Mastercard Chargeback Fees
It’s bad enough that when you get hit with a chargeback, you not only lose the sales revenue but also the cost of the merchandise. To add insult to injury, you also have to pay a chargeback fee. These fees make chargebacks much more financially harmful than they might first appear, and the exact amount can vary—your acquirer, payment processor, and card network all have a say in the matter.
To come up with a cost-effective chargeback management strategy, it’s important to know how many fees are getting tacked on to each dispute. What do merchants need to know about the chargeback fees that apply to Mastercard disputes?
- What are Chargeback Fees?
- When Do Mastercard Chargeback Fees Apply?
- What is the Mastercard Excessive Chargeback Program?
- How Can Merchants Avoid Chargeback Fees and Issuer Recovery Assessments?
- Conclusion
The number one misconception that new merchants have about chargebacks is that you can just write them off as an inevitable cost of doing business. This isn’t even slightly true. When you factor in all of the costs, including overhead and fees, an ordinary chargeback can cost you up to two and a half times the amount of the original transaction. Chargeback fees often run from $20 to $100 per dispute, even if the cardholder is disputing a transaction that costs less than a dollar.
For many merchants, a chargeback rate that grows out of control can be an existential threat to your revenue and livelihood, and not just because of the money you’re losing.
The card networks, Mastercard included, task their acquiring banks with monitoring their merchants’ fraud and chargeback ratios. If these ratios reach excessive levels (as defined by the network), merchants can be forced into programs that come with additional, higher-cost fees.
Nobody enters the retail game because they’re excited about dealing with fraud, disputes, and chargebacks, but it has to be done. There are lots of software tools, service providers, and other solutions with the potential to help keep your fraud and chargeback rates down, but merchants must take care to follow a chargeback management plan that addresses your actual dispute causes and provides a positive ROI. In order to make the best decisions about how to fight chargebacks, you need to know how much each one is costing you.
What are Chargeback Fees?
Every chargeback includes a standard fee charged by your acquiring bank or payment processor. The purpose of this fee is to recoup the costs involved in processing the chargeback and to cover the risk that you won’t have sufficient funds to absorb the payment reversal.
The exact amount of this standard fee will vary depending on the agreement you have with your acquirer or payment processor. The typical range is $20 to $100 per dispute, but chargeback fees can be higher if you’re categorized as a “high risk” merchant due to your transaction volume or the nature of your particular retail industry. Sometimes, your service provider will reverse your chargeback fee if you successfully contest the dispute by engaging in chargeback representment.
Bear in mind that the other fees that are applied to all credit card transactions, such as the interchange fee, add to the total cost of every chargeback you receive.
When Do Mastercard Chargeback Fees Apply?
Under ordinary circumstances, Mastercard does not collect their own separate fee for chargebacks. They only charge additional dispute-related fees from merchants who have been enrolled in their Excessive Chargeback Merchant programs.
The card networks make credit card processing possible, and they have a vested interest in keeping the card payments ecosystem safe and secure for consumers and other participants.
Chargebacks put financial and logistical strains on the system, and usually represent unsatisfactory consumer experiences. To keep chargebacks at a minimum, the card networks make their acquirers track the number of fraud claims and other disputes that each of their merchants receives.
Merchants who run up excessive chargebacks on the Mastercard network will end up in their two-tiered Excessive Chargeback Program, which may include additional chargeback fees.
What is the Mastercard Excessive Chargeback Program?
The Mastercard ECP comes in two flavors: the Excessive Chargeback Merchant program for merchants who go above a 1.5% monthly chargeback ratio, and a High Excessive Chargeback Merchant program for those who exceed 3%. To get out of the ECP, merchants need to follow a remediation plan and get their chargeback ratio down below the ECM threshold for three consecutive months.
Merchants will start getting charged additional chargeback fees called “Issuer Recovery Assessments” after four months in the program. These fees aren’t terribly expensive—just $5 per chargeback after the first 300 per month. However, merchants can also be charged one-time fines at various intervals, starting at $1,000 in the second month.
These fines get higher and higher, reaching $100,000 on the merchant’s nineteenth month in the ECM program, but the acquirer may choose to terminate the merchant account sooner than that to avoid further liability. In the HECM tier, these fines are even larger.
How Can Merchants Avoid Chargeback Fees and Issuer Recovery Assessments?
Chargebacks and their associated fees are a package deal—if you accept the chargeback, there’s no avoiding the fees. That means that the best way to steer clear of chargeback fees is to prevent (and fight) as many chargebacks as you can.
Analyzing your chargeback data to determine the root causes of your disputes is the best way to inform an effective anti-chargeback strategy. Fraud filters, two-factor authentication protocols, and other technological tools can help you prevent true fraud.
Merchant error disputes and friendly fraud can be mitigated by providing better customer service, making improvements to your business operations, and engaging in chargeback representment when appropriate.
Implementing an active chargeback management strategy will help keep your chargeback ratio to a reasonable level, keeping you out of the ECM and other remediation programs.
Conclusion
When you know how much chargebacks are really costing you, it’s easier to justify investing in a robust and vigorous defense against them. A chargeback isn’t just a refund that you didn’t agree to provide—it comes with far more added costs and drawbacks, and getting too many of them can jeopardize your merchant account and end your ability to accept any credit card payments at all.
If chargebacks are putting your business at risk, remember that you don’t have to fight alone. The right chargeback management firm can perform a deep analysis of your chargeback data, come up with a comprehensive strategy to get you back on track, and provide you with the knowledge and tools you need to eliminate avoidable disputes and keep your merchant account safe.
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