Chargeback Fee

What is a Chargeback Fee?

A chargeback fee is a fee a merchant pays when a customer disputes a charge on their credit card.

Chargeback Fee Explained

When a cardholder disputes a transaction, the dispute is also called a chargeback. Credit card processing companies work with merchants to process and respond to chargebacks. As part of this process, most credit card processors charge a chargeback fee.

Typically, merchants don’t need to pay a chargeback fee unless one of their customers initiates a dispute.

Each processor sets its own fee amount, but a common range is between $10 and $35. For merchants who pose a higher risk to the processor, the fee might be $50 or more. A merchant may be considered risky due to factors such as their industry, business model, or credit score.

Chargeback fees are one way for processors to protect themselves if a merchant receives excessive chargebacks or closes their account unexpectedly.

These fees also cover the administrative costs of processing each chargeback.

Most chargeback fees are not refundable, regardless of the outcome of the dispute. If the issuing bank and the credit card processor agree that the transaction was legitimate, they return the funds to the merchant. However, the merchant still pays the chargeback fee.

In cases where a cardholder doesn’t recognize a transaction, some issuing banks send a retrieval request. A retrieval is a request for more information about the transaction. Some processors charge retrieval fees in addition to chargeback fees.

If you own a business, chargebacks might be the last thing on your mind when you sign up for credit card processing. But you should review your contract for retrieval and chargeback fees before you sign.

Chargeback Fee Examples

Jacques sees a transaction for $130 on his credit card statement that he doesn’t recognize. The merchant is listed as Connecticut Furniture. Jacques calls his issuing bank, which initiates a chargeback on his behalf.

The issuing bank gives Jacques a provisional credit of $30 to his account. They also send the chargeback to Connecticut Furniture’s credit card processor through an automated system. The processor is called Connecticut Merchant Services (CMS).

CMS notifies Connecticut Furniture of the dispute. They also debit their bank account for $155, which includes the disputed amount of $130 plus a chargeback fee of $25.

Connecticut Furniture responds to the dispute. They send an itemized invoice showing that Jacques made a purchase through their online store. They also send a signed proof of delivery and a screenshot of the page on their website that shows the lamp Jacques purchased.

CMS sends this documentation to Jacques’s issuing bank. They also give Jacques a provisional credit for $130.

Once Jacques sees the documentation, he realizes that he does recognize the transaction. The reason he didn’t at first is that Connecticut Furniture sometimes goes by Northeast Furniture Warehouse. He withdraws his dispute.

Connecticut Furniture can keep the $130 since the transaction is valid. However, they do not receive a refund for the $25 chargeback fee. Instead, this fee covers the costs that CMS incurred while processing the chargeback.