by Matt Rej
If you saw a $25 chargeback fee on last month’s processing statement, it’s nothing to lose sleep over. That’s just one fee on a single dispute. It’s part of the cost of taking cards, and it’s nowhere near the biggest number on your statement.
But for businesses with hundreds of chargebacks every month at a rate that’s double or triple that amount, the math gets more significant.
Chargeback fees can quickly start to increase your effective rate. And it’s a cost that most merchants never think to address aside from trying to prevent chargebacks in the first place.
The fee itself isn’t set in stone. It’s a number that your processor picked, somewhat arbitrarily, and it’s a fee that can be negotiated like any other processor markup on your account.
Whether that’s worth your time depends mostly on how many disputes you see in a month.
Who Sets Your Chargeback Fee?
When a cardholder disputes a charge, the issuing bank sends it through the card network to the merchant’s acquirer. From there, the acquiring bank forcibly removes the transaction amount from your account and charges you a fee for handling it.
That’s where the chargeback fee comes from. And the amount is set by the processor.
While the networks do charge acquirers their own fees for handling disputes, that cost gets built into what you’re billed or passed through at cost. But the per-chargeback fee on your statement is still the processor’s number.
That’s why the same dispute can cost one merchant $15 and another $50.
And while most merchants pay around $25 per chargeback, we’ve seen it run anywhere from $20 to $100 depending on the processor and how risky they consider the account.
Because it’s a processor component, it lives in your fee schedule and it can go up through a statement notice the same way your markup does.
Chargeback Costs That Aren’t Negotiable
To be clear, you can’t negotiate every cost associated with a chargeback. Some of the dispute fees come from the card networks, and no processor can make them disappear.
You’re stuck paying these no matter what:
- The disputed amount, if you lose the case
- Network arbitration fees
- Visa VAMP fees and Mastercard Excessive Chargeback Program penalties when you cross those thresholds
In some cases, disputing chargebacks can be more expensive than the cost of just eating the transaction amount and fee. That’s another reason why it’s important to negotiate the per-chargeback fee that you do have control over.
How to Negotiate Lower Chargeback Fees
Everything your processor adds on its own is fair game. Here’s what you should be looking at:
The base chargeback fee: If you’re paying $35, $50, or potentially more per chargeback and your account isn’t classified as high risk, ask for it to come down. Somewhere in the $15 to $25 range is a reasonable target for most merchants.
Fees added on later stages of the same dispute: Some processors bill again for pre-arbitration, second presentments, or items labeled as exceptions. So one dispute can end up on your statement two or three times. You can ask to have those all folded into the original fee.
Disputes you win: Plenty of processors keep the fee even when the case goes your way while others are willing to refund it.
Retrieval requests: Before a chargeback gets filed, the issuer may ask for transaction details and some processors charge for each request. These are usually small and not worth fighting too hard over, but it’s still a processor fee that can be waived.
“High risk” add-ons: Network program penalties are exactly what they are. Extra monthly risk or monitoring fees that your processor stacks on top of them are a separate conversation altogether, and it’s not something you should be dealing with if you’re already paying inflated rates for your high-risk classification.
Increases buried in a notice: Chargeback fees can go up the same way as anything else on your account. These are often conveyed in a single line of a statement message that gets skimmed. If your processor increases your chargeback rate, you can push back and ask them to keep your old one.
Using Your Chargeback Fee as a Bargaining Chip for Better Pricing Elsewhere
Here’s where a higher-than-normal chargeback fee can be useful. Even for merchants who rarely get disputes.
We negotiate with payment processors every single day. And there are plenty of times when processors dig their heels in and won’t budge on the chargeback rate.
There are a variety of reasons for this, though it’s usually tied to what their acquiring bank charges them or the fact that they don’t want to set a precedent. That’s fine.
If they won’t adjust your chargeback fee, ask for concessions somewhere else on your account.
- Knock a few basis points off your discount rate
- Lower per-item fees
- Dropping a monthly fee you pay regardless of activity
- Removing or reducing any volume-based fees
Anything here will almost always save more money than taking $10 off your chargeback fee.
Especially when you consider the fact that the chargeback fee only shows up when something goes wrong, whereas these other fees hit your account every single month. Sometimes tied to every transaction.
So bring it up. This is part of the ongoing negotiation conversation you should be having with your processor on a regular basis. It puts pressure on them and shows that you’re paying attention.
Which Merchants Feel Chargeback Fees the Most
Chargeback fees definitely matter for some merchants more than others. If you’re only dealing with a handful of chargebacks per month, it’s not something you need to put a ton of effort into.
But this is usually a big deal for high-volume ecommerce businesses, subscriptions, digital goods, and businesses in the travel space.
All of these merchants run a lot of card-not-present transactions, often at lower tickets. Which means you have a lot more chances for disputes.
For a business doing $10M per month at a $100 average ticket, a 0.5% dispute rate is about 500 chargebacks per month. If your processor is charging you $50 per dispute, that’s $25,000 in chargeback fees per month. Even knocking $15 off that fee can save you $7,500/month and upwards of $90,000 per year.
The savings add up at a smaller volume too.
Say you’re doing $1M monthly with $50 tickets and a 0.75% chargeback ratio. At ~150 chargebacks per month, you’re looking at around $6,750 per month in chargeback fees if your processor charges you $45 per dispute.
Negotiating that down to $25 per chargeback would save you about $3,000 monthly and $36,000 annually. All by addressing just one line item on your statement.
Final Thoughts
If you do nothing else with this information, just take a moment to look at how much your processor charges you per chargeback.
Anything creeping above $25 per dispute is worth scrutinizing, especially if you’re getting dozens or hundreds of chargebacks every month.
And if chargebacks aren’t a significant factor for your business, use that number as leverage when you’re negotiating other pricing on your account.
We can take a look at your rates to see if what you’re paying is reasonable and negotiate savings directly with your current processor. Just book a free consultation and statement audit to get started.