Merchant accounts have two fairly common pricing tiers consisting of three and six-tiered pricing. This is by design, of course, because these are the easiest pricing tiers to explain to potential buyers. All fees present some form of risk to the merchant, but chargebacks present the greatest potential risk to banks and providers so merchants tend to feel the brunt of these the most.
Chargebacks and Refunds
There is a major difference between a chargeback and a refund. Refunds are mutual because the merchant agrees to take the purchase back and refund the buyer the money they’d spent. Refunds can include re-stocking fees as well. Chargebacks are initiated by the user and carried out between the user and the bank.
The provider can potentially be exposed to millions of dollars in unpaid debt if the merchants the provider deals with are unscrupulous. If the merchant fails to pay those costs, for whatever reason, the cardholder must pay to make the deal right.
Therefore, most merchant companies will take that risk into account when they underwrite the contract. There may be in-depth assessments of a merchant’s potential risk on the bank’s part, which is all a normal part of the process.
Some banks may also impose limits on the amount a merchant is able to charge back to a buyer. Failure to stay within these limits can lead to fines or strict regulations on the merchant’s account. That’s in addition to the chargeback fee that accompanies these transactions.
Bio: Firoz Patel is a passionate marketer and technology enthusiast who founded AlertPay Inc. in 2005. Currently, Firoz Patel lives in Quebec and oversees development of the Payza platform.
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