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Chargebacks: another payment card acceptance cost for merchants

Author

Listed:
  • Fumiko Hayashi
  • Zach Markiewicz
  • Richard J. Sullivan

Abstract

Although chargebacks are perceived as one of the major cost components for merchants to accept card payments, little research has been conducted on them. To fill that gap, this paper describes the current chargeback landscape by generating detailed statistics on chargebacks for signature-based transactions. Our data are from merchant processors, which, altogether, processed more than 20 percent of all signature-based transactions in the United States. For Visa and MasterCard transactions, chargebacks merchants receive are, on average, 1.6 basis points (bps) of sales number and 6.5 bps of sales value. About 70 to 80 percent of chargebacks are resolved as merchant liability. The most common chargeback reason is fraud, which accounts for about 50 percent of the total chargebacks. The merchant fraud loss rate is 0.7 bps in number and 2.6 bps in value. For American Express and Discover transactions, the total and fraud chargeback rates are somewhat lower. For all of the four networks, the total and fraud chargeback rates are significantly higher for card-not-present transactions than for card-present transactions. They also vary by merchant category. Our fraud results are generally consistent with other available fraud statistics.

Suggested Citation

  • Fumiko Hayashi & Zach Markiewicz & Richard J. Sullivan, 2016. "Chargebacks: another payment card acceptance cost for merchants," Research Working Paper RWP 16-1, Federal Reserve Bank of Kansas City.
    • Handle: RePEc:fip:fedkrw:rwp16-01
    DOI: 10.18651/RWP2016-01
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    More about this item

    Keywords

    Chargebacks; Fraud; Payment cards; Payments;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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