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This 42 message thread spans 2 pages: 42 ( [1] 2 > >     
Merchant Credit Card Processing Horror Stories
banks are changing the game for merchants who accept credit cards.

 10:47 pm on Jun 9, 2010 (gmt 0)

Some banks are changing the game for merchants who accept credit cards.

With the economy in a slump many credit card processors are requiring merchants to keep funds in reserve to cover future processing fees or potential chargebacks.

We'd heard of this in the past but never really had an issue with it. Until Now!

We recently had some fraud out of Canada to the tune of $4700 over a few months. Yea we were pissed, but it was a loss we could deal with.

That is until we noticed just after Memorial Day that we realized we werent getting our settlements, at first we thought .. ok it's just after a holiday so there's a delay, but after a week of no money I mean NO money coming in we got very concerned and called Chase Paymentech to see what was going on. Of course we get transferred all over the place and no one gives us real answers and then are finally sent over to someone at a totally different company First Data. Huh?

After about 10 phone calls later we finally get an answer as to what the heck is going on. Basically because of the fraud and that we actually give credits to customers that make returns, and because we were doing more business than last year they have decided to hold back over $15,000 for an undetermined period of months.

Apparently this is not so new news... First Data has aparently been doing alot of this lately.
FirstData is apparently the processor for Chase Paymentech.

At any time, at the sole discretion of the bank, the bank has the right to place funds on hold in a non-interest barring reserve account. Reserve account is to protect the bank from future losses due to fines, chargebacks, ect that may come through your merchant account. Hold time-frame will be determined by the bank and is usually for long enough time period to cover future customer chargebacks.

I found this really great article.. here's an excerpt
Combine the delivery of the service or product fear with the merchant processing company's fear of their customers going out of business and you have a situation where the merchant processing companies are starting to require some kinds of businesses to maintain cash reserves. That might not sound so onerous, but if you are a "high risk businesses" that accepts $4 million a year in credit cards, you may be looking at a $200,000 cash reserve requirement. That might be enough to push the merchant out of business thus having a self-fulfilling prophecy.

not sure if I can link to it, but here it is:

Here's more information from Visa and Mastercard.


[usa.visa.com...] (see page 104-108)
2.2.D.1.a Visa U.S.A. monitors the total volume of U.S. Domestic and International Interchange and Chargebacks for a single Merchant Outlet and identifies Merchants that experience all the following activity levels during any month:

  • 100 or more Interchange Transactions
  • 100 or more Chargebacks
  • A 1.00% or higher ratio of overall Chargeback-to-Interchange volume

    We don't fall into ALL of these with Visa. (note the all terminology above)


    Mastercard (released 5/12/2010) [mastercard.com...]

    Mastercard Chargeback Guide (released 04/16/2010) [mastercard.com...]
    b. The chargeback-to-transaction ratio (CTR) is the number of MasterCard chargebacks received by the acquirer for a merchant in a calendar month divided by the number of the merchant's MasterCard sales transactions in the preceding month acquired by that acquirer. (A CTR of 1% equals 100 basis points.)

    c. A Chargeback-Monitored Merchant (CMM) is a merchant that has a CTR in excess of 50 basis points and at least 50 chargebacks in a calendar month.

    d. A merchant is an Excessive Chargeback Merchant (ECM) if in each of two consecutive calendar months (the "trigger months"), the merchant has a minimum CTR of 100 basis points and at least 50 chargebacks in each month. This designation is maintained until the ECM's CTR is below 100 basis points for two consecutive months.

    So if we didnt fall into either of these categories according to visa/mastercard guidelines, why did Chase Paymentech and First Data do this?

    A. Because they can. It's a way for them to pad their coffers against the economy.

    No help from Chase, no help from Chase Paymentech and no help from First Data. They simply don't care to even be remotely reasonable.

    Tell us your horror stories.

    [edited by: lorax at 10:29 am (utc) on Jun 17, 2010]



     11:03 pm on Jun 10, 2010 (gmt 0)

    That very thing happened to us only instead of holding some of our funds they wanted us to pay a deposit of 30k. And get this, the bank wanted it all in 36 hours or else they would freeze our accounts. Only difference is we had no fraud, sales were up and the bank got nervous, they figured we would suddenly take off with all their money. One nice thing is we have a local bank in town and the owner walked right over and got someone at the bank to back down. But it was scary for a couple days.


