In the course of doing business online, many merchants believe chargebacks are an inevitable inconvenience. Unfortunately, what these merchants may not realize is the cost of each chargeback is far more than just the cost of the product itself or the chargeback fee they’re assessed.
In fact, each dollar of fraud cost merchants $2.40 in 2016, and by 2018, that number had increased to $2.94. For e-commerce merchants selling digital goods, they end up paying an average $3.29 for each dollar of fraud.
Here are just a few of the fees a merchant incurs each time they’re hit with a chargeback and how these expenses can permanently affect a merchant’s ability to maintain their good reputation and grow their business.
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Credit card processors charge merchants a fee for each transaction processed, and this fee generally includes the wholesale cost of the transaction plus the processor’s rate markup. If the transaction results in a chargeback – even if the merchant isn’t at fault – the merchant will be out these processing fees.
When a merchant receives a chargeback on a transaction, the acquiring bank assesses a chargeback fee – often ranging from $20-$100 – to cover the costs the acquirer incurs during the chargeback process. And the higher risk the merchant, the higher the fees.
Even if a merchant fights and wins a chargeback dispute and recovers the lost revenue, the acquiring bank won’t refund these chargeback fees.
Acquiring banks keep track of which businesses have high chargeback ratios, and those merchants may find themselves subject to additional fees for each chargeback. And if chargeback ratios continue to rise, the acquiring banks may put online merchants into chargeback monitoring programs – resulting in even more fees. While some merchants may be offered a grace period upon being enrolled, most high-risk merchants will be assessed the fees immediately upon entering the program.
If merchants are unable to lower their chargeback rates, merchants might face rising processing fees and even having their merchant accounts terminated. If this happens, the best case scenario is that they’ll have to apply for a different high-risk merchant account. In the worst case, merchants could be blacklisted by acquirers entirely, making it impossible to accept credit cards – catastrophic to an online business.
Beyond the fees that a merchant is assessed following a chargeback, merchants also find themselves paying out the operational costs that are associated with a transaction. Some of these costs include:
And these costs aren’t minimal; in fact, they often account for up to 20% of merchant revenue that ends up being returned when a customer files a chargeback.
Good customers don’t come easily or cheaply. Many e-commerce merchants invest significant amounts of money into marketing and advertising – sometimes up to 40% of their revenue. And that can be money wasted when transactions result in chargebacks and negative social media attention.
The best way for merchants to minimize chargeback fees is to prevent chargebacks from happening in the first place – and these best practices can help them do just that.
Because chargebacks pose a serious threat to your bottom line, it’s also critical to implement a fraud prevention solution that offers guaranteed protection against chargebacks. Contact a ClearSale analyst today to learn how our unique solution gives you the peace of mind that you’ll never pay for a transaction that turns out to be fraudulent and results in a chargeback.