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Chargeback fees can be an expensive part of doing business as a merchant. When you accept a card payment from a customer, you open yourself up to potential fraud as well as customers’ disputes if there’s a problem with the product or service they purchased. Banks can levy a chargeback fee when they must mediate a dispute between a cardholder and a merchant. They tack a fee on to each transaction that is disputed.
How Chargeback Fees Work
Chargebacks happen when a customer disputes a transaction with a merchant. The credit card company or bank returns the money from the merchant’s account and places it back into the customer’s account. For processing the claim, banks charge a fee, ranging from $15 to $25 per chargeback. Multiply that over the thousands of transactions a merchant processes, and the result is billions potentially lost each year by businesses. Some banks also increase the per-chargeback fee for merchants who have repeated issues with customer disputes.
Why Chargeback Fees Happen
Merchants are required to conduct some diligence when accepting card payment for their products and services or face the burden of consumer protection laws. Some of the common reasons customers dispute and cause chargebacks and fees include unauthorized transactions, merchandise not received or not received as described or for returned merchandise that is not credited. Merchants may also fail to get a valid authorization when they conduct a transaction. When a customer disputes a transaction for any of these reasons, an investigation must be conducted to resolve the matter -- hence, the fee.
Protect Your Business
Some transactions are more troublesome than others, so you and your employees must be on guard. Fraudulent transactions often occur with new, first-time customers, customers who make larger-than-customary orders, those who order several of the same item and orders from several credit cards going to one address. Sometimes chargeback fees are less sinister and more a customer taking advantage of the law. For example, a customer may not want the product anymore and may file a dispute to get his money back. You should clearly explain your return policy and encourage your customers to come to you, the merchant, first if they have a problem.
In an era of increased online buying, chargeback fees have steadily risen. To combat the high fees and manage the risks, some merchants have purchased chargeback insurance. One service, for example, provides fraud detection software to merchants but if it fails, the policy reimburses for the cost of the purchase, profit loss and the chargeback fee.
- Bankrate.com; Foiling Credit Card Fraud; Jenny McCune; December 4, 2002
- BankCardUSA.com: Chargebacks
- The Consumerist; What Is a Chargeback?; April 2007
- Insurance Professional; Chargeback Insurance; Manoj Kumar; June 2002
- Federal Trade Commision: Billed for Merchandise You Never Received? Here's What to Do; January 2002
Angela Ogunjimi has been a prize-winning writer and editor since 1994. She was a general assignment reporter at two newspapers and a business writer at two magazines. She writes on nutrition, obesity, diabetes and weight control for a project of the National Institutes of Health. Ogunjimi holds a master's degree in sociology from George Washington University and a bachelor's in journalism from New York University.