     5:48 am on Jun 11, 2010 (gmt 0)

    Well it happened to me too, luckily for only $2100.
    They are holding it for 270 days. lol are you serious?
    We were scammed and the chargeback went through and we took the loss but even after the chargeback went to the credit card holder, they still need to hold it for another 7 months?
    Whatever, I fought with these guys for about 2-3 weeks and gave up.
    They would actually hang up on me and not take my calls/emails since I was being quite a pain in the ass for them.
    Anyway, if the money is not in my bank account after the 270 days are up (which is in ~2 months) I guess I can talk to an attorney.
    But I'm pretty sure they will give me the money.
    I guess change your merchant account.
    Companies like that will probably not change their policy and how can you avoid chargebacks these days? if they are going to hold merchants liable and give us a hard time because a scammer requested a chargeback on us, then #*$! them.


     10:06 am on Jun 11, 2010 (gmt 0)

    Check your contract, if there is nothing in it about them having the right to hold the funds, then change your provider and threaten legal action if they withold the funds in violation of your contract with them. However if you agreed that they can withold money at their own discretion, you are probably out of luck.

    I use Paypal for credit card payments and withdraw all money on my Paypal account every day.

    It might also be a good idea to check out alternative payment options. I am glad here in Europe customers are not hooked on credit cards. Credit card payments only are 1/3 of our orders, the rest are direct debit, bank-transfer and cash on delivery. However I have heard the banking system in the US is so rotten, people still even use cheques.


     10:24 am on Jun 17, 2010 (gmt 0)

    One of my old biz partners was selling electronics online and the CC company held back $30K in funds and this was over 8 years ago, nothing new.

    the bank wanted it all in 36 hours or else they would freeze our accounts.

    That's a fine example of why I don't allow my bank to process my credit cards.

    It's also a reason why I don't keep all of my money in a single bank.

    No single institution should have that much control over your business or personal accounts.


     11:10 am on Jun 17, 2010 (gmt 0)

    the bank got nervous, they figured we would suddenly take off with all their money

    Interesting. Given the recent history of the banks, I would be more worried that the banks would run off with our money than the other way around!

    After one of my merchant processors was hit with a DOS attack, I made sure I have more than one merchant account and a PayPal account as well. It's easier to close an account when they change the rules when you already have a backup. It might even be the thing to help them change their mind and not demand the lump sum or holding back of payments.

    On the other hand it could indicate a problem with the merchant account provider. Look up E-Clear who recently went into administration, they held back 35 million to one airline company, who went under first.


     11:17 am on Jun 17, 2010 (gmt 0)

    My (UK) processor retains 2.5 times the cost of my largest item on my price list. That was only imposed when I upgraded the account to accept overseas as well as domestic cards.


     12:07 pm on Jun 17, 2010 (gmt 0)

    Standard policy for providers like Worldpay in Asia. They've been asking new accounts to put down a deposit of upto 3 months turnover. Just taking advantage of the fact that there isnt much competition for them in this area.


     12:16 pm on Jun 17, 2010 (gmt 0)

    Bewenched, sorry to hear that.

    I know a small ecommerce merchant who last year found out that banks are holding $150,000 - essentially without any reasonable explanation, any legal documents or otherwise. And they didn't find out rightaway, because bank was sneaky and did it in small chunks. Needless to say they immediately closed that merchant account and contacted a lawyer, but apparently it is at bank's discretion to steal someone's money for 6 months or more.

    DON'T TRUST BANKS - this is where most crooks are.


     12:27 pm on Jun 17, 2010 (gmt 0)

    I have a client who had something along these lines; he was starting a 5th business, and wanted to switch merchant processors. His existing credit history was fine, but the new processor wanted some exorbitant amount up front to hold for at least ninety days. Maybe that's not new, but he'd not run into it before.


     1:55 pm on Jun 17, 2010 (gmt 0)

    Sounds like it's time to switch processors. If my cc processor did this to me, I would run, not walk to the next company and demand my money back. There are plenty other fish in the sea.


     2:06 pm on Jun 17, 2010 (gmt 0)

    demand my money back.

    It's not that easy, they keep holding it until such a time they're sure no chargebacks are being placed.

    Banks don't eat chargebacks, merchants do, and holding the merchant's money hostage is how they make sure it stays that way.


