PEP Episode 019 — The Art of Winning Chargebacks | Merchant Strategies & Legal Insights w/ Chargeback Gurus
- February 1, 2024
Anytime you can get anybody to step in between you and the banks in the chargeback process, like Oscar does, take advantage of it because my experience is the whole chargeback process is a joke. It’s a scam, and you need to find ways to remove yourself from it as quickly as possible.
We hope you enjoy this episode of pep, the Payments Experts podcast.
Are very thrilled to have with us a special guest, Oscar Bello of Chargeback Gurus. He’s their Chief Revenue Officer. Also in Studio senior associate attorney Bryce Vander Moore, as well as our founding and managing partner of the law firm, Christopher Dryden. Gentlemen, welcome Oscar. Thank you so much for joining us today.
My pleasure. Glad to be here.
We’re going to be talking about chargebacks. Everyone hates ’em. We get a gazillion calls a month on chargebacks. Oscar, I’m sure you guys do as well. Maybe start us off today. Oscar, tell us a little bit about what Chargeback Gurus does and what market you’re servicing.
Yeah, so well, thank you Jeremy. So chargeback gurus, we’re a specialized service provider and we focus on managing and reducing chargebacks for businesses. And we do that by offering a suite of services that are aimed at understanding, preventing and disputing chargebacks. And as you mentioned, chargebacks are a significant concern for merchants today. In particular, e-commerce merchants or what we refer to as card not present transactions. And our area of expertise includes our products include things like very deep analytics. We do customized strategies for merchants, and on top of that we do the representation for disputes. So that’s kind of what in a nutshell, what chargeback gurus does.
Excellent. Bryce, you want to talk a little bit about what on our end, what we do in regards to chargebacks, the typical clients calling us, looking for assistance with chargebacks?
Well, it is kind of a new area that we’ve explored because like you said at the beginning, we kept getting all these calls about people getting their charging merchants, getting chargebacks approved against them and they were providing ample evidence. So we would try to get involved and get the bank or the processor or whoever handled the chargeback, the bank to take another look. And as a result, I’ve learned a lot about chargebacks. And I guess overall I would say that I can elaborate on that, but that’s my preamble about that. The whole chargeback process is just, it needs to be reevaluated, reconfigured, whatever, but it’s not working at all.
And if I may, I’d actually like to give a little plug for chargeback gurus. We represent a GAP back gurus for a long time. Up until a couple of years ago when they kind of accelerated, they got a new ownership group. The ownership group obviously saw the potential of the space. The work that we did with ‘EM was primarily contractual, but the still owners, SRI and Resh, they are wonderful people, both of them. I don’t know how much involved they are in the day-to-Day ops any longer, but I will tell you what they did from the infancy of the chargeback dispute process and to build software to automate a process and system, as that system continued to change and how it interacted with the card brands was really kind of admirable. They saw something that was needed in the space where there was a lack of representation and they built in the process that existed.
And as it’s changed over time, an internal process to be what Bryce had described, the SAV between the banks trying to charge back a disputed transaction and then the process for the merchant to go about responding to that dispute. I think that that right there was such an issue for the longest time, and I’ll probably diatribe into later on in this call how there’s an inherent conflict at the card brand level related to chargebacks, but there was really no representation for the merchant. And not only did chargeback gurus come in and provide representation, they kind of really built on not just the process, but a pricing model that made sense for merchants to go after that. And I’ll let Oscar expand on that because his company, but to watch that process and to watch what they did in this space, they really surpassed their competitors who had probably more brand name recognition but didn’t have the foresight and then just the gumption to create something that wasn’t in the space. A lot of people said they could do it, but then chargeback gurus actually built it. So I was always impressed by that. I just wanted to throw that out there.
Thanks Chris. Yeah, appreciate your comments.
But Oscar, one of the things that I think would be really beneficial for people is to go through the chargeback process where it originates sometimes why it originates. The options for a merchant, especially e-commerce, people that do volume. There’s numerous options for ’em. I think that would be a really good oversight for this discussion at least.
Yeah, and I think so. Appreciate that. I’m going to circle back to Bryce’s early comments that chargebacks are a scam. Sometimes chargebacks are not, people don’t understand from a chargeback perspective it sounds like something bad. But if we look at chargebacks from a cardholder side, from you as a consumer, I mean it is a form of a consumer protection which allows you to dispute a transaction and secure a refund directly from your card issuer if you believe that a charge was fraudulent on your card or the product or service was not delivered, or there are billing errors. So chargebacks are created for that. I mean it’s a form of, it was put there to protect consumers from unauthorized transactions and ensure that they’re really getting what they pay for. It’s part of the consumer protection framework and it builds trust in the credit and debit card payment system.
