A chargeback fee is charged to merchants when a customer complains about a transaction and the issuing bank rules in the customer’s favor.
Both offline and online transactions can result in businesses being typically charged chargeback fees.
Even though chargebacks are intended to protect consumers from unauthorized or fraudulent transactions, they are costly and harmful to businesses.
This blog will address chargeback fees, their impact on merchants, and how they may be avoided.
What is a Chargeback Fee?
A chargeback fee is a merchant fee in case a customer asks for a chargeback with the card issuer.
Chargebacks occur when customers dispute transactions on the grounds of unauthorized use, fraud, or dissatisfaction with a product or service.
Not only is the merchant’s value for the transaction forfeited in case the customer is successful in the dispute, but the merchant also incurs another fee, anywhere from $20 to $100 per chargeback, depending on the processor.
Read about: Bank Chargebacks Explained: International And Domestic (2025)
The Chargeback Process
The chargeback process can be defined as assisting merchants in solving disputes and minimizing losses. The significant steps involved are:
- Customer Initiates a Dispute:
A cardholder initiates a dispute by making a complaint to his credit card issuer and providing reasons for the complaint.
- Issuer Reviews the Claim:
The issuer reviews the claim and decides whether it is authentic or not. They may request additional information from the customer.
- Reversal of Funds Temporarily:
If the claim is valid, the issuer reverses the transaction amount by debiting it from the merchant’s account.
- Notification of the merchant:
The merchant receives information regarding the dispute and a chargeback notification from the payment processor.
- Response from the merchant:
The merchant either accepts or refuses the chargeback or presents evidence to reject it, e.g., receipts, tracking information, or communication history.
- Issuer Decision:
The issuer takes the merchant’s response into account and makes a final decision. If the merchant has been able to win the dispute, money is reversed; otherwise, the chargeback is closed.
- Final Resolution:
Depending on the decision, the chargeback process is completed, and necessary adjustments are made to the merchant account.
Credit Card Chargeback Fees
Chargeback credit card fees are specific fees incurred when a chargeback is initiated on a credit card transaction.
These will vary depending on the card network, processor, and dispute type. This is what you, as a merchant, should be aware of:
- Card Network Variability:
Large card networks such as Visa, Mastercard, and American Express have different chargeback policies and fees, typically between $20 and $100 per dispute.
- Processing Fees and Fines:
In addition to the fee, merchants will also receive increased processing fees if they have recurring chargebacks.
- Risk of Being Labeled High-Risk:
Recurring chargebacks will risk a merchant being labeled high-risk, which will mean higher scrutiny or restrictions by payment processors.
- Non-Refundable Charges:
Whether the chargeback case is approved for the merchant or not, the chargeback fee is normally non-refundable.
- Chargeback Thresholds:
Some credit card networks are extremely stringent with chargeback thresholds. Merchants who pass a certain percentage of chargebacks as a percentage of transactions may be charged more or even have their accounts closed.
How Do Chargeback Fees, Impact Merchants?
Merchants’ chargeback fees can lead to extreme volatility in their finances and business reputation. The following are some of the significant implications:
Loss of Revenue:
Sellers lose money from the first sale, as well as other chargeback costs from their processor.
Increased Processing Fees:
Excessive chargebacks may lead to increased processing fees by banks and card processors.
Risk of Having Account Suspended:
Highly charged-back sellers may be tagged as high-risk sellers or accounts suspended.
Reputation Damage:
A high chargeback ratio can be a sign of bad customer service, damaging the confidence of potential customers.
Business Disruptions:
Chargeback investigation and dispute are time- and resource-consuming processes that can be reallocated elsewhere.
Common Causes of Chargebacks
It is important to be aware of the reasons for chargebacks to prevent them. Some of the most common causes are:
Product Problems:
The product does not match the description, defective, or incorrect product shipped.
No Receipt of Product:
The order was not delivered to the customer.
Accidental Billing:
Double charging, the incorrect amount charged, or double processing.
Buyer’s Remorse:
Buyers are regretful of buying or did not know what they were buying.
Fraud:
Unauthorized transactions or stolen cards are being used.
Subscription Issues:
Billing for unwanted subscription services or unbilled canceled subscriptions.
Billing Errors:
Charges that are unreadable or unfamiliar appear on bank statements.
Customer Disputes:
Missing, unreadable transaction information or account billed incorrectly.
Reaad about: Global Payouts: Methods and Providers.
How to Prevent Chargeback Fees
Prevention of Chargeback fees implies proactive customer service, security, and clear communication efforts.
Some successful strategies are described below:
- Improve transparency in transactions
- Publicize your refund and return policies clearly on your website.
- Provide in-depth product descriptions and accurate images.
- Send customers order confirmation emails with order details.
- Enhance Customer Service
- Respond to queries and complaints promptly.
- Provide easy returns to dissatisfied customers before chargebacks.
- Provide tracking numbers and shipping status notifications.
- Implementing Fraud Prevention measures
- Implement Address Verification Service (AVS) to validate billing addresses.
- Request CVV codes in credit card payments.
