What Happens If a Merchant Does Not Respond to a Chargeback?

When a cardholder disputes a transaction, a chargeback process begins. Merchants receive notification and a specific window to respond. This timeframe typically ranges from 20 to 45 days, depending on the card network. Failing to respond to a chargeback can lead to escalating consequences.

The Cardholder’s Outcome

A merchant’s failure to respond to a chargeback usually favors the cardholder. When a chargeback is initiated, the cardholder’s bank issues a provisional credit for the disputed amount. This temporary credit allows the cardholder access to the funds during the investigation.

If the merchant does not submit a response within the designated timeframe, the issuing bank has no counter-information. The provisional credit automatically transitions into a permanent reversal of funds. The dispute is then considered resolved, with the cardholder retaining the credited amount.

Financial Consequences for the Merchant

A merchant’s non-response to a chargeback carries financial repercussions. The most apparent consequence is the loss of the disputed transaction amount, meaning the merchant forfeits the revenue from the original sale. This also includes any associated shipping costs or merchandise value.

Beyond lost revenue, merchants incur additional chargeback fees imposed by their acquiring banks and payment processors. These fees are separate from the disputed transaction amount and cover administrative costs, regardless of the dispute’s outcome. Chargeback fees typically range from $15 to $100 per case, with common amounts falling between $20 and $50. Even if a merchant successfully disputes a chargeback, these administrative fees are generally non-refundable.

Merchant Account Implications

Unresolved chargebacks impact a merchant’s payment processing capabilities. Acquiring banks and card networks monitor a merchant’s chargeback ratio, which is the number of chargebacks relative to total transactions. A persistently high ratio, often exceeding thresholds like 0.9% to 1%, can lead to serious penalties.

Merchants with elevated ratios may face increased processing fees from their payment providers, as they are deemed a higher risk. They might also be enrolled in chargeback monitoring programs by card networks such as Visa and Mastercard, involving additional per-chargeback fees and substantial monthly fines that escalate over time. In severe cases, an acquiring bank may suspend or terminate the merchant’s account, crippling their ability to accept credit card payments. Account termination due to excessive chargebacks can result in the merchant being added to the Terminated Merchant File (TMF), also known as the MATCH list. Inclusion on this blacklist makes it difficult for a business to secure new merchant accounts, as it signals a history of high risk.