So there is a positive side to chargebacks. If you look at it from a card holder perspective, of course there’s always people that are going to try to gain the system and take advantage of this consumer protection framework that’s been put in place. And that’s where we come in. We work on the merchant side. So I just described a chargeback from a cardholder side. If you look at it from a merchant side, a chargeback is a transaction that’s reversed by the card network after a cardholder dispute. And it very often involves a financial penalty. It can be costly in terms of fees, lost goods services, and it has a potential impact on the merchant’s reputation and his ability to continue processing cards. So from a merchant side, it is a bad thing from the consumer side, they were put in there for a reason. And there’s pros and cons to chargebacks.
I mean, if you look at it from a pro side, it provides consumer protection. It helps build trust in the payment system and it can incentivize merchants to maintain high quality products and customer service. So some of the pros of chargebacks, but some of the cons is that they can be costly, they’re time consuming for merchants, they increase, they’ll lead to price increases, to cover losses. So many merchants just say, Hey, I’m getting too many chargebacks. Let me increase my prices so that I maintain my profitability. And of course the last con that I’m going to mention is the one that where we come in and it’s that many times chargebacks are abused by consumers and that’s what we know as friendly fraud. And friendly fraud is a broad range, but to try to encompass it, it is that you ordered something, you received the good and you say you didn’t receive it or it wasn’t what you asked for or when it really was when the merchant really did deliver what he was supposed to deliver.
But there’s a dispute because you don’t agree. Or many times you did receive the good and you just don’t want to pay for it. And that part of the chargeback or the chargeback spectrum, because there are true fraud chargebacks and those are true fraud and we can’t fight those. Those are true fraud and immediately somebody has to take responsibility. But the friendly fraud chargebacks are the ones that really hurt the industry and that hurt everybody. And like I said before, it’s just people that don’t, a consumer that receive the good or service and doesn’t want to pay for it. Little bit described that a little bit. I’ll take a pauser and
No, I think that was great question. I think that was great. At the same time, the rebuttal to that from our perspective, because we consider the merchants our consumers, I guess that’s the way that we would refer to it. And the merchant side has historically and still is underrepresented in this process. And that’s ultimately where we step in these days is having an understanding like your company does about how this happens, the issue that we see, and aside from friendly fraud because people game in the system. I get you. It’s the other side of it where, I mean when people game the system, it’s an opportunity for us to talk to merchants about their process and about shoring up their process to prevent things that are preventable. But within the payments realm, I believe in the chargeback process other than the fact that the merchants have a system that’s imposed upon ’em that is really disadvantageous to them.
And then in addition to that, if there’s a legitimate 50 50 call, there’s a lot more money to be made by the card brands with the cardholders than they’re with the merchants. And so the card holders get, look, I’ve never seen data on it, but I would guarantee in my personal respect of having handled these things, it’s skewed in the favor of the cardholder. And that’s where I think that the card brands have an inherent conflict that I’m not sure it’s ever really been addressed. I know that I’ve spoken about it at times in different forms, but I still believe this to be true. This is when we say chargebacks, I think Bryce’s sentiment was more along those lines of it’s the merchant’s paying
Well. Yeah, and I’ll go back to something that you said. You said trust in the process, and my rebuttal of that is what is the basis for that trust? We just all assume that this chargeback process is working as it’s supposed to. There’s no oversight. I don’t know if the person who is presenting the data to the issuing bank who ultimate makes a decision and the issuing bank is pretty much always going to side with the cardholder. I mean this is the way it’s going to be and approving a chargeback that is not going favor the merchant.
Well again, we have no visibility into the process and how it works out. I don’t know what data was actually presented to the issuing bank. I don’t know. Again, I dunno if the person was competent, they’ve all been paid, they’re going to continue to be paid. They have no dog in this fight. And so there just needs to be more visibility there. A chargeback that goes against you does not say that your claim is invalid. It just basically says the issuing bank doesn’t want to be involved with this at all. It’s your problem, you work it out, I got paid, I don’t care.
Yeah. So lemme describe the chargeback process a little bit so that you kind of understand how it works and who takes on the liability. I agree with you a hundred percent. The system is skewed in favor of the card holder and against the merchants. Merchants always are guilty until proven innocent. So if you are a cardholder and you call your bank and you file a chargeback, you know that immediately the bank takes the charge away from your responsibility, financial responsibility, and they put the burden. They don’t just put the burden back on the merchant, they actually withdraw the funds from the merchant’s account. So now the merchant delivered the goods, but he’s out that money and now he has to go through the diligence of claiming that money, proving that it was a valid transaction, that he did deliver the goods as promised that he did deliver, that he met his contractual obligations.
