during chargeback rate surges and are liable for merchant chargeback liabilities exceeding account balance. Understanding dispute patterns helps underwriters assess merchant risk and determine appropriate processing terms.What Is a Payment Dispute and How Is It Different From a Chargeback?
A payment dispute is a cardholder’s challenge to a transaction, while a chargeback is the formal reversal of funds. According to 2024 data, 73.6% of disputes become chargebacks; only 26.4% are resolved without chargeback. Each dispute costs financial institutions $9.08 to $10.32 to process. Mastercard estimates $15-$70 in operational costs per dispute for merchants and FIs. First chargebacks count against chargeback rate; arbitration reversals do not. Common dispute reasons include fraudulent transactions, billing errors, goods not received, and product quality dissatisfaction. The distinction matters because disputes offer resolution opportunities before formal chargeback filing.How Do High Dispute Rates Affect Merchant Credibility and Risk?
High dispute rates directly damage merchant credibility through card network monitoring programs with strict thresholds:| Card Network | Dispute Monitoring Metric | Enforcement Threshold |
| Visa | Maximum acceptable rate | 0.9% |
| Mastercard | Maximum acceptable rate | 1.5% |
| Stripe | Dispute rate threshold | 0.75% |
| Industry | Average chargeback rate | 0.60% |
| Visa | Early Warning threshold | 0.65% |
| Mastercard | Monitored Merchant trigger | 100+ chargebacks at 1%+ ratio |
| Mastercard | Excessive Merchant trigger | 100+ chargebacks at 1.5%+ for 2 months |
Higher chargeback rates result in increased fees and penalties. Excessive chargebacks lead to merchant account termination.
What Strategies Can Merchants Use to Reduce Disputes?
Merchants can reduce disputes through evidence submission and technology platforms. Visa Compelling Evidence 3.0 allows merchants to submit two historical transactions (120-365 days old) proving cardholder purchase history. Successfully resolved CE3.0 disputes are excluded from VAMP calculations. Chargeflow AI boosts win rates by 80%, saving $315 per dispute. SmartTalk Mobile achieved a 52% decrease in equipment chargebacks since 2020 using fraud detection with chargeback alerts. Ethoca Alerts enable issue identification within seconds versus 2-5 weeks for traditional notices. Consistent billing descriptors are required—first 6 characters must match across transactions. Merchants must collect sufficient payment data including device info and IP addresses. These strategies significantly reduce dispute rates when properly implemented.What Role Do Refunds Play in Underwriting Decisions?
Refunds play a critical role in underwriting decisions as they signal operational health and fraud risk. According to the National Retail Federation, the average ecommerce return rate reached 16.9% in 2024, while U.S. ecommerce specifically saw 20.4% return rates representing $362 billion in online returns. Most ecommerce stores experience return rates between 15-20%. In 2024, retail returns cost $890 billion, canceling out 16.9% of total annual sales. A 2023 analysis revealed that 13.5% of returns ($101 billion) were return fraud cases. High refund rates indicate potential customer dissatisfaction, product quality issues, or susceptibility to return fraud—all factors that increase merchant risk profiles during underwriting assessments.How Do Frequent Refunds Signal Potential Issues to Underwriters?
Frequent refunds signal potential issues to underwriters through patterns of abuse and first-party misuse. In 2024, 57% of merchants saw increased refund and policy abuse compared to 48% in 2023. According to merchant surveys, 62% report first-party misuse rose at least 5% in the past 12 months. The acceleration is significant: 38% of merchants reported 5-25% increases in first-party misuse during 2024 versus 25% in 2023. Consumer attitudes compound the problem—13% of consumers believe they could successfully initiate chargebacks or refunds to obtain free goods and services. These statistics demonstrate to underwriters that high refund rates often correlate with fraud exposure and operational vulnerabilities requiring closer scrutiny.What Types of Refund Policies Are Viewed Favorably by Underwriters?
Refund policies viewed favorably by underwriters balance customer satisfaction with fraud prevention through clear terms, reasonable timeframes, and verification requirements. Policies requiring original receipts, limiting refund windows to 30-60 days, and implementing restocking fees for non-defective returns demonstrate merchant control. Underwriters prefer merchants who track return reasons, require customer authentication, and use return merchandise authorization (RMA) systems. Digital verification methods and partial refund options for used items show sophisticated risk management that reduces fraud exposure while maintaining customer service standards.How Can Merchants Minimize Refund Rates Effectively?
Merchants can minimize refund rates effectively by understanding regional patterns and implementing targeted strategies. Europe records the highest return rates among global regions, requiring region-specific approaches. Physical retail maintains much lower return rates than ecommerce, suggesting opportunities for omnichannel verification. A critical insight: 72% of cardholders consider disputes a valid alternative to refunds, making clear refund processes essential for dispute prevention. Merchants should implement detailed product descriptions, size guides, customer reviews, and quality control measures. Pre-purchase customer service, accurate inventory management, and streamlined return processes reduce both legitimate returns and fraudulent attempts. Understanding these dynamics helps merchants present stronger profiles to underwriters evaluating their payment processing applications.
How Does Suspected or Confirmed Fraud Influence Underwriting Assessments?
