Customers Dispute Chargebacks

Chargebacks are one of the most important issues that small business merchant account users have to deal with. Not only are they costly and time consuming but, if left unchecked, they can potentially cause the suspension of the credit card processing account. Certain industries are more prone to chargebacks than others and, as a result, the payment card processing rate for merchants operating in these industries is higher. Customer disputes are one of the most common reasons for chargebacks. There are a number of possible reasons but a customer will most often dispute a transaction because:

• A credit has not been processed when the customer expected it would be.


• Product or service ordered was never received.


• A service was not performed as expected.


• The customer did not make the purchase; it was fraudulent.

Because chargebacks, resulting from customer disputes, may indicate customer dissatisfaction - and the potential for lost sales in the future - addressing their underlying causes should be an integral part of your customer service policies. Your credit card processing practices can be optimized to minimize or avoid the possibility of misunderstanding. For example you should deposit your transactions on the date the merchandise is shipped, not on the date the order was taken.

If a cardholder with a valid dispute contacts you directly, act promptly to resolve the situation. Issue a credit, as appropriate, and send a note or e-mail message to let the cardholder know he or she will be receiving a credit.

What Is Member Service Provider (MSP)?

Member Service Provider (MSP) is a company that is authorized by MasterCard to provide merchants with merchant services. Companies authorized by Visa to provide the same service are called Independent Sales Organizations (ISOs). Typically, companies are licensed as both ISOs and MSPs.

In order to get authorized, a merchant card processing applicant has to go through a rigorous process. It starts with finding a sponsor bank to serve as an acquirer. Acquirers do the authorization, clearance and settlement of merchant credit card payment processing transactions. They are members of both Visa and MasterCard and guide the applicant through the process. The application requirements include a detailed business plan and marketing plan, a check of the applicant business financial statements and its principals' tax returns, personal financial statements and credit files. If the results are satisfactory, the applicant must pay registration fees of $5,000 to both Association. The registration to provide credit card transaction processing services is up for review once a year and, upon approval, a fee of $2,500 per Association is charged.

Merchant account service providers, sponsored by US-based acquiring banks, are authorized to provide credit card processing accounts to US-based businesses only and settlement is done in US dollars. Both MSPs and ISOs are required to display the name on their acquiring bank on each page of their websites and on every form of advertisement or a marketing material.

Downgraded Transactions

Interchange is actually a general term describing dozens of credit card transaction processing rates legislated by the Credit Card Networks. They depend on a variety of factors related to the sale and the way the charge is processed. There are three general classifications. When a transaction is processed in accordance with the rules and standards established in the Payment Processing Agreement, signed by the merchant and his or her merchant account processor, and complies with all applicable security requirements, it is charged the most favorable credit card payment processing rate. That rate is called a qualified rate and is set in the Payment Processing Agreement. Should a transaction meet some but not all of the above mentioned criteria, it will be classified as either mid-qualified or non-qualified and it will be billed at a higher rate. This is known as a downgrade. Most likely, your credit card merchant processor will report downgrades as non-qualified transactions. But many small business merchant accounts providers simply lump all of the downgrades together and report them as a miscellaneous fee.

Generally, if your downgrade levels exceed 10%, you have a problem.

To protect the integrity of their system, Visa and MasterCard do not publish their rules and regulations or the payment processing standards required to get the lowest interchange rate. It’s up to credit card processing companies to know and implement them to their merchants' benefit. A high downgrade rate may indicate that your processor does not know the standards, or may be reluctant to implement best practices or new rules changes.

Please be advised that such problems may arise from the way you process your orders, and may have little to do with your merchant services provider. Yet, even if the cause originates with your business practices, your credit card processing service partner should be reviewing your merchant account and suggesting ways to reduce these downgrades.

Retail Merchant Account vs. E-Commerce Website

This is a question that merchants ask us at UniBul with an ever increasing frequency. It is perfectly understandable why they would like to use the retail merchant accounts that they already have and not have to go through the hassle of establishing a separate PC based credit card processing service. Yet, per Visa and MasterCard regulations, merchants need to set up separate accounts for each one of their businesses. The reasoning behind this requirement is that different industries present different levels of processing risk. In case of a problem with a rolled-up solution, both businesses will suffer if the account is suspended, whereas, with separate credit card payment processing services, only the problematic account will be affected. The risk is especially high with eCommerce merchant accounts, because internet transactions generate the vast majority of credit card fraud.

Your web-based processing solution will need to be compliant with the latest Payment Card Industry Data Security Standards that were developed in a collaborative effort by all major Credit Card Companies and Associations. We have explained the main points of the compliance process elsewhere in this blog. All major processors offer eCommerce gateways that are fully compliant.

