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How Refunds Impact Credit Card Processing Fees  

how refunds impact credit card processing fees
  • 28 February, 2022

The credit card processing industry has been around for decades and is credited with revolutionizing how we pay for goods. Credit cards are often a simple and convenient payment method that allows consumers to purchase items online or in-store. This ensures they can have the items they desire at a price they’re comfortable with, even if they don’t have the cash on hand. However, when customers refund goods, it impacts the profit that the business will make. You’ll learn how refunds impact credit card processing fees.

Is A Refund Impactful On Credit Card Processing Fees?
A credit card processor can assess two types of fees on the back end when processing a transaction: statement and interchange. The interchange fee is usually charged by the bank issuing the credit card, and it reflects the cost of using that particular card. On the other hand, statement fees are typically assessed by the credit card processor, and they’re primarily dependent on what type of credit card is being used.
When a refund happens, the customer finds something wrong with the merchant’s product or service. Therefore, a refund takes a toll on the merchant’s credit card processing costs, also passed on to the customer.
Who Pays The Credit Card Refund Fee?
The merchant caters to the credit card refund fee. Although they are present on the statement, they are different from other fees since they do not appear like average fees.
Does A Customer Help In Paying The Credit Card Refund Fee?
When a customer uses a credit card to make a purchase, he pays for the convenience and security of the funds being transferred to the merchant. This is why fees are associated with credit card payments that are not always disclosed to consumers. The fees cover processing costs, operating expenses, profit margins, and fraud protection. The majority of these fees are charged by the credit card company itself and passed on to consumers in so-called “swipe fees” or “merchant service fees.” It is, therefore, right to say that the customer contributes to the credit card refund fee payment, albeit doing it unknowingly.
Understanding How Debit Card Refunds Work
When a debit card purchase is made, the issuer will deduct funds from the consumer’s bank account to complete the transaction. Once the charge is complete, any declined charges during the transaction will be refunded to the consumer.
The Difference Between Refunds And Voids
If a transaction is completed, but the funds return to the cardholder, this is known as a refund. On the other hand, if a bank or merchant voids the transaction, it means that the credit card has been blocked from use.
How A Merchant’s Processor And Contract Structure Are Affected By A Refund
When a consumer purchase using their credit card, the merchant’s processor (the company that processes payments) takes a percentage of the total amount. This transaction fee is typically 2-3% of the purchase price, depending on the processor used. In addition, the processor also charges a monthly service charge for using that particular processor, which typically ranges from $0.10 to $0.30 per transaction.
A merchant and their processor will agree on how many refunds a merchant can issue within a month. A typical agreement would allow up to five refunds per month, but some agreements allow more or less than this number.

In conclusion, this is how refunds impact credit card fees. If you are a small business and are interested in learning more about our merchant services, contact us here.

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