Learning the ABCs of Chargeback Fees

Learning the ABCs of Chargeback Fees - Justt.ai

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.

additional fees levied by acquirers to cover the costs of managing the chargeback process

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.

Chargeback monitoring programs

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.

merchants labelled high-risk by Visa

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:

  • No additional fees in months 1-4 of the program.
  • $50 per chargeback in months 5-9 of the program.
  • $50 per chargeback in months 10-12+, plus the merchant will have to pay an additional $25,000 review fee.

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:

  • $50 per chargeback in months 1-6 of the program.
  • For months 7-12+, the merchant will have to pay $50 per chargeback plus an additional $25,000 review fee every month.

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:

  • Month 1 has no fines.
  • Month 2 has a fine of $1,000.
  • Month 3 has a fine of $2,000.
  • Months 4-6 each have a fine of $5,000, plus an additional $5 issuer recovery assessment for every chargeback above 300 per month.
  • Months 7-11 each have a fine of $25,000, plus an additional $5 issuer recovery assessment for every chargeback above 300 per month.
  • Months 12-18 each have a fine of $50,000, plus an additional $5 issuer recovery assessment for every chargeback above 300 per month.
  • Months 19+ each have a fine of $100,000, plus an additional $5 issuer recovery assessment for every chargeback above 300 per month.

 

alerts-on-new-chargebacks

For high risk merchants that have over 300 chargebacks per month and a chargeback ratio exceeding 3 percent the fees are as follows:

  • Month 1 has no fines.
  • Month 2 has a fine of $1,000
  • Month 3 has a fine of $2,000.
  • Months 4-6 each have a fine of $10,000, plus an additional $5 issuer recovery assessment for every chargeback above 300 per month.
  • Months 7-11 each have a fine of $50,000, plus an additional $5 issuer recovery assessment for every chargeback above 300 per month.
  • Months 12-18 each have a fine of $100,000, plus an additional $5 issuer recovery assessment for every chargeback above 300 per month.
  • Months 19+ each have a fine of $200,000, plus an additional $5 issuer recovery assessment for every chargeback above 300 per month.

Playing chargeback defense

As you can see, the costs of chargebacks 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. We also work based on the success-based fee so there is no risk, just upside for your bottom-line. Contact us or book a demo to find out more.

Merchant Chargeback Fees FAQs

Do merchants get penalized for chargebacks?

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.

How much does a chargeback cost a business?

Aside from the chargeback fees ranging between $15 and $50, there are unforeseen expenses which include:

  • Customer acquisition costs
  • Shipping expenses
  • Processing fees
  • Labor expenses
  • Operational expenses

Altogether, a $100 chargeback can cost a business over $200.

Why did I get a chargeback fee?

Chargeback fees compensate payment processors and the acquiring bank administrative costs for managing the chargeback process. The fee also serves as an incentive for merchants to avoid chargebacks.

How do you avoid chargeback fees?

The best way to avoid chargeback fees is by preventing chargebacks. Some ways of avoiding chargebacks include:

  • Having a clear return policy
  • Providing clear contact information to encourage customers to reach out before filing disputes
  • Having detailed and accurate product descriptions
  • Use clear and accurate payment descriptors

Are chargeback fees refundable?

Even if a merchant wins a chargeback, the chargeback fees levied by the acquirer or payment processor are usually non-refundable.

Do chargebacks hurt businesses?

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.

Do chargebacks affect credit scores?

Chargebacks don’t negatively impact a business’ credit score. However, too many chargebacks can lead to the loss of your merchant account.

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    Chargebacks per month


    • Under $5,000
    • Under $50,000
    • Under $100,000
    • Over $100,000
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