Why Do Merchants Get Chargeback Fees?Are Chargeback Fees an Administrative Fee or a Fine? In Truth, They’re Both.
Why Do Merchants Get Chargeback Fees? Here’s the Real Reason.
You’ve already lost the sale and the merchandise. So, why does your acquirer or payment processor then charge you an extra fee on top of it all?
It can feel like salt in the wound, but chargeback fees only serve a punitive purpose to a limited extent. Instead, they’re primarily a way for banks and payment processors to recover the administrative costs of handling the managing the dispute process on your behalf. Think of it as the price attached to the time and resources it takes to mediate the dispute between you and the customer.
In this chapter, let’s talk about why chargeback fees exist and why acquirers assess them.
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.
Why Do Merchants Get Chargeback Fees?
Acquirers and payment processors assess chargeback fees to recover the administrative costs of managing the dispute process. Chargeback fees can also be thought of as a way to incentivize sellers to avoid disputes.
In short: chargeback fees exist because managing the chargeback process costs time and money.
As outlined above, each chargeback filed costs the bank time and resources. Issuers and acquirers both have to pay processing costs, while acquirers must also pay chargeback fees to the card network.
Employees at the banks, card network, and other payment service providers are busy making it all happen. They’re tasked with securely moving funds from account to account and handling all the necessary communication and recordkeeping. These activities all incur costs. And, because the merchant is deemed “at fault” for the chargebacks, these costs are passed off to the merchant in the form of chargeback fees.
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Charging fees also serve a secondary punitive purpose. The prospect of getting hit with a fee is meant to retrain merchant behavior to avoid future mistakes that might lead to more chargebacks. The fee gives merchants a significant incentive to try to identify and fix the problems that are causing chargebacks to occur in the first place.
