Payment Disputes: How to Win Chargeback Disputes

Chargebacks can pose a serious financial risk for businesses. Whether they’re caused by fraud, customer dissatisfaction, or processing errors, chargebacks result in lost revenue, added fees, and potentially, the termination of your merchant account if they occur too often.

However, here’s the good news: You don’t have to lose every chargeback.

With the right strategy, clear documentation, and a properly formatted chargeback response, businesses can significantly increase their chances of success. If you’re wondering how to win chargeback disputes, this guide will walk you through the proven steps.

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Not being transparent:

There are a lot of ways to be more transparent in our business, such as presenting all rates and fees to a business owner. Processing is a two-way street; make sure your merchants understand what you are doing for them and explain what you expect from them.

Let them know who to call for support, how to log into their merchant portal to get reporting, how to respond to chargebacks and what they need to do to be PCI-compliant so they can avoid paying noncompliance fees.

ISOs buying, wrecking portfolios

ISOs buy portfolios and come in with a giant wrecking ball, purging accounts that don’t meet their risk criteria and assessing new fees on those that do. This makes the agents and our entire industry look bad. It also takes agents away from selling by putting them in damage control mode as they rescue merchants and move them to new processors.

Here are a few examples of this:

• ISO A sells to ISO B, and a week later, ISO B says 20 merchants have unacceptable risk profiles and must go. Never mind that these customers had been with ISO A for more than seven years.

• Another common scenario is when an ISO sells to ISO C, and three months down the road the new ISO decides to raise rates. Merchants who were promised locked-in rates get angry about this.

• An ISO buys a troubled asset and loses money on the deal. This kind of stuff drives me crazy, especially when clauses in contracts prevent us from finding better homes for merchants.

Unethical leases:

Leasing a terminal for $99 a month for 48 months means a merchant is paying $4,752 for a terminal that sells for $500 to $800. Add sales tax and a state leasing tax to that, and the total cost rises above $5,000.

Some companies have a buyout at the end of the lease; others continue to draw payments indefinitely. Leasing terminals or POS systems at exorbitant prices and with unconscionable terms to merchants who never even use these systems—just because you want to make money from them—is not a good look. I have seen merchants find out they have been ripped off, and they’re in a non-cancelable lease. We will not allow agents who do this sell for us, because we do not want to be associated with this type of business practice. 

Presenting high-risk as low-risk

Sometimes reps don’t know that they are presenting high-risk accounts as low-risk, because they don’t ask the right questions; other times they are participating in the fraud. In some cases, the merchant is a fraudster showing an MLS a website selling basic consumer goods, clothing and electronics, but hiding the real product behind it.

You can’t see that they are really selling CBD, gambling or illegal items. The MLS gets fooled, and maybe underwriting does not catch it either. Sometimes a simple Google search could reveal something about the merchant, but there are other telltale signs, such as uniform or high pricing on all items. If you ask for the inventory pictures, they may make excuses. I’ve also seen MLSs participate in this type of fraud.

I get it that everyone wants to make money, but do it the right way. Underwriting doesn’t always catch this type of fraud, and it impacts everyone. Vendors get burned, MLSs have a harder time getting new accounts approved and underwriters become extra cautious.

We sent in a deal, and the underwriter asked how we got the client. We explained it was an internet lead, and they showed us that the documents were all fake. I could teach a whole class on how to spot this activity now.

Let’s turn the page 

Most merchants that participate in subpar deals are taking advantage of an ISO or MLS, which is not a good way to start a relationship. Instead of beginning a relationship at a competitive disadvantage, create a partnership of equals with complementary skill sets.

People are lured into this industry with the promise of residuals and entice merchants into cash discounts and dual pricing 0 percent programs that offer kickbacks. Others go so low on their rates that they erase any possibility of profit for themselves and the rest of us. When MLSs get 80-85-90-95 percent splits, there is little left over for other MLSs, ISOs, banks and processors. It’s time for everyone in the value chain to think about how we can be better.

Want to know more? Keep reading The Green Sheet and consider following me on LinkedIn, where we can share ideas and support each other.

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