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. Visa:
...] (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]