Regarding money coming directly from your bottom line, chargebacks are your worst enemy. Not only do you lose revenue from the initial sale, but you also lose money from the items shipped and chargeback fees.
This article covers everything merchants need to know about chargeback fees and explains why we are confident that we can significantly reduce your chargebacks and associated costs.
What Is A Chargeback Fee?
Chargeback fees are additional fees the merchant charges every time they receive a chargeback. The fee is separate from the refund fee. This fee is intended to incentivize merchants to take measures to avoid chargebacks.
At CB-ALERT, we specialize in chargeback management, and we are confident that we can significantly reduce your chargebacks as well as your chargeback fees.
Let’s take a look at an example of what chargeback fees could look like with a $200 purchase:
- Transaction: $200
- A transaction fee of 3.5% – 7
- Cost of the product: $40 – which would be 20%
- Marketing costs: $60 – 30% on the low-end
- Operational costs: $40 – 20%
- Chargeback fee: $30
Total cost of the chargeback: $377
Yes, you read that right; chargebacks can get out of hand quickly, especially when the product’s price is high.
Why Do Processors Inflict Chargeback Fees?
Chargeback fees are a must to not only cover the costs of processing the transaction but also penalize the merchant, so they don’t run up their chargeback ratio.
In the long run, these fees should discourage merchants from receiving chargebacks, protecting them from termination.
Which Industries Experience High Chargeback Fees?
The riskier the industry, the more the merchant will pay in chargeback fees. Below you will find the industries that pay the most on average in chargeback fees:
- Subscription/trial offers
- Online dating
These are the industries that typically experience the highest chargeback fees; with this being said, any high-risk industry will experience higher costs.
- Cardholder complains to their issuing bank
- Issuer then refunds cardholders out of their own funding
- Issuer recovers their money from the acquiring bank
- Acquiring bank recovers their money from their merchant’s account
Acquiring bank will almost always inflict a chargeback fee during this process on the merchant.
The True Cost Of Chargeback Fees
Chargeback fees cover the costs of processing chargebacks for acquiring banks. The chargeback fees themselves vary from processor to processor and often depend on the industry the merchant operates in.
For general merchants, you should expect to pay anywhere between $20 and $55 for chargeback fees for most industries. These fees can go upwards of $100 depending on the merchant’s risk factor and industry.
On top of this fee, the merchant still has to cover the shipping costs and the refund to the customer.
While chargeback fees are costly, chargebacks pack a punching combination as you get hit with the following:
- chargeback fee
- the refund issued to the customer
- the % to process the transactions
- a blow to your chargeback ratio
If your chargeback ratio gets out of control, it can wreak havoc on your business and ultimately lead to its demise.
Even if your merchant account isn’t terminated, you are playing with fire as you risk paying higher payment processing fees and having difficulty finding a second account, amongst other harmful factors.
If your chargeback ratio does get over 1%, you will need a high-risk merchant account in which you will pay higher fees to cover the risks associated with your account.
High-risk chargeback fees are greater than low-risk, so it’s a double whammy.
Stripe customers will pay $15 for chargebacks per incident.
Paypal chargebacks are currently $20 for standard transactions.
Square doesn’t currently have a specific fee for disputes. You will need to pay the normal processing fee.
Shopify chargebacks are currently set at $15.Keep in mind Shopify only processes low-risk merchants.
The Process Of Chargeback Fees
Chargeback fees are closely tied to the chargeback process, as you would expect. Let’s take a look at the full flow of chargebacks so that you can get a better understanding of how they work:
The cardholder discovers a charge on their monthly credit card statement. They contact the issuing bank, which initiates a chargeback. The issuer uses its own money to refund the customer, then retrieves the transaction amount from the acquiring bank.
Here is where the fees start rolling in. The merchant’s acquirer will almost always levy a chargeback fee to cover the various costs involved with processing the chargeback.
In addition to the acquirer, the credit card processor can also levy fines. In some cases, even the card networks will charge a merchant for a chargeback. These chargeback fees can add up in a hurry.
What Are Chargeback Fees For High-Risk Merchants
High-risk chargeback fees are going to be more than low-risk typically. With this being said, it does vary. Maintaining a low chargeback ratio is in your best interest if you want to avoid higher chargeback fees.
Hiring a chargeback prevention company can significantly reduce your chargeback ratio, and it’s often better to do it as soon as you notice a problem with chargebacks before it gets out of control.
How To Lower Chargeback Fees
Lowering chargebacks is possible, though it is difficult. First, building a relationship with your payment processor in crucial.
If you can establish a relationship here, the payment processor may cut you some slack, especially if you run a legitimate business that prides itself on transparency with a low chargeback ratio.
When Chargebacks Hurt, Choose CB-ALERT
Chargebacks do not have to be a cost of doing business. Our mission is to end all of our merchant’s chargebacks so they can prosper.
There are significant consequences with high chargebacks, and they need to be addressed immediately to avoid financial distress.
A big part of preventing and fighting chargebacks is analytics and understanding why you are receiving them in the first place and from who.
If you partner with CB-ALERT, we will take pride in fighting your chargebacks and put systems in place to prevent chargebacks.