And that’s where we come in. So the chargeback process is pretty straightforward. I won’t get into all of the ins and outs, but somebody picks up the phone, they call the bank, they say, Hey, I ordered a pair of shoes and I didn’t receive the pair of shoes as an example. So the bank will go in there. We always tell consumers that they should try to solve the problem directly with the merchant before they do a chargeback. But in the case of a friendly fraud, we know that if the person’s trying to gain the system, the person you’re going to do is call their bank because the bank is always going to rule in their favor. So they’ll call the bank, they say they never receive a good as promised, and the chargeback process starts and we get notified. So if the merchant is our customer or our client, they’ll call us and say, Hey, I received a chargeback from a card holder from a specific issuing bank. It could be one of the many issuing banks in the us. And then we take a look at that chargeback, all the chargeback data that comes from the payment provider, and then we go into the client’s CRM or their product delivery system and we collect evidence. We can collect numerous pieces of evidence. It could be the history that this person that’s filing a chargeback has a history of filing chargebacks.
We have evidence because here’s a picture from the delivery driver saying that the good was delivered at this address, we use address verification. So there are numerous pieces of evidence that we collect from both the payment provider and from the customer CRM system. And we put those things together and we prepare what’s called a represent package. The represent package is just a list of documents and evidences to support the merchant’s claim that it was a valid transaction. And those letters, in order to be effective, you can’t just use a standard off the shelf letter because issuers are looking for very specific things. So we know whether it’s Capital One, JP Morgan, Wells Fargo, whoever the issuer is, their analysts, their chargeback analysts are looking for very specific data. Over the years we’ve refined, our platform has refined those packages. So if we prepare a package for the sale of a pair of shoes, a chargeback because somebody bought a pair of shoes as an example, that package is going to look one way if it’s going to chase a different way, if it’s going to Wells Fargo and a different way, if it’s going to Capital One as an example, and then we send that letter off, those chargebacks are then received by the issuing bank and there are analysts, there could be hundreds and hundreds of analysts.
And these guys receive on their screen the chargeback. They typically have between three to five minutes to review the evidence package and make a decision, Hey, this is going to go in favor of a card holder. It’s going to go in favor of the merchant. And they’ll go ahead and they make that decision and that’s it. In the process, what we do is we provide to them as much data as we can so that they rule in favor of the merchants. And we build a certain expertise over the years and we have probably the highest success rates in the industry because of all those years of experience because not only are we doing it that one time, but we’re using that as feedback. If we see that for some reason we lose that dispute on behalf of the merchant, then we want to investigate why did we miss a piece of information would stating things differently have helped. So we’re constantly refining those packages. Even today after so many chargebacks that we fought over the years, we continue that constant refinement because there’s new analysts, there are new rules, there are new things that happen in the industry that can cause the valuation of a chargeback to be done differently.
Then that chargeback goes back and they inform the merchant, Hey, you lost the chargeback. And then that’s when the merchant loses that money and it goes in favor of the issuer. Or it could be the other way around. They could inform, the issuing bank could say that, Hey, this is a good valid transaction. This merchant indeed did deliver these shoes, so I’m going to go ahead and refund the money back to the merchant. And then the issuing bank deals directly with his cardholder. Sometimes he’ll, let’s say it’s a very important customer to the bank, he may decide, I’m going to go ahead and eat this chargeback. I’m not going to charge the cardholder for it. Other times he may say, you know what? I’m going to go to the cardholder and try to collect my money from the cardholder. We don’t get involved in that portion of it. We just provide information to that issuing bank so that they can refund the money back to the merchant and the merchant, make the merchant whole.
Well, before I respond to that, I appreciate chargeback guru’s value add because I think that you explained it really well. Absolutely. Which is, Hey, we do this on a daily basis. We modify our process based on results. We’re a results based organization. If we’re not getting the result we’re desiring, we’re going to go ahead and try this a little different way. And you modify. Here’s the issue to us, and this is why chargeback gurus exists. So I’m not really sure you would ever want this to change, but I’m going to say it anyways. You guys have to guess at the standard that the reviewers are using for the cardholder, it’s just make a phone call, send in an email, Hey, I’ve dispute this transaction without a whole bunch of information. And then for the merchant, it’s like this blind process where they have to use a third party to have a fighter’s chance based on that third party’s previous work with these people trying to define something that’s unpublished that they make all this money off of.
