Understanding Dispute Ratios and Risks
How dispute ratios impact merchants and payment gateway relationships
Understanding Dispute Ratios and Risks
Dispute happens when a cardholder contacts their bank for an unsatisfactory or unauthorized transaction. While disputes are costly in terms of their absolute value, dispute ratios put a merchant into great risk.
How the Dispute Ratio Is Calculated Monthly
Dispute Ratio = Number of Disputes Received / Number of Transactions
Dispute ratio is calculated by dividing the number of disputes by the number of transactions processed in that month. Dispute ratios can increase at the end of a high season. August is high season for travel merchants. Most travel merchants process more transactions in August compared to other months. August is followed by September when travel drops. A merchant receiving a high number of disputes will have a high dispute ratio in September and October since August disputes will come in those months and transaction volume will be lower.
What Happens If a Merchant's Dispute Ratio Is Consistently High?
Most payment gateways classify 1% as a high dispute ratio and 5% as a non-sustainable dispute ratio.
If a merchant's dispute ratio is consistently high:
- Merchants are put into review. Typically, payment gateway puts a credit review to merchants to assess the risk. Payment gateways will ask a list of questions about the business model to the merchant. The review process could start with a friendly email or friendly dashboard message. Taking it seriously and giving correct answers is crucial. The review process may be stressful.
- Payment gateways may give warnings. These warnings are a reminder before terminating the agreement. Getting a couple of warnings means a merchant's ability to process payments is at risk.
- Payment gateways may put a reserve on funds. While Stripe puts a rolling basis on funds, Adyen requires a deposit. Stripe's rolling basis is like an ongoing deposit if a merchant continues to process transactions. 20% rolling basis reserve means $20,000 withheld deposit if a merchant is processing $100,000 monthly.
- Merchants could be put on monitoring programs. Visa Acquirer Monitoring Program shortly as VAMP puts merchants passing excessive thresholds into a program with fines. Since October 1, 2025, merchants classified as Excessive face fees of $10 per disputed transaction, with stricter thresholds for penalties coming in 2026. VAMP status is also monitored by payment gateways like Stripe, Braintree and Adyen.
Merchant VAMP Ratio Thresholds
| Tier | October 1, 2025–March 31, 2026 | April 1, 2026, onward | Minimum Disputes |
|---|---|---|---|
| Excessive (US, Canada, Europe, etc.) | ≥ 2.2% | ≥ 0.9% | ≥ 1,500 |
| Excessive (Latin America/Caribbean) | ≥ 1.5% | ≥ 0.6% | ≥ 1,500 |
Mastercard has monitoring programs - Excessive Chargeback Merchant (ECM) and High Excessive Chargeback Merchant (HECM).
Excessive Chargeback Merchant (ECM)
| Dispute Count | Chargeback Rate | Fines |
|---|---|---|
| 100-299 | 1.5-2.99% | Fines begin in month two starting from $1,000. |
High Excessive Chargeback Merchant (HECM)
| Dispute Count | Chargeback Rate | Fines |
|---|---|---|
| 300+ | 3% | Fines begin in month two starting from $1,000. |
- Merchants may lose their ability to get online payments. The dreary ending is payment gateways may terminate their agreement with the merchant and merchant will not have an infrastructure to process payments. Almost all payment gateways make an online agreement with merchants. This agreement will protect the payment gateway in most cases and limit their liability.
Payment gateways see a high dispute rate merchant as a total risk to their business.
- Payment gateways also have a threshold for dispute ratios as a whole.
- In the case that a merchant is out of business or a merchant does not have the funds to cover for disputes, payment gateways will have to cover for refunds and disputes.
Because of these reasons, payment gateways will likely terminate high risk merchant accounts and they will hold funds for 180 days to cover for potential disputes and refund requests.
What to Do If Your Account Is Terminated
When payment gateways terminate an account, it is very unlikely that they reverse their decision. On top of the termination, merchant's ability to get a new agreement with a new payment gateway is tougher. When a merchant agreement is terminated, payment gateways put the merchant on a MATCH list - Mastercard Alert To Control High-risk Merchants List. If a merchant applies to another payment gateway, it is likely that the merchant will not be approved.
Key Takeaway:
Keep your dispute ratio below 1%. Respond quickly to reviews, stay transparent, and work closely with your payment gateway to prevent long-term damage to your business.