San Diego, CA
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April 10, 2022

Credit Card Payment Fees

Sometime in November of 2019, Paypal, one of the world's largest online payment processors, came out with shocking news - they're stopping refunding any payment fees. News didn't come unexpected but wasn't greeted nicely across all ecommerce retailers. That may not impose a huge deal to end consumers, but in general it is a quite a blow to all online retailers, since all online retailers used to have 'free refunds'.

Soon after all other major players followed, including Square, Amazon Pay, even major Buy Now Pay Later players like Affirm. Stripe simply states: There are no fees to refund a payment, but Stripe’s fees on the original payment will not be returned in case of a refund.

For years, if customer wanted a refund at any point until order get shipped, he simply contacted a merchant, and got 100% of money back. Unfortunately, that change all payment processors implemented, made a lot of merchants, including us, revise refund terms.

in case of cancellation payment processors won

If you cancel your order, payment processors won't refund your fees

Every transaction online incurs a small processing fee. That's how real world works, that's how all these payment processors earn money. These are pretty standard across the board, and usually around 30 cents per transaction + 2.9% or 3.0% of overall transaction cost. So, for example you buy a $100 product online - merchant who sells you that and charges your card gets only about $97 out of it.

3% is not much, you say, which is correct. Now, the problem occurs when let's say you order that $100 item and then decide to cancel. Merchant refunds you the payment. Before 2019 all fees were just refunded, but since then merchant has to pay $3 in order to process a refund. With Paypal, for example, after transaction is completed you (as merchant) would have $97 on your balance, and if customer wants a refund, it's not enough to cover it - Paypal would have to charge your bank account for $100 which may take few business days. That would make a refund take a few days, be a huge incovenience to a buyer due to a delay. Also, it would impose a -$3 loss to you, merchant.

Is that a fair system? Hell No! We thought so in 2019 and were majorly saddened by its implementation and we are not fond of it now. If there's no charge, there's no sale, if there's no sale there's no transaction - if there's no transaction, we don't get why payment systems 'pocket' this transaction fee.

Refund Handling

A private business may implement handling of these refunds differently. If your average order size is relatively small ($100 or less) you may keep refund fee burden on your business. Many places do that. In our industry (furniture) it's quite different, since our average order size is quite large, going in $800-$1000 range. That means an average 'transaction cost' is $26-$30. That's completely different story. Most business can't really have an option to gift those.

So, since 2019, we have our cancellation policy that clearly reflect all these transaction fees are non-refundable. This wasn't our choice, unfortunately, but rather was imposed from 'above'.

Ways of Minimizing Refunds

We, however, implemented a few things that have these unpleasant surprises of non-refund fee minimal.

  • All transactions done on our website are not charges, but authorizations. We keep authorization state (instead of charging orders right away) for 24-hours minimum, in most cases we physically charge it only after a few days.
  • A 24-hour free cancellation window is given to any order should customer change the mind or want a cancellation based on anything else.
  • Orders placed out of business hours or over the weekends never looked at or processed until at least next business day.
  • Overall that minimizes impulsive order count almost to almost 0. Impulsive orders are not good, and those are especially not good in our furniture niche for obvious reasons. We keep that at minimum.

Do we feel these non-refunds are good for customers? Of course, not. However, today, in 2022, we can only hope these policies would incur a 180-degree turn from major payment processors of the world at some point. We can't see no reason why those fees shouldn't be refundable in a first place.

If there's no transaction, there should be no fee.

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