- Monitor suspicious transactions and implement fraud detection software.
- Use clear billing descriptors
- Ensure your business name is reflected in bank statements to prevent confusion.
- Steer clear of confusing abbreviations or unfamiliar names that could lead to customer disputes.
- Obtain proof of delivery
- Obtain signatures upon delivery of high-value items.
- Keep thorough transaction, customer contact, and shipping confirmation records.
- Inform customers on recurring payments
- inform customers about subscription renewals and future charges.
- Provide customers with advance notice before billing recurring charges.
- Dispute chargebacks when appropriate
- If a chargeback is unjustified, gather supporting documentation (receipts, email communications, shipping confirmations) and submit it to the payment processor.
- Follow your payment provider’s chargeback dispute process.
Disputing a Chargeback
If a merchant believes that a chargeback is unjustified, he or she can dispute it by taking the following steps:
- Collect Evidence:
Gather all the available transaction data, including proof of delivery, communication with the consumer, purchase history, and signed agreements.
- Prepare a Rebuttal Letter:
Write a clear, concise statement of why the chargeback needs to be reversed, supported by solid documents.
- Adhere to Payment Processor Rules:
There are some processes and deadlines for disputes that each payment processor follows. Adhere to them to avoid defaulting in the dispute.
- File Before Deadline:
Give all the necessary documents to the acquiring bank before the deadline to get the dispute considered.
- Watch for Resolution:
The card issuer will consider the evidence and decide as to whether they will reverse or hold the chargeback.
- Learn from Disputes:
No matter if the dispute is lost or resolved in your favor, study past chargebacks to improve fraud prevention, customer care, and transaction verification processes.
By performing these, merchants can effectively protect their revenues and reduce chargeback losses.
Read about: What is a Merchant Acquirer? Know Everything About.
Chargeback Fee Policy: What You Should Know
A chargeback fee policy specifies the fees and processes a business applies when they are processing chargeback disputed transactions brought by customers through their bank or credit card provider.
The example chargeback fee policy template below is used here:
- Chargeback Fee Amount
- Firms typically impose a standard fixed amount per chargeback (e.g., $15–$50 per dispute), varying based on the payment processor (Stripe, PayPal, etc.).
- Some processors refund the charge in case of successful chargeback.
- Chargeback Dispute Process
- Merchants have a short time limit (e.g., 7–30 days) to respond with evidence.
- Evidence sought are receipts, order confirmation, tracking information, and communications with customers.
- Prevention & Liability
- Customers are encouraged to contact support before charging a chargeback dispute so matters can be sorted out.
- Merchants can implement fraud prevention solutions (e.g., 3D Secure, CVV check).
- Excessive chargebacks (more than 1% of total transactions) can result in suspension of accounts by payment processors.
- Refund vs. Chargeback
- Refunds are preferred over chargebacks by customers to avoid additional fees.
- Refunds are processed under the standard refund policy (e.g., processing time, eligibility requirements).
- Excessive Chargeback Penalties
- Excessive disputes can result in higher processing fees, account reserves, or bank/payment processor closure.
- Certain companies place multiple chargeback customers on a blocked list so that subsequent transactions are prevented.
Read about: 3D Secure Authentication: What Is it and How Does it Work?
Conclusion
Chargeback fees are a very important matter to suppliers, but commercial businesses can make them rare and expensive using defensive measures.
By enhanced consumer service, anti-fraud techniques, and clearly stated purchase orders, suppliers can maximize chargeback prevention and chargeback fees to the highest possible level.
Maintaining themselves abreast of chargeback charging policy and adjudication processes is useful to businesses to protect their revenues and reputation in the long run as well.
Being ahead of transactions, and reacting to disputes, will enable merchants to stay clear of the maximum possible financial loss and operations interruption.
Adopting efficient fraud detection techniques and being transparently communicative with the customers, will help in enhancing trust and chargeback risk prevention as well.
Read about: What is a Payment Gateway? How It Works?
FAQs
- How long does a chargeback process take?
The chargeback process may take 30 to 120 days, depending on the card network and type of dispute. Merchants are advised to respond early to avoid delays and improve their chances of winning the dispute.
- Are merchants able to deny a chargeback?
Yes, merchants who can provide convincing proof that the transaction was authentic may request a chargeback.
This may include receipts, delivery confirmation, and customer communication to support their case.
- What happens if a merchant gets too many chargebacks?
A merchant with excessive chargebacks (usually over 1% of transactions) may be labeled as high-risk, leading to higher processing fees, stricter terms, or even account termination by payment providers.
For a firm to remain stable, a low chargeback percentage must be maintained.
- What is chargeback fraud or “friendly fraud”?
Friendly fraud occurs when a customer falsely disputes a legitimate transaction, even after receiving the product or service.
This is common in digital goods, subscription services, and e-commerce and can be difficult to combat without strong transaction records.
- How is the chargeback different from a refund?
A refund is a voluntary return of funds by the merchant, usually to resolve a customer issue.
A chargeback is an involuntary reversal forced by the bank, which incurs additional fees and can negatively impact the merchant’s reputation with payment processors.
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