To me, it doesn’t really look like consumer protection. That’s a very fair process. It’s totally skewed towards the consumer. Wouldn’t it be helpful, and this is a rhetorical question, but if you have an answer, awesome. Wouldn’t it be helpful if they had some sort of standard by which you could organize your package to go, Hey, here’s what we’re reviewing and what we think should be considered during this process to determine whether or not this is a valid disputed transaction, or at least tell ’em why. Totally. And look, it’s not just in chargebacks. Oscar, in this world, this is all we do. This is just one little subset. But when you get back up to the card brand level, there’s a lot of this obfuscation, big legal word like the shrouding, and you just can’t tell what one side is doing versus the other side. And a lot of times it doesn’t work out well for the merchant side.
Well, yeah, you never get why. You never get an explanation. They’ll never tell you what they did. And so you are flying blind. And Oscar, I don’t want you to get the impression that I’m not a huge proponent of what you do because I absolutely am and you’re absolutely necessary. But it is just like a couple cases come to mind that I have going right now against American Express who’s just notorious. I have a client coming to me where a renter brought her family of 12 to the unit that she rents and stayed there for five days and then submitted a chargeback because saying that the residence was too dusty, American spastic proved the chargeback. It is just like, what are you looking at? What are you doing? And you’ll get absolutely no response at all. And again, that is the crux of my issue is there’s absolutely no visibility, there’s absolutely no accountability.
And you have a bunch of huge multi-billion dollar entities who have absolutely no dog in this fight whatsoever. And the merchant is supposed to trust that somebody who could give a crap if the chargeback is, and again, American Express isn’t saying that the charge is valid, they just don’t want to be involved. And then the merchant has to make the decision, okay, am I going to have to drop like 25 grand to get this chargeback? I have all this evidence that evidently the banks did not think was compelling at all, and now I have to spend even more of my money to go do something that should have been competently handled and I should be able to trust what’s competently handled in the first place. And again, that is just why a chargeback mitigation service is so necessary in today’s economy. And I’ll just give you another shout out. If you have a chargeback against American Express, hire a chargeback guru to be your advocate. Hire a lawyer to be your advocate. I got another one. American Express.
No, hold on. Because if that’s the one, I think it is because it’s a family friend that this happened to, I believe that that actually went through a third party platform that does the rental. No, it’s it. It was
Direct. It is not. And they cut her loose and I couldn’t do any for it. I offered to sue for,
But that’s, yeah, the problem is the cost of litigation is so high. So if you’re in this range of how much money, I mean, lemme give you an example. If that rental was $10,000 and they disputed and the money came out, even if they have the benefit of a forum selection clause in their contract to go down to the local courthouse, if the cardholder came from Massachusetts, you got to take that judgment to Massachusetts. I mean the mechanics of doing the work to get the actual $10,000 back, you just take it as a loss. But that’s not what happens. 90%, I get it. And that’s not what the system was really intended to do either.
No, no. And look, I say you’re not going to get an argument from me. I know that the system is skewed in favor of the cardholder, and that’s why we exist. That’s why we’re here. Our mission is to help merchants recover revenue that they lose from these chargebacks. This is the system that exists today. The system is being refined. So Visa, for example, recently put out some new standards. It’s called the Visa 3.0 compelling evidence rules. And under Visa CE 3.0, merchants have the option to capture certain fields, things like the IP address from where the transaction was initiated, the card number, the card holder. They have to capture certain amount of information. And if a person disputes a transaction and the merchant can go into that database of data that they store, that they’re capturing these fields that fall under Visa CE 3.0, if they can get a match on two data items so they can say, Hey, this person within the last 12 months made two purchases at this website and he did it from the same IP address, or he did it using the same card, or there’s several other fields.
I don’t have them all at the top of mind right now. Then immediately the chargeback is kicked back and it’s ruled in favor of the merchant. So those are some of the new rules that are coming out in the market that are going to benefit merchants and are going to stop somebody from potentially doing these friendly fraud chargebacks. So there’s no doubt that in the digital world, merchants need more protection. They’re today thrown to the wolves with this chargeback problem. And again, that’s exactly what we do. We have the experience in helping these merchants fight that. I know it’s probably merchants shouldn’t have to do that. It should be the system should be more 50 50. And I think that that’s what some of these new rules from Visa, by the way, MasterCard has similar rules coming out and so does American Express. So they’re trying to make it level the playing field a little bit so that things are not always so skewed in favor of the consumers.
Well, we don’t have to go down this rabbit hole, but I’m going to give you a flip side of that too. You just used the word capture and then you started talking about data fields that trigger PCI compliance by a merchant who knows nothing about PCI. So in order to protect themselves, they actually have to take liability associated with gathering information that ultimately puts them at risk if something ever happens to that information while it’s in their possession. Yes
And no. Yes and no. I don’t think the data they have to capture is PI data in order to be compliant with CCE 3.0. But it is a huge burden
Well data, it’s transaction
Data. It’s for very large merchants. It’s not going to work well for the small merchant who’s the one that really can’t afford and can’t absorb a $10,000 chargeback. So for those smaller merchants, it’s not going to be beneficial. But for the larger merchants who do have the resources to be able to capture that data and then do the proper data lookups, it’s certainly going to help them. But yeah, the small merchants are still at the mercy of the system. But again, there’s companies like ours that will be glad to step in and help them and help them dispute those chargebacks. And we have a pretty good track record.
