Chargeback Fees for Merchants: What They Are & Protecting Your Business

Chargebacks are frustrating and time-consuming. There are few things less exciting to a merchant than dealing with a customer disputing a purchase. Unfortunately, chargeback fees for merchants take hard-earned revenue out of your business’s accounts, too.

So, what should you know about chargebacks as a merchant? How can you protect your business from these customer disputes and reduce the costs that come with them?

Keep reading to learn more about how chargebacks work and, crucially, reduce costs related to chargebacks.

Chargebacks are just one of the many potential costs related to customer payments that merchants encounter in the course of business. Swipesum helps businesses just like yours save money on payment processing.  

From finding the best payment solutions to negotiating better rates and monitoring the health of your accounts, our experts can help you reduce costs related to payments. Best of all, our services come at no additional cost to your business.

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What are Chargebacks?

Chargebacks all begin as a purchase made with a payment card, like a credit card or debit card. They can involve just about any goods or services a merchant or business offers. Chargebacks only occur after a customer payment has been completely processed as well as settled, as Investopedia explains.

The chargeback itself is a process where the customer initiates a dispute over a specific charge on a credit card statement. The issuing bank (i.e. the bank that issued the customer’s card) will then investigate the issue.  

If the bank finds what it believes to be a legitimate problem with the charge, it will then void the transaction. In this process, the bank also takes the money paid back from the merchant’s account and returns it to the client.  

Fraud, technical errors in processing payments, and other issues can all lead to chargebacks.

Why Do Chargebacks Happen?

There are several reasons why a chargeback may be initiated. Issues with the product or service that was paid for, such as never receiving delivery, are a common starting point for chargebacks.  

In some cases, there are legitimate issues that lead to chargebacks. These include fraud related to the customer’s card and a merchant going silent when a customer tries to contact them about a return.  

However, chargebacks can also involve “friendly fraud,” as Stripe explains. In these cases, the cardholder is not following the intent of the chargeback process. Examples include customers not following proper procedure for canceling recurring payments or simply forgetting about a purchase and then disputing it.

However, they can still lead to businesses paying chargeback processing fees and dealing with other complications.

What are Merchant Chargeback Fees and Penalties?

When merchants are involved in a successful chargeback, they have to give the payment made back to the customer. This loss of revenue can itself be seen as a chargeback fee or penalty for a merchant. The customer’s bank, also called the issuing bank, handles the return of those funds.

Payment processors also take additional chargeback fees from merchant accounts. Merchant banks, also called acquiring banks, want to discourage chargebacks, as Chargeback Gurus explains.  

The cost of a merchant chargeback fee starts around $25 but can be significantly higher. That’s additional money lost on top of the actual purchase being reversed.  

Additional costs of chargebacks for merchants can include money lost on shipping, time and effort invested in fighting a chargeback, and more.

Crucially, a large number of chargebacks can lead to additional difficulties for merchants. Card issuers may charge additional fees to merchants if they exceed an “acceptable” chargeback ratio (generally at or around 1% of all transactions) and place them under additional monitoring.

These are all great reasons to take chargebacks seriously as a merchant — and take steps to reduce the potential for them whenever possible.

How Can Merchants Push Back on Chargebacks?

Not all chargebacks are avoidable. In cases of actual, legitimate fraud, a chargeback is the intended path for restitution. However, other chargeback scenarios can be contested. There are also steps merchants can take to reduce the potential for chargebacks due to fraud, and associated chargeback fees, in the first place.

How Can Merchants Fight Fraud to Reduce Chargebacks?

• Prioritize security whenever possible. Keep your point-of-sale and other payment software up-to-date and emphasize more secure payment methods (EMV and NFC transactions). Verify all payment card details and delivery details.
• Maintain detailed records of purchases and shipments. Keep secure records of customer information and delivery details to support easier investigation of purchases and product delivery. Consider requiring a customer signature as proof of delivery.
• Use Address Verification Services (AVS). Ensure that the shipping information and billing information align with an AVS.

What are Some Tips for Dealing with Friendly Fraud?

• Prioritize customer service. Making it easy to get in touch with your business can encourage customers to seek refunds or reach out for more information instead of starting with a chargeback. Offer relevant and accessible options for customers to get in touch.
• Make return, refund, and similar policies clear. Let customers know what avenues are available for refunds and exchanges. Make those policies clear and understandable.
• Process each transaction correctly and in a timely manner. Include the correct billing descriptor to better inform customers. Process the transaction either after purchase or after shipping begins.
• Set clear expectations around shipping. Let customers know about expected shipping timelines and proactively communicate about delays. Make it clear when products are custom-made, on backorder, or will otherwise take significant time to deliver.
• Be ready to respond. Position your business to quickly respond if a chargeback is initiated. Keep detailed records of transactions and shipping. Make sure they’re organized to minimize the time spent finding the relevant information.

Chargeback fees for merchants are just one of the many potential issues businesses can encounter with payment processing. Swipesum helps you keep overall payment processing costs low with custom suggestions for payment solutions, support in rate negotiations, and so much more.  

Learn how we can help your business save money: Set up your free consultation now!

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