Is there a threshold for e-commerce refunds?

Is there a threshold for e-commerce refunds?

As a provider of merchant accounts to e-commerce businesses, we spend quite a bit of our blog space on chargeback advice and how to maintain a low (or no) level to keep our merchant partners safe. We even created a website dedicated to such.

Amidst all our preaching about chargebacks, we thought of an important issue: Can a merchant lose banking privileges for a high rate of e-commerce refunds?

Is there even a defined limit for such, similar to Visa’s 1 percent/100 per month threshold?

When do banks and payment processors notice?

After an extensive search on how many e-commerce refunds is too many, we still couldn’t find a definitive number. But we did find some fascinating answers.

On one forum, a gentleman noted that although he knew of no set figure, once a merchant begins approaching 8-9 percent of returns on sales volume, the acquiring bank and/or payment processor may begin to inquire about the reasons a merchant is incurring so many.

Additionally, banks and processors may want to see financial statements. If they notice a merchant account that is nearing or in the negative, the merchant risks being shut down.

Another responder agreed, writing that a high rate of refunds will neither help a merchant’s standing with their bank/payment processor nor (likely) harm it; but that the merchant should expect to provide reasons behind the high refund rate.

Conclusion: Limit of returns is up to the bank

We always preach refunds over chargebacks whenever possible, and we will continue to do so. In fact, even when a customer files a chargeback with his/her issuer, we encourage merchants to contact the customer to appeal for a chargeback reversal and offer a refund (we know an e-commerce merchant who is quite successful at it).

That is not to say excessive refunds can do no harm. Tolerance for such among acquiring banks and payment service providers varies, but it is always best to air on the side of caution.

Excessive e-commerce refunds: What can a merchant do?

Over the last year we penned a pair of blogs about the excellent handling of e-commerce refunds by online shoe retailer Zappos and Amazon – each outstanding examples how proactive handling can reduce chargebacks significantly.

How does your e-commerce business handle refunds? Please leave a comment below.

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