Your refund policy could land you in VAMP hot water – here's how refunds affect chargeback ratios

In response to rising refund abuse and operational losses, merchants are increasingly tightening refund and return policies.

This reaction is understandable.

However, as dispute monitoring evolves and thresholds tighten, merchants must also recognize that how they handle refunds can materially influence their ratio under Visa’s Acquirer Monitoring Program (VAMP).

How your refund policy impacts your VAMP ratio

Refund policies are no longer just a customer experience decision. They are a risk management decision that can directly affect a merchant’s standing under VAMP.

VAMP tracks fraud and dispute activity across merchants and acquirers. It combines fraud reports (TC40) and chargebacks (TC15), including service-related disputes, into a single monitoring based on the count of settled transactions.

In practical terms, every dispute counts. With lower thresholds now applying in many regions, the margin for error becomes smaller.

A denied refund, a delayed resolution, or too much friction in the post-purchase experience can increase the likelihood that a customer turns to their issuer instead. As a result, refund strategy now has consequences not only for customer satisfaction and loss prevention, but also for dispute volume and the broader cost of managing risk.

In other words, if your refund policy is encouraging customers to file disputes instead of asking you for their money back, card schemes are going to flag your account, fine you, and potentially even stop working with you.

Service-related disputes are becoming a bigger risk factor

Service-related disputes arise when a cardholder challenges a transaction due to dissatisfaction with the product, delivery, return handling, or overall service experience, rather than alleging unauthorized fraud. For example, this can be an “item not received” claim, or a claim that the item received was faulty or misadvertised.

In fact, non-fraud chargebacks are the most common type of dispute and make up 38% of all chargebacks according to Mastercard’s 2025 data. Broader non-fraud chargeback pressure is rising, as are refund and promo abuse in 54% and 53% of companies, according to Ravelin’s Global Fraud Trends report from the same year.

Together, these trends point to mounting pressure on post-purchase operations, particularly in ecommerce environments where returns and customer service friction are already a material part of the customer journey.

This creates a second layer of risk.

As merchants tighten refund policies to manage abuse and protect margins, dispute escalation becomes more likely. Customers who are denied refunds, experience delays, or perceive friction in the resolution process may turn to their issuer instead.

As a result, even merchants with strong fraud controls can experience rising monitoring pressure if service-related disputes increase – particularly so in an environment where refund governance becomes more restrictive.

This means merchants need to evaluate refund strategy not only for abuse prevention, but also for its downstream effect on disputes, chargeback volume, and monitoring exposure.

Misuse is reshaping fraud dispute pressure: The data

First-party misuse of the chargeback system occurs when a cardholder disputes a legitimate transaction as fraud, even though they authorized it.

We often talk about fraudulent chargebacks in relation to this. Some customers outright misrepresent the truth in order to both keep their product and receive money back, but there are gray areas as well – when a customer is dissatisfied with a product, experiences a delivery issue, has a return denied, or simply finds it easier to contact their bank than resolve the matter directly with the merchant.

In those cases, a service or refund problem may end up being reframed as fraud in the system. And regardless of intentions, first-party misuse of the chargeback system remains a meaningful and persistent source of dispute pressure.

Mastercard calculated that 21% of chargebacks are due to first-party fraud, while fraudulent chargebacks increased for 56% of merchants in the past year according to data gathered by Ravelin.

MRC further reports that merchants won just 17.1% of fraud-coded chargebacks and disputes overall in 2025 – a figure that likely includes the many cases that are never challenged in the first place. Ravelin’s survey found that merchants self-reported as challenging 38% of disputes overall – and being successful with 43% of them.

In other words, merchants may perform relatively well when they fight, but overall win rates remain much lower because many fraud-coded disputes never reach that stage.

Reason codes are important

Even if broader fraud metrics improve, that does not necessarily mean fraud-coded dispute pressure will ease at the same pace. Merchants may still face rising first-party misuse within fraud-coded disputes.

This divergence suggests that even if broader fraud indicators remain relatively stable, fraud-coded dispute volumes can still rise – not because more fraud is occurring, but because more service-related complaints are being submitted under fraud reason codes.

In other words, fraud dispute metrics can increase even in a stable fraud environment, intensifying pressure on monitoring ratios such as Visa’s VAMP.

Merchants would be wise to not treat first-party misuse solely as a disputes issue. Fraudulent chargebacks trends should also inform refund strategy, evidence collection, and how customer complaints are handled before they reach the issuer.

Practical steps to reduce monitoring exposure

To reduce monitoring exposure, you need to make it easier for good customers to understand your refund process and request a refund.

Many merchants respond to rising refund abuse by focusing primarily on reducing refund loss. While this is commercially understandable, it can create new risks:

• higher monitoring ratios

• increased scheme scrutiny triggering additional fees

• financial assessments and program fees

• acquirer intervention that may affect processing arrangements

To manage your VAMP ratio effectively, refunds and disputes must be treated as risk drivers, not just as customer service events.

Refund policy design must now balance abuse prevention with dispute prevention.

Here are three proactive steps that will make the biggest difference for merchants:

1. Make refund policies clear and accessible

Ambiguous or hard-to-find refund and return rules create confusion and frustration. Clear, transparent policies reduce the chance of disputes for legitimate issues.

Consider:

• publishing policies prominently and presenting them before checkout

• avoiding overly complex or contradictory wording within the policies

• clearly outlining timelines and expected resolution steps

Clear, visible, and consistently applied refund policies reduce friction.

2. Reduce operational delays

Slow responses and overly rigid internal review processes can push customers toward filing a chargeback simply because it feels faster or more effective.

Consider:

• automating refund request acknowledgements

• fast-tracking low-risk refund cases while escalating suspicious ones for review – a robust refund abuse solution can help with this

• clearly defining escalation paths for exceptions or repeat claimants

This reduces the likelihood that a frustrated customer will file a dispute simply because they felt ignored.

3. Identify and contain refund abuse early

Refund abuse often shows identifiable patterns: multiple claims, returns without receipts, repeated activity across the same device or IP address patterns, and more.

Consider:

• using third-party fraud and abuse analytics tools

• using machine learning pattern detection

• blacklisting known offenders and applying velocity rules

• monitoring which refund denials, delays, or exceptions turn into disputes and estimating which ones are more likely to in the future

Using internal analytics or third-party systems to proactively exclude abuse reduces both refund loss and downstream disputes.

Final thoughts: Balance, not restriction

The objective of this is not to make refunds easier at any cost; it is to design a system where legitimate customers resolve issues directly with you, abusers are detected and excluded early, and disputes are prevented – not merely defended.

As service-related disputes and fraudulent chargebacks continue to pressure merchants globally, merchants who treat refund governance as a strategic risk function rather than a reactive cost control measure will be better positioned under evolving VAMP thresholds.

In 2026 and beyond, refund policy is no longer just a customer experience decision; it is a scheme risk management decision, and you would be wise to start thinking about it as such.