Discover Chargeback LimitUnderstanding the Ins and Outs of Discover’s Chargeback Threshold Requirements
In a Nutshell
To maintain the integrity of its network, Discover sets chargeback limits aimed at deterring high-risk merchants from receiving excessive chargebacks. Specifically, the Discover card chargeback limit is set at 100 chargebacks per month, <em>in addition to</em> a chargeback-to-transaction ratio of 1% or higher. Discover merchants who breach these limits risk incurring penalties assessed on a per-chargeback basis, or even account closure.
What is the Official Discover Chargeback Limit for Merchants?
Discover doesn’t look kindly on merchants who rack up too many disputes.
Excessive disputes reflect poorly on your trustworthiness as a merchant. It also suggests that you might present a risk to the broader Discover payments ecosystem. So, if you cross the card network’s line, you’ll find yourself faced with consequences like higher fees and even potential account termination.
In this chapter, I’ll shine a light on what Discover considers to be “too many” chargebacks, how you can monitor your chargeback ratio, and how things compare to Visa and Mastercard’s limits.
Discover Chargebacks
As if dealing with chargebacks isn’t hard enough by itself, every card brand has its own set of rules for contesting invalid disputes. For each network, there are different time frames, exemptions, and more. Discover credit cards are no exception, but what does that mean for merchants and consumers? How does the Discover chargeback process work? And what special tactics might merchants need for winning reversals?
What is the Discover Chargeback Limit?
The Discover excessive chargeback limit is defined as 100 or more chargebacks per month, plus a chargeback-to-transaction ratio in excess of 1%.
There are two components to Discover’s preset excessive chargeback limit. To breach the limit, you must exceed 100 chargebacks per month and have a chargeback-to-transaction ratio of 1% or higher.
You can calculate your Discover chargeback ratio by dividing the number of Discover transactions you submit for processing in one month by the number of Discover chargebacks you receive in the same month. This figure is then multiplied by 100% to yield a percentage figure.
Both the numerator and denominator of your Discover chargeback ratio only take into account Discover chargebacks and transactions, respectively. If you accept other card brands (e.g. Visa, Mastercard, or Amex), those transactions — and the disputes associated with them — won’t count towards your Discover chargeback ratio.
On one hand, small merchants who submit relatively few transactions for processing per month face less of a risk of breaching Discover’s excessive chargeback threshold. That’s because the 100 chargebacks per month threshold protects merchants with high chargeback ratios but low transaction (and chargeback) counts.
On the other hand, if you submit tens, or even hundreds of thousands of transactions for processing per month, breaching a chargeback ratio of 1% will immediately send you over the 100 monthly chargeback threshold as well.
What Happens if You Exceed Discover’s Chargeback Limit?
If you exceed Discover’s chargeback limit, your acquirer or processor may penalize you. In addition, you’ll also be responsible for a $25 penalty assessed by Discover on a per-chargeback basis.
In most cases, breaching a card network’s excessive chargeback limit means automatic and involuntary enrollment into a merchant monitoring program.
For example, Visa has the Visa Acquirer Monitoring Program (VAMP), which has a merchant component for those who breach pre-set thresholds, while Mastercard has both the Excessive Chargeback Merchant (ECM) and Excessive Fraud Monitoring (EFM) programs.
Discover is different. The card network doesn’t have a dedicated card network-specific merchant monitoring program. But, that doesn’t mean there aren’t still consequences for breaching the Discover chargeback limit.
For starters, your acquirer and/or processor will almost certainly levy penalties or restrictions in some form. They may hit you with higher chargeback fees, mandatory merchant account reserves, or even account suspension or closure.
Beyond that, remember that Discover charges a $25 fee for every chargeback filed against you after you hit that “excessive” threshold. So, even if there’s no merchant monitoring program to worry about, you’ll still have to endure very real (and painful) financial consequences.
