What is a Chargeback Fee?Sales & Inventory Aren’t The Only Things You Lose in a Chargeback
What is a Chargeback Fee? Definition & Overview
I’m probably preaching to the choir here, but I’ll say it for the record: chargebacks are a lot more brutal than returns.
When a customer returns an item, you lose out on the sale. But, at least you also get the item back. When a chargeback happens, however, no such equitable exchange happens. Instead, you typically lose out on the sale and the merchandise.
But that’s not the full extent of the pain. To top it all off, you’re also assessed a chargeback fee for each dispute you receive. And, this fee is non-refundable, even if the chargeback ends up being an invalid case of friendly fraud.
In this chapter, we’re gonna talk about these pesky chargeback fees and how they work.
Chargeback Fees
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.
What is a Chargeback Fee?
- Chargeback Fee
A chargeback fee is a variable amount charged by a bank for each dispute. The fee is paid by the merchant and helps cover the bank’s costs involved in settling a chargeback.
[noun]/charj • bak • fē/
A chargeback fee, also known as a dispute fee or dispute received fee, is a non-negotiable fee that merchants pay every time they receive a chargeback.
To be clear, acquirers and payment processors don’t discriminate when assessing chargeback fees. Sellers can expect chargeback fees for both valid and invalid dispute claims. And, these fees are often non-refundable, even if you later re-present and win the chargeback in question.
Remember: chargeback fees are almost always non-negotiable and non-refundable. The only exception is for acquirer or processor errors (e.g. a payment processor accidentally assesses two chargeback fees for a single dispute). In these cases, the processor will typically refund the error charge.
Your Processor’s Perspective on Chargeback Fees
Chargeback fees can be especially infuriating given that invalid claims accounts for roughly three-quarters of all disputes filed. As a seller, it can feel like you’re being punished for something that’s not your fault.
However, things look different from the perspective of an acquirer or payment processor. Every chargeback they handle — no matter the reason it was filed — invites administrative costs.
Let’s say a cardholder discovers a charge on their monthly credit card statement. They contact the issuing bank, which initiates a chargeback. The bank typically refunds the cardholder's money out of their own funds, then debits your acquirer to recover the money. Finally, the acquirer pulls funds from your account to recoup their losses.
There is overhead that accrues at each step in the chargeback process. To offset these costs, the acquiring bank charges the merchant a chargeback administration fee. In most cases, the fee applies even if the chargeback is eventually reversed. But, we’ll talk about this in more detail in the next section.
