Global chargeback volume is expected to grow 24% over the next three years. For acquiring banks and payment service providers, chargebacks are an inescapable feature of doing business. Cardholders raise disputes to seek refunds for transactions they believe were unauthorised, fraudulent or unfulfilled. A single chargeback is inconvenient, but manageable. However, a wave of chargebacks, particularly when triggered by a merchant insolvency, can lead to significant financial losses that threaten your acquiring bank's risk exposure and portfolio stability.
In this article, we explore:
When a cardholder initiates a chargeback and wins the dispute, the transaction is reversed. The acquirer then processes the original payment on the merchant's behalf. In a functional acquirer-merchant relationship, the transaction amount is recouped from the merchant. The problem arises when, for one reason or another, the merchant can't pay. If the merchant becomes insolvent, the acquirer cannot recover the funds and is left with the financial liability, sometimes across hundreds or even thousands of transactions.
What makes this particularly hard to accept is that the acquirer is bearing liability for outcomes outside of their control. This matters because the rules governing chargebacks were designed for a world that no longer exists. When consumer card protection principles first came into being, every transaction happened face-to-face, fulfilment was immediate, and acquirers often had close relationships with merchants they did business with. In that context, placing liability on the acquirer made sense. Today, the purchasing experience couldn't be more different, but the acquirer still pays.
Not all merchant portfolios carry equal risk. An acquirer processing payments for one sector faces a fundamentally different risk profile from another. In high-risk verticals, several factors increase exposure:
In travel, customers often pay for services months or even years in advance. The longer the gap between payment and delivery, the longer the period during which insolvency can occur and the greater the potential for chargeback volume.
Many high-risk merchants operate with uneven cash flow patterns. A business that appears financially stable in the summer months may face acute financial stress in winter, creating sudden spikes in risk that are difficult to predict. If a merchant fails, chargebacks come soon after.
Acquirers with heavy exposure to a single vertical or to a small number of large merchants face outsized portfolio impact if one of those relationships fails. In high-risk sectors, that concentration can turn a single insolvency into a significant problem.
Geopolitical disruption, pandemics and economic volatility all increase the likelihood of merchant insolvency, especially in sectors like travel. The past few years have shown how quickly external shocks can trigger merchant failures, leaving acquirers with little warning.
Because acquirers must take steps to protect themselves, they are often forced to decline entire categories or insist on rolling reserves that constrain smaller operators. Chargeback liability essentially limits merchants' access to acquirers by forcing acquirers to choose between risk and growth. Acquirer chargeback insurance is the solution.
Acquirer chargeback insurance is specialist insurance cover that transfers merchant chargeback liability from the acquirer to an insurer. Rather than forcing acquirers to choose between supporting merchants in some industries and not others, acquirer chargeback insurance allows them to operate in higher-risk verticals with controlled, defined exposure.
When a merchant in the acquirer's portfolio becomes insolvent, and chargebacks start to flow through to the acquirer, the policy covers the resulting losses. It essentially places a financial limit on what would otherwise be a very costly liability, protecting acquirers' portfolios from financial ruin.
A well-designed chargeback insurance policy works on several levels: financial, regulatory and commercial.
One of the main benefits of acquirer chargeback insurance is financial. When insolvency-driven chargebacks happen, the loss transfers to the insurer rather than the acquirer. This removes the need to hold back capital purely for future chargebacks that occur due to circumstances outside of the acquirer's control. This frees up capital you can use to grow your portfolio.
Regulatory pressure is a constant worry for acquirers. Capital adequacy requirements, chargeback risk management expectations from card schemes (such as Visa's VAMP), and oversight from financial regulators, all require acquirers to demonstrate exposure mitigation. Acquirer chargeback insurance provides you with comfort that you're compliant with the regulations that apply to your business.
You're likely feeling the competitive pressure to acquire merchants in high-growth sectors, and acquirers that can't manage the risk face a choice: avoid the sector or accept that exposure isn't controlled. Neither is a satisfactory answer for a responsible, growth-minded acquirer.
The insurance removes the financial risk of chargebacks from the equation. When an acquirer knows its worst-case chargeback exposure is capped and transferred to an insurer, they can pursue opportunities they might have avoided previously, onboarding merchants in higher-risk industries such as travel, events and ticketing, health and wellness products, vehicle sales and more.
Acquirer chargeback insurance coverage is only as good as the provider, and it pays to do extensive due diligence before making a selection. Strong underwriting should be combined with genuine sector knowledge and a willingness to provide solutions that reflect the reality of acquiring portfolios.
Chargeback risks vary by industry. For example, long lead times and high-value transactions make travel a chargeback-prone industry, with an average chargeback rate of just under 1%. In contrast, restaurants have an average chargeback rate of just 0.12%, typically due to billing discrepancies and food delivery issues. A provider without deep knowledge of your specific vertical will struggle to:
The right partner should be able to demonstrate that they work with clients in your industry.
No two acquiring portfolios are the same. A provider that offers standardised cover may leave gaps in coverage, with limited provisions for particular merchant categories or edge-case scenarios that fall outside the policy scope. This can leave you out of pocket.
The right partner will conduct a detailed analysis of your merchant mix, concentration exposures and risk appetite before offering an insurance solution, producing policy terms that reflect the reality of your portfolio, rather than a standard template.
Additionally, a provider offering bespoke solutions will understand your portfolio isn't static—merchant volumes grow, new verticals are added and transaction values increase. The right provider will welcome these developments and scale coverage accordingly.
The value of insurance is determined by what happens when the time comes to claim. Policies with vague exclusions, ambiguous definitions of insolvency and poorly defined coverage triggers and notification requirements create uncertainty. It pays to scrutinise policy language carefully and seek clarification on unclear terms before taking out a policy.
A policy that takes many months to settle a claim may strain the financial health of your portfolio. When evaluating providers, ask directly about the different stages of the claims process, including:
TMU Management is one of the few specialist firms treating chargeback exposure as a system-level problem—and building a solution to address it. TMU works within the existing framework to rebalance it in favour of the institutions carrying risk they didn't create.
TMU's acquirer chargeback insurance moves chargeback loss off the acquirer's balance sheet, transfers risk to specialist underwriters, and embeds cost recovery within processing economics, removing the need to hold capital against uncontrollable exposure.
Without hard data, chargeback risk is difficult to communicate to internal boards or negotiate with card schemes. TMU turns what was previously reactive into something more strategic, with:
When aquirers have data, they can approach schemes, insurers and internal stakeholders as equals rather than petitioners.
For acquiring institutions operating in high-risk verticals, chargeback exposure shapes what you can offer, who you can onboard and how you grow. TMU Management changes that by combining bespoke insurance with data-led risk analysis, giving acquirers the protection they need to operate with confidence.
Contact the TMU Management team today to find out what acquirer chargeback insurance coverage could do for your portfolio.
If you need insurance that reflects how your business really works, TMU Management is here to help. Our team will assess your challenges, understand your exposures and design a bespoke solution that fits your strategy.
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