Credit Processing

While there are numerous fees concerning the provision of merchant accounts and the processing of the credit that we won’t discuss here (i.e. annual fees, early termination fees, etc), the one fee that deserves the most commentary and explanation is the chargeback fee.

First off, who is responsible overall for the transactions that occur under a merchant account? Is Visa or MasterCard or whichever other credit card company ultimately responsible? No, they generally are not… it is the member bank (or processing bank) that is responsible for the transactions. Therefore if something goes wrong and lots of chargeback’s start occurring on a particular merchant account, the bank could be liable for thousands and even millions of dollars worth of fraudulent transactions.

While of course various fees and other charges are built in to the costs of providing a merchant account to a vendor in order to compensate for the risk outlined above if the vendor doesn’t have any money then the money has to come from somewhere, and that will usually be the bank.

Banks will therefore put enormous consideration and thought in to decisions concerning chargeback risk when considering applications.

When a chargeback is about to be applied the potential chargeback will be presented by the bank of the credit card holder to the bank of the vendor’s credit card processor (i.e. their merchant account bank). From here, either more information concerning the transaction can be provided by the credit processor, in which case it may become apparent that a chargeback is not required (i.e. the transaction was legitimate), or the chargeback may continue and possibly be successful.

A successful chargeback will not only cost the vendor (or if they can not pay their merchant account provider or the partner bank) the transaction amount, there will also be additional fees that may be based on fixed or percentage amounts, or both.