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Third-party Processor Jargon

If you're new to third-party processors, then you may come across some jargon you don't understand. Here are two important terms you're likely to encounter along the way.

Chargeback

A Chargeback occurs when a customer seeks a refund by going directly through the credit-card company instead of contacting you or your payment processor. This typically happens when the credit-card holder disputes the amount billed to the credit-card account or suspects that the card was used in fraudulent circumstances.

When this happens, the amount billed is reversed from the merchant's account and in many cases an additional fee is charged to cover the costs to the credit-card company of reversing the transaction. This fee is usually around $15.

Chargebacks are a fact of life for anyone accepting payments by credit-card. Fortunately, third-party processors typically put a number of measures in place in order to keep chargeback rates to a minimum.

Reserve

Third-party processors have a lot of risk to absorb. They overcome this risk by keeping a reserve of all checks paid. This reserve protects them against excessive chargebacks and excessive requests for refunds.

The reserve is usually a percentage of the total check amount (usually 10%), and the reserve is typically held for a number of months (usually 6 months).

Example:
Let's say your processor keeps a reserve of 10% for 6 months. If you're selling your e-book for $20, this means that you processor will keep a reserve of $2 on every sale. After the first six months have elapsed, you'll receive the reserve that was withheld the first month. The following month you'll receive the reserve that was withheld the second month. And so on.

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