Merchant Account Providers Blamed

Friday, May 02, 2008

Before I left for the Microsoft MVP Summit, merchant account providers where getting a bit of news.  And then Psystar Corporation blamed their merchant account provider for the inability to process new orders.  Seems like merchant account providers have been receiving a lot of press lately.

Frontier Airlines

With Frontier Airlines, it was First Data that decided to withhold more of the processing volume.  Airlines, already troubled by the rise in fuel costs, are probably operating with very little funds.  This became true of Frontier Airlines when they had to declare bankruptcy after being notified by First Data that an increase from 45% to 50% of the ticket sales were going to be withheld starting on / about 11 Apr 2008.  And then sometime this month, they would withhold 100% of the transaction until the itinerary is completed.

First Data basically was withholding about $54.5 million in the ticket sales.  With the new agreement, First Data would be keeping about $130 million.  The interesting thing is itinerary - since this usually means both flights.  So Frontier Airlines might need to even wait a few weeks until they get their money.

Frontier Airlines posted over a $32 million loss the last quarter of 2007.  They owed $109 million in unsecure credit, owing U.S. Bank about $93 million.

Frontier Airlines charges a $100 fee if you cancel your reservation.  I suspect a lot of travelers called their issuing bank for a refund instead of calling the airline.  The travelers were probably cancelling their family vacation due to the rising costs of - well everything, especially gas.  This is a chargeback to the merchant and probably helped to decide the increase in the withholding.  And it also makes you wonder if First Data needed the money as well?  This basically helps to put over $50 million in their account within a few weeks.  What could be better than making this amount of money for doing the exact same job you have always been doing?  It's like winning the lottery.

I wonder though how many providers have called Frontier Airlines now to offer them a better rate?  Those providers better request a copy of the merchant statement though first to see what their chargeback ratio is since this usually also decides what to charge. 

If Frontier Airlines did decide to move to another merchant account provider, First Data would probably lose that $54 million within six months or less (since most travelers schedule flights in six months or less).  It makes you wonder if it is going to be worth it.

Psystar Corporation

Powerpay did not request more withholding from Psystar, a company that that boasts the "Open Computer".  It is thought that Powerpay terminated the account with Psystar for three main reasons: products and services not represented in the application, no address verification service (AVS) completed, and sales volume exceeded.

Products and Services not Represented in Application

I am guessing a number of people called their issuing bank to request their money back after purchasing this computer.  This is commonly referred to Chargeback Code 53: Not as Described or Defective Merchandise. This is one of those chargeback codes that will help get you on the TMF / MATCH list - a list no merchant wants to be on.

Address Verification Service

If Psystar was not using the first defense in preventing online fraud, they should have been punished.  There is no reason not to use this service and plenty of reasons to.  Most providers will downgrade your transaction if this service is not used.  Not verifying the address of the individual that is buying your product will increase fraudulent transactions.

Sales Volume Exceeded

This is sometimes the case when a business plan is not done properly, communication is lacking between the merchant and the merchant account provider, and possible fraud on the merchant's side.

Usually when you get a merchant account, especially the first time, you might not know what amount of volume you expect.  Some might hope for possibly hundreds of thousands while some might only think hundreds or just a few thousand.

When volume is suddenly increased on a merchant account, the provider might become suspicious of fraudulent transactions being done - usually from the merchant.  This suspicion was increased tenfold since AVS was not done and the merchant did not seem to contact the provider to talk about an increase of sales.

Lessons Learned

So who is making the money?  Well the oil companies for one.  The merchant account providers that support these oil companies might be seeing an increase in volume as well as gasoline continues to rise.  Merchant account providers will probably be monitoring accounts even more so since some people are desperate which might prompt them to do desperate things. 

Merchants should always be watching their chargebacks, even more so into today's day and age.  The providers will be and you cannot afford not to.  Keep the communication opened between your company and the provider's - documentation will always be done and it might be needed.  Take better care of all your accounts until whatever you want to call it is over.