Yeah, I mean, I agree. The sophisticated entities that you guys represent, I happen to know some of them. So I think it’s awesome because they are big enough to take on the burden associated with having a robust enough data management system to actually capture track and then regurgitate the necessary information to show that they should be winning chargebacks. And since those are high volume dollars and high volume transactions, I think that that does benefit the system as a whole. But it’s still that gaping hole. I don’t know what the percentage are on small merchants versus medium to large merchants, but as far as volume dollars transacted in the whole payments ecosystem, but there’s still a significant portion of people underrepresented, so we actually refer ’em to you when we can. Yeah,
Gentlemen. Can we maybe talk a little bit, and I think we’re kind of on the verge of it right now. We’ve talked about the dispute process and what chargeback gurus does there, what we do as well. What about mitigation? How much is there out there in terms of technology? How much of this is being mitigated can be mitigated before it ever has to get to a dispute process?
And I’m hoping Oscar can actually, I feel pretty knowledgeable when it comes to anything payments, but this is one of those things that I’ve never really looked into, which is kind of those overlays that are a fraud preventer by capturing data on the front end of the transaction where they take the risk and they’re actually getting the information and then real time using AI to verify certain data points. I don’t know if IP addresses is in that as well. It is. I actually think that there’s quite a bit out there. I don’t know the price point. I don’t know the economics of it. Like I said, something that I haven’t really gotten involved in. So I would invite Oscar, if you know about those types of products or if chargeback gurus is doing anything like that, it’d be great to know.
Yeah, sure, I can talk to that. So in the industry, there are several companies, right? There’s numerous companies that provide what is referred to as a frontend fraud engine. And what these frontend fraud engines do is that real time when a transaction is happening, they will analyze many data points, real-time data points. So they can look at things like biometrics. They can look at if a person is doing a transaction on a mobile phone, is the mobile phone actually in an orientation where they’re using it or is it down facing down because this is really a fraud attack. So they look at many of these different points real time, and they approve or reject the transaction. If they approve the transaction, they take on liability for the transaction. Those front-end fraud engines are built to detect true fraud. In other words, fraud attacks. Somebody stole your credit card.
So they’re very quickly at being able to determine if somebody took your card and has never done a transaction from Boston because they live in Florida and they’re constantly transacting in Florida, and all of a sudden here they are trying to buy a TV in Boston as an example, then those front end fraud engines detect that really quick and they can reject. Or if they approve the transaction, they take on the liability. So the merchant seems to be okay covered, except that the majority of these frontend fraud engines have an exclusion to friendly fraud. Why? Because friendly fraud is very difficult to detect by frontend fraud engines because it’s really not fraud. It is a person that has decided that they don’t want to pay for a good or service. So they’re not doing anything fraudulent until that moment they’re executing the transaction from where they would normally execute any transaction.
It’s just that at the moment of payment, they decide they don’t want to pay, and they pick up the phone and they call their bank and they do a chargeback. So frontend fraud engines will not solve your friendly fraud problem. It will help in the area of true fraud because they’re built to detect high volume fraudulent attacks or even somebody stealing your credit card. So that’s what the front-end fraud engines do. There are other tools as well that help merchants prevent the chargeback before it happens. And those are both, we call them prevention alerts, and they are alerts. So the Visa and MasterCard networks will circulate information. If they know that there’s a stolen credit card out there then and they see a transaction coming in and they know that this card is stolen, then they’ll issue a prevention alert. It’s something that we monitor.
We pick up that prevention alert, and we know that it relates to one of our merchants, and we tell the merchant to immediately cancel and refund the transaction before it becomes a chargeback. So that prevents the chargeback from occurring. It prevents loss of goods because the goods are never shipped. It allows the merchant to stay below his processing thresholds. Merchants have a threshold of how many chargebacks they can get based on their overall volume, and they’ve got to stay below that threshold, or they could lose their processing mid or their ability to process cards. So prevention alerts do that. One of the things that we do that’s very basic when we engage with a customer is we look at their business processes. We look at what’s your return policy? Sometimes people gain the return policy, they’ll do the chargeback before the return policy time. We look at what their contract state, maybe their contracts have a loophole in them that’s allowing consumers to do these chargebacks because they don’t properly cover a specific condition that they may be taking advantage of in the industry.
