We have seen, albeit occasionally, RFP’s for credit card processing that require the vendor to be responsible for chargebacks.  Unless you are accepting payments to guarantee a return court appearance, this is an unnecessary requirement for most government entities as chargebacks on government payments are almost non existent.

A chargeback occurs when a cardholder disputes the credit charges appearing on their monthly or online statement. The top four reasons for chargebacks are stolen cards (24.7%), counterfeit cards (23.1%), MOTO fraud (mail order/telephone order), Internet fraud (20.8%) and lost cards (14.9%). Skimming (theft of credit card numbers during a legitimate transaction) and identity theft account for most counterfeit cards, so the major reasons for all chargebacks are fraud.

Other reasons include customer dissatisfaction with the product or service and transaction errors.

In governments, the chance that someone will use a stolen card to pay their property taxes or re-register their vehicle is slim to non, yet the impact of “chargeback” protection is substantial on governments and their citizens.  While most credit card processing vendors charge “convenience fees” in the 2.5 - 3% range, those that offer “chargeback protection” have convenience fees in the range of 3.5 - 6% - or as much as $30,000 on every million dollars of transactions.

Most vendors would gladly implement 4 or 5% convenience fees to cover the risk of fraudulent transactions in governments.  I know we would, but we don’t recommend it to our clients.