Chargebacks don’t just entail payment reversals for merchants, but also additional fees levied by acquirers to cover the costs of managing the chargeback process. The chargeback fee, along with the chargeback amount, is normally subtracted from the payment due to the merchant in the period when a payment dispute is filed. Many acquirers and PSPs make the additional fees non-refundable, meaning that when a merchant successfully contests a chargeback, they get back the original price for the goods sold but not the chargeback fees.
The chargeback fee levied by acquirers or payment service providers (PSPs) typically ranges from $15 to $50 for merchants with a normal risk profile. Square is the exception to the rule, charging nothing for chargebacks. By comparison, PayPal charges $20 per chargeback. For high-risk merchants, acquirers will typically charge higher fees to cover the increased costs and risks associated with maintaining them as clients. Fees are always outlined in the merchant agreement signed with the acquirer or PSP.
Fees are also charged by the credit card schemes when merchants exceed certain limits for total number of chargebacks and chargeback ratio. These chargeback monitoring program fees are in addition to the chargeback fee the acquirer levies. Unlike acquirer fees that are charged per chargeback, monitoring program fines can include a flat monthly cost in the thousands of dollars. When a merchant reaches this stage of a monitoring program, it’s a sign that they need to invest in a good chargeback mitigation solution to locate the source of payment disputes and reduce the number of chargebacks from repeat offenders.
For Visa, if a merchant with a regular risk profile exceeds 100 transactions per month with a chargeback ratio greater than 0.9 percent of transactions, they will be placed in the Visa Dispute Monitoring Plan (VDMP) where they will have to pay:
For merchants labelled high-risk by Visa or those with over 1,000 chargebacks per month and a 1.8 percent chargeback ratio, the costs in VDMP rise quicker:
For MasterCard, the charges are different from Visa. Merchants are placed in the Excessive Chargeback Merchant (ECM) program when they exceed 100 chargebacks and have a chargeback ratio greater than 1.5 percent for two consecutive months. Fees are as follows:
Chargeback fees depend on the merchant's agreement with their acquirer, but can soar to $100 or more for high-risk merchants. Beyond these fees, hidden and indirect costs—such as lost revenue, operational disruptions, and increased fraud risk—often cause businesses to lose more than double the original transaction value for each chargeback.
For Visa, if a merchant with a regular risk profile exceeds 100 transactions per month with a chargeback ratio greater than 0.9 percent of transactions, they will be placed in the Visa Dispute Monitoring Plan (VDMP) where they will have to pay:
Each card network sets specific chargeback ratio limits that merchants must adhere to in order to remain compliant. Merchants with consistently high chargeback ratios may be enrolled in a dispute monitoring program by their acquirer or payment processor, which results in added chargeback fees.
For merchants labeled high-risk by Visa or those with over 1,000 chargebacks per month and a 1.8 percent chargeback ratio, the costs in VDMP rise quicker:
For MasterCard, the charges are different from Visa. Merchants are placed in the Excessive Chargeback Merchant (ECM) program when they exceed 100 chargebacks and have a chargeback ratio greater than 1.5 percent for two consecutive months. Fees are as follows:
For high risk merchants that have over 300 chargebacks per month and a chargeback ratio exceeding 3 percent the fees are as follows:
As you can see, the chargeback fees can quickly add up if left unattended. There are a number of ways to keep it to a minimum, but at a certain stage you will need some chargeback defense to discourage the more than 80 percent of chargebacks that are illegitimate. For this consider Justt.
Our solution is tailored to fit your business to ensure industry leading success rates. Justt can help you mitigate the costs of chargeback fees by responding to chargebacks on your behalf and, as an added benefit, helping you recover more revenue and creating more upside for your bottom-line.
Credit card networks penalize merchants when they exceed the stipulated chargeback ratio. For Visa, there’s an extra $50 per chargeback and a possible $25,000 review fee, while Mastercard charges fines between $1,000 and $100,000. This is in addition to the chargeback fee levied on merchants for every chargeback they have by their acquirer or payment service provider.
Aside from the chargeback fees ranging between $15 and $50, there are unforeseen expenses which include:
Altogether, a $100 chargeback can cost a business over $200.
Chargeback fees compensate payment processors and the acquiring bank administrative costs for managing the chargeback process. The chargeback fee also serves as an incentive for merchants to avoid chargebacks.
The best way to avoid chargeback fees is by preventing chargebacks. Some ways of avoiding chargebacks include:
Even if a merchant wins a chargeback, the chargeback fees levied by the acquirer or payment processor are usually non-refundable.
Even if a merchant wins a chargeback, the chargeback fees levied by the acquirer or payment processor are usually non-refundable.
Chargebacks affect a merchant’s bottom line since they incur chargeback fees and penalties, which can be especially painful in industries with tight profit margins. Moreover, chargebacks endanger a business' relationship with its customers and payment processors, which might cause the loss of the merchant bank account and the ability to process credit cards.
Chargebacks don’t negatively impact a business’ credit score. However, too many chargebacks can lead to the loss of your merchant account.