So we look at all those business processes because ultimately what we want is to help merchants prevent the chargeback at all. We don’t want the chargeback to happen. We want to keep them away from chargebacks. Chargebacks are not good, as you guys started the podcast with today. We don’t want the chargeback to occur, but when it’s going to occur because it’s on of the friendly fraud type, then we want to be there and have a safety net for these merchants and help them navigate it’s complex. Look, what we do is not easy. We’re not here today because we started overnight. We’re here today because it’s been years and years and years of doing this, of gaining the experience. And that’s why very large enterprise customers trust us with their chargebacks because they know that we’ve got a certain level of expertise. We can get certain win rates.
We also advocate for them in front of Visa, MasterCard, amex. So many times those networks themselves have inherent problems when it comes to dealing with chargebacks. I can recall a case where American Express, we alerted American Express of a situation where we were losing many cases and we couldn’t understand why. So we alerted them of the situation. Amex took a look at it, they reviewed it, and ultimately they came back to us and said, Hey, thank you for bringing this to our attention. Indeed, we did find a problem on our side. We’ve corrected it, and we’re going to reverse all of the losses of your chargeback claims for your merchants that we had. So you have to advocate for your merchants in front of these networks. But again, all of this, this would be quite a burden if companies like ours didn’t exist, because most merchants just don’t have the time or the expertise or the money to fight these chargebacks because again, it’s complex and it’s hard to do.
Oh, I was going to say the money aspect of it, I’ve never understood the affordability. I think that was the thing that I didn’t know about the fraud preventers. But think about this. We’re in a digital age. We went to covid. Nobody had a storefront. People started an online presence, started to do e-commerce transactions, even when they maintain their storefront after covid shutdowns, and that’s still a source of business. But in order to even do business like that, my personal opinion is that the acquiring banks responsible for transaction monitoring, if there’s an instance of fraud going on, if the bank isn’t detecting it, how’s the merchant supposed to detect it? So now, because this is such a skewed process, I’m supposed to go and get a third party to be a front end in between my transactions to the backend, and now I’ve got to pay on the front end because the backend doesn’t want responsibility for failing to do their job as the bank.
There’s just all these inherent problems. I hope those fraud preventers are affordable for people so that they can actually do this. Because everywhere I just see the merchant getting shorted, and we never represented merchants until Covid because these things weren’t really on our radar. We’ve always been payments attorneys for the companies operating and payments never until Covid when we saw, especially with Match, and people were getting match listed because they were doing business online. Well, it was that or go out of business, so Exactly. Yeah, it was really thrown and there wasn’t really any accountability upstream for ’em. But I mean, do you know the affordability for that front end provider if it’s affordable enough to,
So it varies. The problem with the front end fraud engines is that it’s an insurance policy, right? Yeah. They essentially are managing risk, and what happens is they’re going to charge you a percentage on every transaction. That’s how they kind of spread out their risk. They charge you a percentage of every transaction, and that can be costly to some merchants. Some merchants don’t want to have to be paying fees on top of every single transaction to have that insurance policy. Others, that’s the way to go because they’re at risk of having these large fraud attacks. Our thing always with these frontend fraud engines, and by the way, they’re a great tool. I’m not knocking them, and some of these are great companies that do it. It’s that again, they don’t know how to deal with the friendly fraud chargeback, and that’s becoming the real problem.
I just got early this morning from the National Retail Federation Conference that took place, oh, New York, New York City, very large conference, and we had, I don’t want to name them, but we had four to five luxury retailers. Imagine some of the high-end brands, European High-end brands come directly to us because they’re having huge chargeback problems. And as we delve into the conversation, I asked him, what type of chargebacks are they? And he said, they’re all INR item not received. That’s a red flag for a friendly fraud chargeback. It means the person picked up the phone, called their bank and claimed that they didn’t receive the item, and their chargebacks are growing, and these are luxury retailers that the average transaction size is above a thousand dollars. So imagine, the other thing we haven’t talked about is how news spreads. When you find out that a merchant, there are people out there that when they find out they can get away with a chargeback at a particular merchant by saying they didn’t receive the item, they share the news with their friends and then their friends all start doing the same thing.
That type of fraud will not be caught by a front end fraud engine because it’s a normal transaction. It’s me. If I say, Hey, I know that this luxury brand is having this problem. I get home from my home from my normal IP address using my normal card. I’ll go to that merchant, I’ll buy an item, and then I’ll say, I never got the item. And that’s a form of friendly fraud that it’s impossible to detect over time. If I have a repeated pattern of doing that, then there’ll be a history and says, Hey, this card holder has a history of doing these types of chargebacks, and maybe in the future a front-end fraud engine would be able to stop it. But typically those friendly fraud chargebacks are not, it’s not a person that does it very frequently. He’ll do it one time for a very expensive item, and then he may not do it again for a long time. So the chargebacks are inherent in there, and they’re going to happen, and you’ve just got to have the expertise to know how to dispute them.