     2:54 pm on Jun 17, 2010 (gmt 0)

    Here's a little update:

    They basically froze our account on June 1st and we got nothing for an entire week.
    We've started getting deposits, but they are holding back 20% to add to "their fund". A non interest bearing account.

    On June 1st-3rd we had issued credits to some customers.
    As of June 17th Paymentech has not given our customers the credits although it was deducted from our account and we have the transaction numbers from those credits.

    June 16th, we got a chargeback on one of the credits we had issued on the 1st! We have customers calling and yelling at us because they think we still have their money, but we don't.

    And the worst part is that the individual in charge of doing this to us will not return phone calls nor will he respond to emails. This is becoming a real nightmare.

    We had this happen 10 years ago with Bank of America. They were withholding a little of every deposit. So small we didn't even notice, then one day a HUGE deposit was made into our account and when we called to find out what it was ... we were told it was the reserve fund being given back to us.

    How can they withhold payments and not notify you first?
    Bank of America did it and now Chase/Chase Paymentech.

    Paymentech/Firstdata didnt tell us a thing, it wasn't until we noticed we weren't getting ANY deposits and called to investigate. It took two days and numerous phone calls and call transfers to get a real answer.

    How can they legally do this without notifying you of an issue?


     3:32 pm on Jun 17, 2010 (gmt 0)

    How can they legally do this without notifying you of an issue?

    I guess when you started doing business with them you either signed a contract or agreed to some conditions of use. I guess it is time to check the paperwork and find out what you agreed to when you signed up with them.


     3:52 pm on Jun 17, 2010 (gmt 0)

    We did have a contract with them however at the time that we signed up, the rep from the company told us that they would not do this. Technically in Texas it's a verbal contract and would hold up in court if we had a bit more proof.

    I kinda feel like it's extortion at this point.


     4:33 pm on Jun 17, 2010 (gmt 0)

    When we signed up with Paymentech, they didn't tell us that they were holding all deposits for three days.

    Three days ! that gives no protection to them, as charge backs can come back up to six months latter; longer if it goes to arbitration.

    Anyways, after three years, they took the three day hold off. Oh! they didn't tell us either when the hold came off.


     5:12 pm on Jun 17, 2010 (gmt 0)

    incrediBILL: Banks don't eat chargebacks, merchants do, and holding the merchant's money hostage is how they make sure it stays that way.

    What bill said.

    Just FYI, in case MSM didn't tell ya. Banks are the cause of boom-and-bust economic cycles, they are also main cause of current economic collapse. They also run things, at least in U.S.A., not the gov, so to answer "how could they do it" - because they can and because you don't stop them.


     6:59 pm on Jun 17, 2010 (gmt 0)

    So obvious question... Who can you use that is least likely to do this kind of stuff?


     7:57 pm on Jun 17, 2010 (gmt 0)

    So anyone can do a charge back. There's nothing anyone can do about it whether it is fraud or legitimate. I see the banks point on this. But then how do you run a business? I wouldn't be able to forgo income for 270 days as a new business owner. Not even 20% of that income.

    I guess I'll ask for good old paper checks on any future endeavors.


     8:03 pm on Jun 17, 2010 (gmt 0)

    We actually had one chargeback last year that came 4 months after the sale. The customer did not initiate it. Their bank did because we didnt invoice his card within 7 days. So now we have to bill right away even though the customers product may not ship for a couple of weeks if it is custom or special order.

    long story short. Visa/Their bank issued a chargeback, we had shipped the item, we had signature, customer did not contest it, BUT WE LOST because we didnt invoice within 7 days! The really lousy thing was that the customer did not get their money back and neither did we. THE BANK/VISA KEPT IT! And there was nothing we could do about it.


     8:15 pm on Jun 17, 2010 (gmt 0)

    How the heck is that even remotely right? I hope to God this isn't every card processor. I thought paypal where really the only thieves.


     8:44 pm on Jun 17, 2010 (gmt 0)

    I think credit card companies, processors and banks are trying to make up the income they are losing by screwing the general public by screwing over merchants. They're using ALL the loopholes they can since the financial reform laws were passed here in the US.


     11:14 pm on Jun 17, 2010 (gmt 0)

    It's going to be their newest scam...a way to hold your money and make interest from it.

    Imagine the return they are going to make on these amounts of money, multiplied by all of their customers.


     11:18 pm on Jun 17, 2010 (gmt 0)

    What SHOULD happen is if you or I are willing (and able) to put a large amount of money in reserve, we SHOULD get a better processing rate, as we have now taken all risk (like they have any to begin with) away from them.

