Chargebacks: Another Payment Card Acceptance Cost for Merchants

By Fumiko Hayashi, Senior Economist , Zach Markiewicz, Payments Specialist and


  Download paper, RWP 16-01, January 2016

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.

JEL Classification: E42, L81

Article Citation

  • Hayaski, Fumiko, Zach Markiewicz and Richard J. Sullivan. 2016. “Chargebacks: Another Payment Card Acceptance Cost for Merchants,” Federal Reserve Bank of Kansas City, working paper no. 16-01, January.  Available at https://doi.org/10.18651/RWP2016-01

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About the Authors

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Fumiko Hayashi has been conducting research on various topics related to domestic and international payments systems. Read her bio.

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Zach Markiewicz is interested in payment topics related to end user preferences and product innovations. Read his bio.

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Rick Sullivan's research includes studies on payment risk and oversight of payment services. Read his bio.