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CC chargeback rate > 1% not ok?
Looking for merchant accounts accepting chargeback rates of up to 2%
SteveAtCipSoft




msg:645391
 1:41 pm on Sep 8, 2005 (gmt 0)

Hello everyone,

my company is currently evaluating the possibility to switch from our current payment service provider to a payment system we implement inhouse. We're selling online game subscriptions over credit cards.

Therefore we're looking for an appropriate CC merchant account. The problem is, that our chargeback rate lies between 1% and 2% on average, which is no problem to us. However the merchant account contracts we've seen so far all require chargeback rates below 1% which are almost impossible to guarantee for us.

So my question is, are there institutes offering merchant accounts allowing chargeback rates of up to 2%? Any suggestions?

Thanks for any advice you might share,
Stephan "Steve" Vogler

[edited by: lorax at 6:07 pm (utc) on Sep. 8, 2005]
[edit reason] no email addys please [/edit]

 

Corey Bryant




msg:645392
 1:51 pm on Sep 8, 2005 (gmt 0)

Online game subscriptions. Is this gambling? Or "Nintendo" like games?

Most processors usually look at the past three months sometimes 6 months. Sometimes only one month. It all depends on your monthly volume, etc. As well as where you are located

Will your current MAP / electronic gateway not support the move that you are trying to make?

-Corey

Miklo




msg:645393
 2:01 pm on Sep 8, 2005 (gmt 0)

If you want a direct merchant account, you are probably stuck with the 1% as especially MasterCard is very strict in this. The first month you will receive a warning and if you have two consecutive month with more than 1% in chargebacks for MasterCard, they will immediately close the account.

I think you will be better of with a third party processing solution. They will probably only require an extra holdback on the account and a Rollover Reserve of 5 or 10%, but they will not make you sweat to keep everything below the 1% limit as they can normally compensate for this with other accounts.

Another alternative would be to go with an high risk merchant account with an offshore acquirer, but usually the rates for these companies are between 7-10% per transaction, sometimes even more.

What is the location of your business?

SteveAtCipSoft




msg:645394
 2:35 pm on Sep 8, 2005 (gmt 0)

Thanks for the feedback.

Some more info on our business:

We're running indeed "Nintendo-like" games. It's something like World of Warcraft, if that rings a bell. Only that we're around since 1997. :P We're based in Germany and we're processing more than 10.000 CC transactions per month. Our current payment service provider is pretty expensive and is not willing to help us lower the processing fees in any way.

Looking at the number of 10.000 transactions, 1% CB-rate, means 100 chargebacks per month. We can struggle to get the rate to say 0,8% creating a "buffer" of 20 chargebacks per month. This is like nothing. A single criminal kid with a bunch of stolen credit card numbers can easily trigger 20 chargebacks and push us above the 1% limit.

So, you say there are no direct merchant accounts allowing more than 1% chargebacks?

Miklo, what do you mean by high risk merchant accounts?

Raymond




msg:645395
 3:08 pm on Sep 8, 2005 (gmt 0)

You can discuss with your bank to put a deposit of a certain amount to upkeep a high chargeback merchant account. The deposit amount ranges from $100,000 USD and up. In my country this deposit is required for ALL online merchant accounts.

Corey Bryant




msg:645396
 3:49 pm on Sep 8, 2005 (gmt 0)

You might consider looking into Verified by Visa. This will help reduce a lot of fraud. it does cost but most acquiring banks will give you $.05 per transaction as a discount.

Sign up, get your chargebacks reduced and go back to them in 3 - 6 months for a rate review. Changing processors and gateways is very difficult. Well it is easy but it is a pain because you are so used to how "it used to be".

Also consider telephone verification as well - like varilogix, fraudgate, fraudguardian, etc

-Corey

SteveAtCipSoft




msg:645397
 4:09 pm on Sep 8, 2005 (gmt 0)

@Raymond: So you're saying, that the bank will accept a higher average chargeback rate, when we offer them a higher deposit? I guess, it's worth a try. A deposit would be no problem.

@Corey: Our current PSP is using 3D Secure since a couple of months. And yes, it does help a bit. But only in certain countries where 3D Secure is supported. Unfortunately in most countries 3D Secure isn't supported and therefore won't affect the chargeback rate. You still get the "liability shift" but we don't care about that. All we need is an higher allowance of chargebacks.

Thanks,
Steve

Morocco




msg:645398
 9:12 pm on Sep 8, 2005 (gmt 0)

3D Secure is supported by Visa internationally regardless of bank and or cardholder participation. You don't get chargeback blocking so you have to represent the 3D Secure data to your bank and then its settled.

In regards to your question on being able to get an account that will allow you to go beyond 1%. It doesn't look promising. If you hit 1.5% Visa/MC will put you on the Global Monitoring Program.

Steve7




msg:645399
 10:01 pm on Sep 8, 2005 (gmt 0)

@Morocco: Yes, 3D Secure is internationally supported for merchants. But not for customers! For example, it's impossible to get a "Verfied by Visa" or "Master Securecode" card in Germany. There is simply not a single German bank supporting the standard at this time! This means if you (as a merchant) are participating in the 3D Secure program and get a chargeback from Germany, you can keep your money. BUT: It is still a "successful" chargeback increasing your chargeback rate.