Suspected or confirmed fraud fundamentally alters underwriting assessments by triggering enhanced scrutiny and risk-based pricing adjustments. Payment processors face exponential fraud losses—every dollar lost to fraud costs US merchants $4.61 in 2025. E-commerce fraud will surge from $44.3 billion in 2024 to $107 billion by 2029, representing 141% growth. This dramatic escalation forces underwriters to implement stricter evaluation criteria.The fraud epidemic impacts most businesses directly. A 2024 study revealed 79% of organizations experienced payments fraud attacks or attempts. Financial institutions report equally concerning trends—60% of banks and fintechs documented fraud increases in 2025. US companies lost 9.8% of equivalent revenue to fraud, exceeding the global average by 27%. These statistics shape how underwriters evaluate merchant applications and ongoing account monitoring.
What Types of Fraud Are Most Concerning to Underwriters?
The types of fraud most concerning to underwriters are friendly fraud and card-not-present (CNP) fraud. Friendly fraud accounts for 40-80% of total fraud losses. This occurs when legitimate cardholders dispute valid transactions. A 2024 industry analysis found 75% of eCommerce chargebacks stem from friendly fraud. Merchants reported a 72% increase in friendly fraud incidents during 2024.Card-not-present fraud presents equally significant risks. US CNP fraud losses doubled from $5.04 billion in 2019 to $10.16 billion in 2024. CNP transactions now constitute 63% of merchant transaction volumes. Fraudulent chargebacks represent approximately 45% of global merchant chargeback volume. Merchants underestimate the problem—they estimate friendly fraud at 45% of chargebacks, but actual rates prove considerably higher. These fraud types directly impact underwriting decisions because they indicate systemic vulnerabilities in merchant operations.
How Do Underwriters Detect and Respond to Fraud Risks?
Underwriters detect and respond to fraud risks through multi-layered evaluation frameworks. Industries operating in legal gray areas such as CBD face enhanced scrutiny. Business models utilizing subscriptions, free trials, or emerging technologies receive higher risk classifications. Underwriters analyze chargeback volume, ratios, and dispute reasons to differentiate between fraud and customer dissatisfaction.Financial assessments prove equally critical. Underwriters evaluate merchant financial strength and owner credit profiles. Card-not-present chargeback rates averaging 0.6%-1% exceed card-present rates of 0.5%. These metrics inform risk-based pricing and account approval decisions. Underwriters apply stricter terms to merchants exhibiting elevated fraud indicators.
What Tools or Practices Can Merchants Use to Prevent Fraud?
Merchants can prevent fraud using compliance frameworks, detection systems, and alert networks. PCI DSS 4.0 became mandatory April 1, 2025, enforcing 12 requirements for credit and debit card processing. SmartTalk Mobile achieved 12.6% authorization approval rate improvement since 2019 using Kount fraud detection. A single Ethoca Alert uncovered 307 fraudulent orders and 86 compromised customer accounts.Real-time fraud prevention requires data sharing across global fraud databases. Mastercard’s Dispute Resolution Management team reviews complete case files from merchants and cardholders. Implementing fraud prevention and chargeback management systems strengthens merchant bargaining positions with underwriters. These tools demonstrate proactive risk management, resulting in better processing terms and lower fees. Fraud prevention investment directly correlates with improved underwriting assessments and sustained merchant account stability.
In What Ways Do Declined Transactions Affect Underwriting Evaluations?
Declined transactions affect underwriting evaluations by signaling potential processing risks and customer friction points. Payment processors track decline rates as a critical performance metric alongside chargebacks, refunds, and fraud indicators. High decline rates suggest technical issues, fraud detection problems, or poor transaction quality that concern underwriters.What Are Common Reasons for Increased Declines?
Common reasons for increased declines include soft declines and hard declines. Soft declines are temporary issues such as insufficient funds, processor errors, and suspected fraud triggers. Hard declines involve permanent problems like invalid account numbers and exceeding credit limits. Payment networks use dozens of decline codes for different failure reasons.Soft declines account for the majority of failed transactions. These include authorization timeouts, network connectivity issues, and anti-fraud system flags. Hard declines indicate fundamental account problems requiring customer action. Invalid card numbers, expired cards, and closed accounts generate immediate hard declines.
How Do High Decline Rates Affect Merchant Processing Privileges?
High decline rates affect merchant processing privileges through restricted account features and monitoring programs. Merchants with excessive decline rates face payment option limitations and cash flow disruptions. Payment networks place flagged merchants in chargeback monitoring programs when thresholds exceed acceptable levels.The Visa Chargeback Monitoring Program tracks merchant accounts and calculates chargeback ratios monthly. The Visa Dispute Monitoring Program operates at two levels: Standard requires 100+ chargebacks with 0.9%+ ratio. Merchants exceeding these thresholds face escalating fees and potential account termination.
High chargeback rates upset cash flow and limit payment options for affected merchants. Underwriters view persistent decline patterns as operational weakness indicators. Processing privileges become restricted as decline rates climb above industry benchmarks.
What Can Merchants Do to Lower Decline Ratios?
Merchants can lower decline ratios through payment optimization and fraud prevention tools. Implementing retry logic for soft declines recovers 15-30% of initially failed transactions. Address verification services and CVV checks reduce false positives while maintaining security.Regular payment method updates prevent expired card declines. Merchants should implement account updater services that automatically refresh stored payment credentials. Clear billing descriptors help customers recognize charges and reduce dispute-related declines.
Transaction routing optimization distributes payments across multiple processors. This approach minimizes single-point failures and improves overall approval rates. Real-time fraud scoring balances security with conversion by adjusting thresholds based on transaction patterns.