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)