    Of course, that will never happen, but it would be fun to pitch it to them to see which lie they could come up with next.


     12:18 am on Jun 18, 2010 (gmt 0)

    I think credit card companies, processors and banks are trying to make up the income they are losing by screwing the general public by screwing over merchants. They're using ALL the loopholes they can since the financial reform laws were passed here in the US.

    I think that's absolutely true... Due to their greed and incompetence... all the cards that they have handed out to irresponsible college kids and spend-aholic house wives over the years... Those people are all bailing on them, and now they want to make the best customers with the most upstanding record, foot the bill. I just tried to get an interest rate down on something the other day, and they flat out refused. Then the guy says... Well, we're getting hit hard by defaulters. I said... So what does that have to do with me? My credit is perfect. So the defaulters walk away free and clear, and the people with the perfect credit get penalized? What's wrong with this picture?

    The responsible middle income people have been getting saddled with more and more of the burden over the years... There's only so much more those people can take.


     2:14 am on Jun 18, 2010 (gmt 0)

    Reserves and chargeback ratios are a norm. If your processor feels like they need to start a reserve they should have contacted you first to let you know and discuss how to set up the reserve without hurting your company. They gave you very poor service.... Pay Pal made a mistake of locking our account down once for a week over a $48 chargeback. Guess what we did, we dropped them. Funny thing is, they have contacted us quite a few times wanting our few million dollar a year volume back and as long as I run the company, the answer is no....

    Since you are not getting great service, I would find another processor and drop your current processor. As soon as you find your new processor, set up shop and make all the changes you need to on your site contact your old one, close out the account and see how long they will hold your reserve. Typically that time period is 180 days and if they want to hold on to it longer contact an attorney.

    It might not be a bad idea to also have a back up processor. We currently use authorize, but we also have Google checkout as well. We currently have Google checkout integrated into our sites already but not available for customers to use because Google checkout has higher processing rates. The idea behind that is that if something were to happen to authorize, it would take us about 3 seconds to turn authorize off and google checkout on and still run normal operations. Last year, authorize had a data center fire and were offline for about 48 hours. We went to our site, flipped a switch and customer ordering was not impacted at all.

    I hate to hear that this happened to you and I wonder if your bank was one of the banks that missed their recent TARP payments....


     4:31 am on Jun 18, 2010 (gmt 0)

    my bank to process my credit cards

    Who does? Or do you just mean that you have one bank for all your banking except CCs and another bank that does just CCs?


     5:08 pm on Jun 21, 2010 (gmt 0)

    As for being gouged, here's one for the rest of you e-commerce guys - Shouldn't their 'risk' be covered since we're stuck in the higher tier rates of MOTO (mail order telephone order) ?

    That's the excuse we're always given, anyway, isn't it? Even though I would pretty much guarantee that our chargeback rate is equal to or less than a card present merchant.

    I've been hoping for years a class action lawsuit because of that would get started by someone.


     5:31 pm on Jun 21, 2010 (gmt 0)

    Personally I think our risk should be covered by their fraud detection. We pay extra per transaction to have THEIR fraud checking system run against all orders. I think if THEIR fraud checking passes then we shouldnt be out anything for a chargeback for fraud.

    Sadly what the bank has told us is that we should charge an extra 10% across the board for all orders to cover our losses due to chargebacks. And what's worse is that most police departments really dont care to follow up on credit card fraud.

    I'm sure there will eventually be some sort of class action suit one day.


     5:48 pm on Jun 21, 2010 (gmt 0)

    I've been hoping for years a class action lawsuit because of that would get started by someone.

    Sign me up!

    Sadly what the bank has told us is that we should charge an extra 10% across the board for all orders to cover our losses due to chargebacks.

    What's basically happening is that everyone is passing the buck forward. The CC companies push the burden onto the merchants, the merchants push the burden onto all the customers, customers start to feel that if they are paying extra then they are more likely to issue a chargeback instead of trying to work with the merchants.

    The entire system needs more accountability. Merchants who are paying more for "risk (e.g., higher rates, larger reserve requirements) should also get some benefit from that. Customers who have a history of filing chargebacks that are reversed should have to pay for the chargeback fees (instead of the merchant).

    This 42 message thread spans 2 pages: 42 ( [1] 2 > >
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