Every time you receive a chargeback, you lose sales revenue. The cardholder’s issuing bank forcibly reverses the transaction so that funds from the sale being disputed are returned to the buyer’s account.
That’s not all you lose, though.
There’s also inventory; a cardholder who files a chargeback claiming that the transaction in question was unauthorized is not going to return the item purchased. Then, of course, there are the chargeback fees. These fees are assessed by your processor on a per-dispute basis, and represent an additional hit to your bottom line.
But, why do processors apply chargeback fees? How much do chargeback fees cost? And crucially, how can you avoid them? In this guide, we take a closer look at how these dispute fees work and what you can do to insulate your business from unnecessary losses.
A chargeback fee is an administrative fee levied by a payment processor on merchants in the event of a payment dispute.
Chargeback fees are assessed for every dispute received, no matter its validity or reason. This means that sellers can expect chargeback fees for all types of chargebacks, whether due to merchant error, third-party fraud, or first-party fraud. These fees are usually also non-refundable, even for merchants who prevail in representment.
Read MoreMerchants receive chargeback fees for two reasons. The primary reason is because it helps acquiring banks and payment processors recover the administrative costs of managing disputes and forwarding evidence between merchants and issuers.
The secondary reason, though, is that chargeback fees serve as a deterrent against receiving disputes. Because fees are levied on a per-dispute basis, merchants are strongly incentivized to minimize the number of chargebacks they receive.
Read MoreChargeback fees are determined by the processor that assesses them, and will be outlined in your merchant agreement. That said, chargeback fees typically range between $20 and $100 per dispute, on average.
These are just the “base” fees, though. Additional charges may apply for merchants who wish to re-present a charge to the bank to try and reverse the chargeback.
Read MoreMerchants who are involuntarily enrolled into a merchant monitoring program, like the Visa Acquirer Monitoring Program (VAMP) or the Mastercard Excessive Chargeback Merchant (ECM) program, will be assessed additional fines and surcharges for being a “high-risk” merchant.
These fees are levied on top of standard chargeback fees, and can stretch into the four or five figures for chronic violators.
Read MoreChargeback fees are assessed at the beginning of the chargeback life cycle. In contrast arbitration fees are assessed during chargeback arbitration, the final stage of the dispute process.
Arbitration fees help card networks cover the time and resources required to step in and issue rulings on behalf of cardholders and merchants who are unable to resolve disputes on their own. Arbitration fees are typically much steeper than standard chargeback fees, and often begin at several hundred dollars or more.
Read MoreSince chargeback fees are almost always non-negotiable and non-refundable, the most effective thing merchants can do to reduce fees is to minimize the number of chargebacks they receive.
In practice, this means deploying a multi-layered fraud prevention strategy that leverages best-in-class customer service, operational excellence, swift and easy returns, and fraud detection tools at checkout.
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If you’re a merchant and have received a chargeback, yes. All chargebacks will generally incur a chargeback fee.
Merchants pay chargeback fees to cover the administrative and processing costs incurred by their payment providers when handling a customer's disputed charge. These fees also serve as a deterrent, encouraging merchants to take measures to prevent fraudulent or disputed transactions.
Banks charge fees to cover the administrative and processing costs incurred by their payment providers when handling a customer's disputed charge. These fees also serve as a deterrent, encouraging merchants to take measures to prevent fraudulent or disputed transactions.
Merchants pay chargeback fees. There are some exceptions; if a dispute requires arbitration, the party found liable will have to pay the arbitration costs. However, merchants are generally responsible for chargeback fees.
Chargeback fees are high because they help banks and payment processors cover the administrative costs associated with coordinating disputes on behalf of merchants and cardholders. Some service providers may also assess high chargeback fees because they see it as a source of ancillary revenue.
Typical chargeback fees range between $20 to $100 per dispute filed.
Yes. Companies, rather than cardholders, bear the cost of chargeback in the form of chargeback fees, lost revenue, and lost inventory.
“Normal” chargeback rates vary according to product vertical, sales model, and other factors. But, a typical chargeback rate for a merchant that primarily conducts card-not-present transactions is around 0.5% of total transactions.