With that in mind, your best course of action would be to contact your current manual credit card processing provider and request a quote for an internet merchant account. A good idea would be to also request quotes from several other processors and compare the terms. You may end up getting a better pricing for your brick-and-mortar store in the process.

Suspending Merchant Accounts

Before setting up a credit card payment processing account, processors closely scrutinize the financial situation of every business that is applying and its principals' credit worthiness (yes, we do that too). The check-up process includes evaluation of the business financial statements and the owners' tax returns and credit files. The goal is to make certain that the merchant account will be used responsibly and that consumers will be treated fairly. Yet, there are still possibilities that, even after the stringent application procedures have led to a favorable decision, at some point the relationship between a credit card merchant processor and a merchant will deteriorate to a point where the only alternative will be suspension of the account. There are several reasons why credit card processing companies suspend small business merchant accounts.

The first, and most obvious reason that will automatically lead to a suspension is fraud committed by the merchant. Fraudulent activities can take many shapes and forms. Misusing personal information like credit card numbers and details, overcharging, not delivering products and services as advertised are just a few examples.

Secondly, non-compliance with the Payment Card Industry (PCI) Data Security Standards (DSS) can also lead to a suspension. PCI DSS is a joint effort by Visa and MasterCard and lays down the groundwork for data management in the credit card processing industry. We have developed our Payment Card Acceptance Best Practices Guide to help merchants reach compliance and have made it available to everyone.

Another reason your processor will shut down your merchant account processing service is a consistently high level of chargebacks. The importance of keeping them under control cannot be overestimated. As previously described, chargebacks result from customer disputes, often ones that have not been addressed in a timely manner. If your chargebacks stay at or above 1% of your total credit card processing volume, your credit card processing account will be suspended. There are a number of best practices that should be employed in order to avoid customer disputes and we have addressed the issue elsewhere. The most important thing that you need to keep in mind is to make information easily accessible to your customers. Contact phone numbers, return policies, terms and conditions should all be easily located on your website or printed receipt and, for eCommerce merchant account users, emailed to your customers.

Keep in mind that your merchant services provider does not want to suspend your account. The only way they can make money is to have you as a customer. Work with them whenever there is an issue and provide all information that is required.

Settlement in Multiple Currencies

US-based credit card processing companies can provide small business merchant accounts solely to domestic business entities, with an address and bank account within the United States. They will settle your funds in US dollars.

In order to get your credit card processing transactions settled in a foreign currency, you will need to get an offshore credit card merchant processor. The bigger companies among them have relationships with multiple processing banks, located around the world and can settle your funds in a number of foreign currencies.

Before selecting the offshore option, however, it will be a good idea to look at the numbers and see if it is worth it. Also, it should be mentioned that this option is available only to PC based credit card processing operations.

First of all, you should be advised that offshore credit card payment processing services are expensive. They offer processing rates that are substantially higher than domestic eCommerce merchant account rates. They also have substantial set up and maintenance costs. The cost differential can be so great that you might be better off establishing a US based merchant services credit card processing account and settling in dollars which you can then convert into the currency of your choice.

Merchant Account Considerations for Multiple Websites

There are many businesses that use different websites to sell different products or services. In an effort to cut costs and simplify operations, they may be interested in using a single credit card processing account for all websites. Unfortunately, that is not possible, nor is it advisable.

There are several reasons why credit card processing companies will not set up such an account. They all have to do with risk. To begin with, the potential for chargebacks grows substantially when one account is used for multiple sites. The reason is that many cardholders will not recognize the billing descriptor on their statement, if the name is different from the name of the merchant they made the purchase from. Remember that eCommerce merchant accounts have high chargeback levels even at the best of circumstances. If you try to resolve the issue by placing a note on the checkout page to say that "Your statement will say XYZ Company", that is unlikely to have a significant impact, as customers are proven to associate their purchases with the name of the business that actually sold the product.

Equally important is that a merchant account processing bank will not be willing to underwrite a credit card processing account that will serve more than one websites. Again, it comes down to chargeback management. With separate accounts, if one of the websites generates high levels of chargebacks, it will be penalized and, possibly closed (if chargebacks exceed 1 percent), but the other one will not be affected. In the case of a single credit card payment processing service, both websites will be affected. If the account is closed, they will both lose their merchant services credit card processing capabilities.

Another factor to consider is that each website is evaluated separately and, in a single account scenario, if one was not approved, the whole processing account would not be approved.

Here is what we offer to e-commerce businesses.