Corey Bryant




msg:645400
 10:52 pm on Sep 8, 2005 (gmt 0)

It actually does not matter on the consumer side for VBV, etc. If you have it - that is what protects you. The consumer does not have to be enrolled in it. It will help some.

But what you are asking for - well your option would be a 3PP - which is almost downgrading your business.

Let me ask you this - do you have recurring billing or a one-time payment?

-Corey

Steve7




msg:645401
 11:05 pm on Sep 8, 2005 (gmt 0)

Up until now, we only had one time payments since it always seemed more fair towards our customers and less complex for all parties involved.

Does recurring billing help? Certainly it increases the overall amount of transactions. But I'd say it increases both: the valid payments and fraudulent ones... not giving you any advantage concerning the chargeback rate. Or am I mistaken?

And talking about 3PP: Any recommendations for a solid company that is likely to accept our CB-rate at a reasonable price level?

Corey Bryant




msg:645402
 11:21 pm on Sep 8, 2005 (gmt 0)

The reason I asked about recurring billing is because this works fantastic for some merchants in your situation:

They have a 3PP and a merchant account. They push all their first-timers thru to the 3PP. They let the 3PP do the fraud checks etc. Once it passes, fantastic. And most of them then push the 1st recurring payment. After they, the recurring payments go thru the merchant account.

This way, it has aleady been "screened" and chances are very unlikely about it being fraud. And usually by 60 days, you will know if it is fraud or not (from the customer).

Another option - virtual check. No chargeback fees. The downside though, the check could be "hot". Using virtual checks is not the same as credit cards, but once you get the money, you got the money :)

-Corey

Miklo




msg:645403
 10:45 am on Sep 9, 2005 (gmt 0)

Well, for your business location, there are several third party processing options:

WorldPay
MetaCharge
MultiCards
Ogone
Chronopay
2CheckOut

I would suggest to just being honest with them and explain your situation.

Just another question: How come that the chargeback rate is that high? Is it usually really fraud or don't people like the game?

Most 3PP have some extra security features installed, like country blocking, bounce email system, Maxmind etc. which will decrease the chargeback figure. If you can keep it up to the level of 0.8%, that would be good.

globalissa




msg:645404
 11:09 am on Sep 9, 2005 (gmt 0)

For reasons I can't post on this website I would definitely absolutely remove Worldpay from the list of choices. On the other hand, I've seen quite a few businesses move to 2checkout which also sports newer backend code, maybe lower fees and much better technical support.

Steve7




msg:645405
 12:20 pm on Sep 9, 2005 (gmt 0)

@Corey: interesting idea to use a merchant account for recurring billings and a 3PP for first time customers. But there are also some serious disadvantages: 1) the CB-rate at the 3PP will now be even higher (maybe up to 3%!) without the good recurring payments 2) you have to explain to the customer why the company name on their CC bill changes 3) and you have to maintain 2 payments systems... Sounds not too good.

Virtual checks won't really help. We cannot abandon CC, which is by far the most commen payment method.

@Miklo: Thanks for that list! Worldpay is an option we are currently investigating. Even though there are complains about them, they are owned by the Royal Bank of Scotland, which makes them a whole lot more trustworthy than most other 3PPs... 2CheckOut 1)doesn't accept online games 2) requires you to keep the CB-rate below 1%. Too bad. I'll take a look at the other names.

The largest part of our chargeback-rate origantes from fraud of individuals who live in Brasil, Mexiko, and Poland. They "resell" subscriptions (without our knowledge of course) for less money, in-game goods, or whatever. When they've got what they wanted, they chargeback their money...

Thanks for your suggestions, folks. I really appreciate your help.

Corey Bryant




msg:645406
 1:21 pm on Sep 9, 2005 (gmt 0)

It might not sound too good but the Chargeback ratio does not go against you and you rely on the 3PP to control your fraud more. And most have a bit more stringent fraud control than a MAP.

I just purchased something from Metacharge the other day actually and it used VBV as well. I did not enter anything extra since I am not enrolled though

-Corey

paladin




msg:645407
 1:26 pm on Sep 9, 2005 (gmt 0)

Have you checked with IPS in Israel? They are the same company that provides service to PlayTech so they should be able to help you.

I have a contact there, so let me know if you need a name or email.

Good luck

Miklo




msg:645408
 2:01 pm on Sep 9, 2005 (gmt 0)

I think most 3PP out there nowadays use VbV and MSC. As far as I can tell, this does not help to prevent fraud. The fraudsters still find ways to get access to these cards. I guess people out there just are not careful enough when it comes to giving out their personal information.

Personally, I wouldn't want my money to be in Israel.

Morocco




msg:645409
 6:07 pm on Sep 9, 2005 (gmt 0)

Miklo,

You are correct. These programs aren't the silver bullet when it comes to fraud. Fraud will still exist but you as the merchant will not be liable the bank will be liable.

otc_cmnn




msg:645410
 11:42 pm on Sep 14, 2005 (gmt 0)

Sounds like you could do more on your own end to prevent fraud if one criminal kid can generate 20 chargebacks. If you are tracking IP's, accounts, cc numbers etc etc that kids account would be shut down long before he did that kind of damage. Sure you may loose a bunch of 'good' sales by being stricter in your approvals, but at least you'd still have a merchant account. Besides thes cost of these chargebacks is huge (ours are $60 a pop) so you should probably be denying more transactions...

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