Posted by Corey at 1:13:49 PM in Miscellaneous (137) | Comments (0)

Denver International Auto Show 2008

Monday, April 28, 2008

So this will show about how far I am behind on writing and getting everything updated.  We went to the Denver International Auto show about a month ago.  I guess we were able to take a bit over 200 photographs of the show.  I have felt really behind because those pictures were never uploaded.  I was able to finally get those pictures on the website in the past two days. 

Unfortunately though, I think the show was much smaller than last year.  There were only a few after-market vendors as compared to last year.  The entire show was only in one hall it seemed.  I think this really showed how bad the economy is. 

They already have the next show scheduled from April 1 to April 5 in 2009.  Hopefully more cars and vendors will be there.

Posted by Corey at 5:18:14 PM in Miscellaneous (137) | Comments (0)

Fortune 500 Causes Chapter 11 Bankruptcy

Saturday, April 12, 2008

So by the 4 o'clock news, it was being said that First Data was the merchant account processor that caused the cash flow problems at Frontier Airlines.  We thought it first might have been through one of the partner channels like (Wells Fargo or Chase Paymentech) since we did not remember seeing anything on the LinkPoint / YourPay / Integrated Internet Payments (IIP) side.

But now that it is First Data, a few things come to mind.  The first being just the fact that the airline industry is one of the very few that actually get their money before the service is provided.  Most of the merchants know that you should not charge the card until the product ships.  The airline industry has been doing the exact opposite for years and even the card associations (Visa / MasterCard) have not done anything about it. 

First Data did though.  Remember, they were sued once even by Visa for cutting Visa out of the pie on the charges that are incurred during a transaction.  Fortunately, that was finally settled. 

Now I know I said a few things come to mind.  The other is were people cancelling flights because of the "recession" and not wanting to go on any extra trips?  Instead of calling the airline to get their money back (because they probably would not get all their money back), they called the issuing bank to make sure they got all of their money back?  So this would mean for the airlines to reconsider their cancellation policies and favor more on the consumer side.

The last thing though - the biggie!  Is First Data being strapped for cash and they are wanting to hold on to a little bit more of that money.  Companies need to have XX amount of days, weeks, months of working capital and First Data might not have wanted to rely on their own and use other monies.  Or they needed / wanted more capital to earn more money on the interest.  Of course, this also makes you see how cash strapped Frontier Airlines was.  They probably only had three to six months capital left to operate.

This does however help to prove my point about merchants and their merchant accounts.  In the United States, you have a number of options available to you.  Relying on an Internet Payment Service Provider (IPSP) to process your transactions, unfortunately affect even if you are able to put food on your table at night.  Yes, I think we are there.  If you had a merchant account, that money will be deposited into your checking account possibly a week before an IPSP could. 

So which is it?  I doubt we will ever know.  Hopefully a few high risk merchants like this have learned a lesson from this (I doubt it).  Just in case though - if any of the high risk merchants are reading (like hotels and airlines  who get their money weeks / months before the service is happening), you might want to rethink your business structure before joining Frontier Airlines.

I guess we are lucky though - Frontier Airlines declared Chapter 11 Bankruptcy which still is allowing them to fly and right now, I still have a flight to Seattle tomorrow morning and the flight back a week from Sunday. 

Just in case, I am taking a couple of extra days of medications and I urge all of you to do the same if you are travelling with any airline in the months to come until it looks like everything has settled down.

Posted by Corey at 8:38:45 AM in Miscellaneous (137) | Comments (0)

Frontier Airlines Declaring Bankruptcy

Friday, April 11, 2008

So now Frontier Airlines is declaring bankruptcy - Chapter 11.  And of course that is the airline I am using to fly from Denver to Seattle for the Microsoft MVP Summit.

Their claim was interesting, I will have to admit.  They said their merchant account provider requests more money to be put on hold.  The amount that was requested seems to have been enough to push Frontier Airlines over the edge.  It makes me wonder how much was actually requested to change their cashflow.

And I guess now that some of the other processors like First Data will be calling them today to see if they can maybe offer them a better deal?  I don't think Frontier Airlines is supported by First Data, but I could be wrong.

Posted by Corey at 1:35:26 PM in Miscellaneous (137) | Comments (0)