Understanding American Express Chargeback Fees
In terms of its impact on your revenue, a chargeback is more than just a payment reversal. When you receive a chargeback, you not only lose out on the disputed transaction amount, but also all of the marketing expenses and all of the other costs that went into making the sale possible.
On top of all that, you get hit with chargeback fees. The amount of these fees can vary depending on which card network, acquiring bank, or payment processor you’re dealing with, but they are a crucial factor in determining the true financial impact of your chargebacks. What do merchants need to know about American Express chargeback fees?
- What are Chargeback Fees?
- When Do American Express Chargeback Fees Apply?
- What are the American Express Chargeback and Inquiry Monitoring Programs?
- How Can Merchants Avoid Chargeback Fees?
The actual cost of a chargeback can be more than two and a half times the amount of the original purchase amount. This is partly because of all of the overhead and other costs that go into sourcing the product, acquiring it, and putting it up for sale, but fees play a big part in making chargebacks as expensive as they are.
Most of the time, chargeback fees are fixed at somewhere between $20 and $100 per dispute, no matter what the dollar amount of the disputed purchase was.
If you process a high volume of low-value transactions, a high chargeback rate can quickly become a serious financial problem.
Even if you can afford to eat the losses from a high chargeback rate, the banks, payment processors, and card networks like American Express who make it possible for you to accept credit cards don’t have a lot of tolerance for merchants who allow excessive levels of fraud and chargebacks to enter the payments ecosystem.
They monitor merchants’ fraud and chargeback ratios, and when you exceed their allowable thresholds, they may require you to enter a chargeback remediation program that includes additional fees.
The key to chargeback management is to understand what your transaction data is trying to tell you about where your chargebacks are coming from and why they are happening. Knowing exactly how much each chargeback is costing you is important too, because this can be necessary in order to justify investing in anti-fraud tools, chargeback representment services, and other solutions that may be necessary to get a rising chargeback rate under control.
What are Chargeback Fees?
Every dispute you receive will come with a standard chargeback fee that gets paid to your acquiring bank or payment processor. This fee compensates them for the work they have to do to process the chargeback, and offsets the risk that there won’t be sufficient funds in the merchant account to cover the payment reversal.
The precise amount of your chargeback fee will depend on the contract you have with the acquiring bank or payment processor who handles credit card payments for you. The typical range is $20 to $100 per chargeback. Sometimes, these fees will be reversed if you fight the chargeback with representment and win.
Merchants who are categorized as “high risk” due to their transaction volume or the nature of their industry may be charged higher rates for chargeback fees and other processing services.
Interchange fees and other charges associated with normal transaction processing aren’t related to chargebacks, but they do factor into the total cost of each disputed transaction.
When Do American Express Chargeback Fees Apply?
Normally, American Express won’t charge you any additional fees for transaction disputes that involve their cardholders. But under certain circumstances, they may charge an Excessive Chargeback Fee.
American Express engages in ongoing chargeback and inquiry monitoring across its entire network, and it considers merchants to have crossed the “excessive chargebacks” threshold if their ratio of chargebacks to transactions exceeds 1% per month for three consecutive months. The Excessive Chargeback Fee is $25 for each chargeback that occurs after the 1% threshold has been reached.
What are the American Express Chargeback and Inquiry Monitoring Programs?
American Express has remediation programs for merchants with excessive chargebacks, most of which are based on giving merchants less opportunity to respond and fight back. Many American Express disputes are supposed to come to merchants’ attention as inquiries first, and the merchants then have twenty days to respond before the inquiry becomes a chargeback.
Under the Immediate Chargeback Program and Partial Immediate Chargeback Program, disputes may be escalated to chargeback status immediately, and merchants have limited opportunity to fight them after the fact.
There’s also a Fraud Full Recourse Program for merchants with excessive fraud disputes, which holds merchants immediately liable for true fraud disputes without the usual inquiry step.
How Can Merchants Avoid Chargeback Fees?
The only way to avoid a chargeback fee is to avoid the chargeback it’s attached to. In some cases, you may also be able to get the fee reversed if you represent the chargeback successfully. A comprehensive, data-drive chargeback defense strategy is the best way to keep your chargeback fees as low as possible.
Effective chargeback prevention may require you to change your business operations or deploy new technological solutions. Some chargebacks are caused by merchant errors and customer-unfriendly policies, and merchants can take proactive steps to avoid those disputes when their origins can be identified. The only way to know where to focus your efforts is to analyze your chargeback data and trace your disputes back to their root causes. By taking proactive steps to minimize avoidable chargebacks, you can allocate more resources to dealing with fraud and other cyberattacks that aren’t within your direct sphere of control.
Chargeback fees are one of the main reasons why you can’t just write chargebacks off as an unavoidable cost of doing business. Many chargebacks are preventable if you can anticipate the situations that lead to them, or deploy targeted anti-fraud solutions at the right points of contact.
Once you’ve run the numbers on how much chargebacks are really costing you, it can make a lot more sense to invest in solutions that can help you take the insights from your chargeback data and turn them into targeted, effective responses for the specific challenges you face.