Bryce now knows how to get that purse for his wife. I’m going shopping tonight. I have to just question one thing you’re saying, which is that it’s like a one-time thing because in my experience, I just don’t believe that nobody rolls out of bed and just decides I’m going to commit friendly fraud the day, but only this once, and it worked. It’s human nature. If it works once, you’re going to do it again and again and again until you get caught. So again, where’s the accountability? Where’s the oversight? Who’s minding the shop over there? Again, there’s really no incentive with either bank to do anything. We just return the charge back to the customer and make the merchant go, Sue. I mean, then there’s no new division that has to be opened up in the bank. They don’t got to hire a bunch of other people because we all know banks hate spending money. They just like to take the money in. So I mean, I just don’t think they’re interested. And again, that is why they need somebody like you. Look, I deal with banks all the time, and my opinion grows more negative every
Day. Yeah, unfortunately, we let Bryce out of his cage today
Tell us you really feel, yeah, I trust them as far as I can throw them,
Far. They just do things and then they basically just sit there and dare you to do something about it. I mean, it happens all the time. So again, it’s just like I understand why you’re necessary. Everybody should be hiring you. You got to get somebody to put you in between the bank and the customer. I mean, it is just the only way the merchant’s going to have a chance is to have an advocate of some kind. They can’t expect,
Or you need to change the system so that it’s more fair. There really is a standardized today. There’s no standardized dispute process. I mean, the way you dispute the chargeback and how you route it and how you send it, it is standard. There’s a specific way that you do it, but it’s not standardized in terms of the format of the evidence package that you have to put together. So you just have to have that experience knowing that, hey, if I’m going to dispute this with Capital One as an example, I better know what Capital One is looking for. Otherwise I’m going to lose this dispute. So
If you lose the dispute,
It’s a system we work in today,
Refund. Refund the processing fees. I mean, have some skin in the game. I know they’re not going to do that, but it’s just,
That’s the thing. Skin in the game. When I was saying I need a front end provider to deal with the bank not doing its job, which is transaction monitoring, which is what interchange is charged for. Exactly. I mean, there’s just a point where it’s the inadequacy or the unfairness is just at a level that I don’t know how you balance it. Well, I
Don’t think anybody’s actually really been looking at it until Covid, and there was just this mad rush to get online.
Well, chargeback gurus has, well,
No, I mean with the banks, there’s just get this massive movement and somebody’s finally looking at it, us, you. And hopefully that will spur some change, but
Well, I mean, imagine if you had to go out your door in the day and guess at what the laws are that you are responsible to follow in order to maintain your liberty or your property by not being fined or whatever. I think merchants, this is just one of those things where they’re wandering around, and I’ll give this, I hope some merchants actually listen to this thing. But no, I do. I don’t know how much you do. I don’t know how much our circulation gets to them on these things, but I will say this, every merchant processing agreement has a program guide, which is a terms and conditions under which a merchant’s supposed to comply with the processing. And usually the first 15 to 20 sections of it is called your guideline acceptance, where they’re telling you what you have to do in the actual transaction process to verify that it’s a legitimate transaction. Obviously, nobody reads these things except me, but I will just tell you, if a merchant were to read those, they would’ve a really good idea of what their obligations are to fight chargebacks. And if they’re not following the procedures that are outlined in those terms and conditions, it’s going to be much more difficult. Even with the chargeback. Gus.
Well, Chris, there’s like a hyperlink at the bottom of the merchant application that’s
Just in the application. That is
Everything the merchant needs to know. That’s how they met their burden of informing
The merchant. But I’m saying when you click the hyperlink, the first 15 and 20 section, yeah, come on. When you get to the 44 page and they’re super easy to read, lemme tell you exactly 8.5,
It’s how Chris gets to sleep at night reading these things. He reads
A bunch of
Absolutely. I just recorded myself and I listened to it over and over.
So gentlemen, as we get maybe to the closing of this podcast,
Oscar’s got more important things to do to listen to us now.
You got champions emergence, man. Yeah,
It’s been great having you. I do have a question to lead us out as maybe our closing thoughts, and that is Oscar. Are there opportunities when, are there times or maybe describe a scenario if it happens where chargeback gurus says to one of your clients, Hey, you know what? This has gone beyond what we do. We need to bring in attorneys. I’m not sure if you guys have attorneys on board or in-house,
Our marketing guy.
