What does a chargeback ratio measure?

A chargeback ratio is an important metric used in the payments industry, particularly for assessing a merchant's performance and risk management. It measures the relationship between the number of chargebacks—transactions that customers dispute and result in funds being returned to them—and the total number of transactions processed by the merchant.

This ratio is significant because it provides insight into how often customers feel compelled to dispute a transaction. A higher chargeback ratio may indicate issues such as customer dissatisfaction, fraudulent transactions, or failure to deliver goods or services as promised. Monitoring this ratio helps merchants identify problem areas, mitigate risks, and maintain favorable relationships with payment processors, which may impose penalties for excessive chargebacks.

In contrast, the other options do not directly relate to chargeback activity. For example, total number of customers retained focuses on customer loyalty rather than payment disputes, total sales volume pertains to the overall financial performance of the merchant without addressing chargebacks, and percentage of returned merchandise involves physical product returns rather than payment disputes. Thus, the correct understanding of chargeback ratios directly links to option B, which captures the essence of chargebacks in the context of total transactions.