That’s right. That’s right.
Yeah. Typically the dispute process, if you’re referring to how we operate and how we dispute it, there’s a decision that’s taken and the decision is yay or nay. And I’m not familiar with any cases where clients then say, okay, I’m going to go ahead and take it up now in a different way. I’m going to hire an attorney and pursue it that way. But I’m sure that if that came across our desk, we’d love to refer customers to you guys and let them know. But typically, you’re bound, if you’re disputing a Visa or a MasterCard or an Amex transaction, you’re bound by those agreements, those processing agreements. And I’m not sure you guys would know better
Than I would. They have a mandatory arbitration allow
They have a mandatory arbitration provision.
The worst case it goes to arbitration and then Visa, MasterCard, orams, there’s an arbitrator that sits there that will make the final decision. But I think you’re bound by that decision, both as a cardholder and as a merchant. If you accepted that card. I don’t know if you can go outside of that arbitration process
If you ever wanted to have the discussion, which I’m sure you don’t, but Verizon and I have dealt with this situation legally. There are a ton of barriers for merchants combining claims that are substantially the same to be able to bring those in mass against the card brands or whoever, because contractual provisions that are in agreements that they don’t get to negotiate. But I agree with you. I doubt that there would be many instances where you would send somebody to us because most transactions wouldn’t rise to that level. And you can’t aggregate the transactions, unfortunately.
And if I were just thinking out loud, but if I were to recommend that a merchant retain you for just one reason only, it’s to guard against excessive chargebacks because that seems to be the biggest problem. It’ll also get you matched. And so you need help in trying to keep your chargebacks as low as possible because if in one month you exceed $5,000 and 1% of your total chargebacks is like MasterCard or American Express, you’re going to go on match and you’re going to lose your ability to take credit cards and debit cards for five years and you’re going to be out of business. So I mean, if for no other reason, merchants need to be proactive in managing the chargebacks. And the best way they can do that is to retain a chargeback mitigation service. You heard it here first.
Excellent. Well, Oscar, we’ll give you the last word. Maybe let our listeners know how can they find you? How can they find chargeback gurus? It’s been really great having you on the podcast today.
Yeah, I mean, look, the best ways, our website, which we just launched a new website this week for the NRF show, so I highly invite everybody to go there. It’s chargeback gurus.com and then just, I’ll just make some final summary here. The future of chargebacks and disputes is going to be evolving. There’s going to be advances in technology. There’ll be tighter fraud prevention methods and possibly new regulations that are going to advance this industry. Remember, the increase in digital transactions or e-commerce transactions are going to see as digital transactions go up, you’re going to see a corresponding increase in chargebacks and in disputes, which is going to make services like ours be even more and more in demand. And we see that today. So it, it’s a problem that for the short, the moment, it’s not going away. We always tell customers that proactive management and understanding of chargebacks are critical for any business to protect bottom line. And again, we let them know that we’re here to help them out however we can and to help them recover as much revenue as possible.
Hey, how can they sign up for your publications on your mailing list? And I actually find the stuff that chargeback gurus publishes and sends out, especially with changes in the marketplace as it relates to chargebacks. I get your stuff and I read probably half of it because something new that I haven’t seen. Sometimes it’s something I’m already aware of, but I do believe that the stuff that you guys put out is really valuable. How would somebody go to sign up for that? I can’t remember how I did.
Right on the website, there’ll be a subscribe and a section where you can subscribe to our newsletters and to all of our publications, and you can do it that way. You can also, on our website, you’ll see our social media links. You can subscribe to those as well, and you can follow us on social media. Our marketing efforts have increased significantly, so we’re publishing a lot more than we used to, and it’s really good stuff that we’re putting out there. It’s stuff that relates to specific industries. It’s stuff that relates to what’s happening, and it’s just in this area. You can never have too much information. You need to arm yourself with as much information as possible, especially if you’re a merchant, to protect yourself from chargebacks. But it’ll all be in our website. Again, you’ll be able to access all of our social media and subscribe to our newsletter.
Excellent. Oscar Beo with Chargeback Gurus. Thank you so much. You’ve been listening to the Payments Experts Podcast, gentlemen. We’ll see you guys on the next one.
Thanks, Oscar. Thank you.
My pleasure. Thank you for having me.
Thank you for listening to this episode of The Payments Experts podcast. New episodes first and third Thursdays. If you’re interested in learning more about PEP and how Global Legal Law Firm may be able to assist you, please visit us at global legal law firm.com. To schedule a free consultation, give us a call at (888) 846-8901 or email firstname.lastname@example.org. And once again, thank you for listening. 1, 2, 3.
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