These feudal lords, i.e. mastercard/visa/amex have a monopoly and are acting like tyrants. One would think they are making plenty of ducats, but their greed knows no bounds.............

Check this out:

http://www.adultwebmaster.info/company/epoch_transaction_service/release144.html


:popcorn:............z

Just reading the subject, my first thought was "....and?"

Yes they are. They're a necessary evil that, unfortunately, can't be voted out of office.

If web hosters like us are a dime a dozen, running the gamut from quality to crap (and little to tell the difference), CC co.'s are the other end of the spectrum - all the power in the hands of a few and no choices to speak of.

As someone who's gotten suckered by a bad hoster and screwed by the cc co.'s let me tell you, neither end of the spectrum is good.

It will be interesting to see how this turns out - please keep us updated!

Internet merchants everywhere can only hope that lawsuits like this can somehow convince the credit card companies to stop putting 100% liability for matters beyond our control on the merchants that have done absolutely no wrong.

It seems to me that there must be some way the CC companies could limit fraud at little cost to themselves. I mean, every processed charge has to be checked against their account. If a card is known/reported stolen, how can you let that charge through and then blame the merchant when really, the cc co, ultimately approved the charge?

I'm seriously considering requiring callbacks on new customers and limiting new signups to the US, and not computerized callbacks, either. It's even worth it to outsource this at a dollar or two a pop to avoid the chargebacks and putting merchant accounts at risk.

Yes. Imagine how easy it would be to introduce a password for each credit card that needs to be used on the internet. That will probably cut all frauds by at least half if not more.

Well in a way, merchants have always been having the shorter end of the stick and bears 100% of the risk.

Originally posted by sprintserve
Yes. Imagine how easy it would be to introduce a password for each credit card that needs to be used on the internet. That will probably cut all frauds by at least half if not more.

Well in a way, merchants have always been having the shorter end of the stick and bears 100% of the risk.
Actually this is already being done. It is called Verified by Visa.

The problem is - everyone is out to get something from someone.

On those membership sites - the consumer wants to look at those images, meet people, etc. And then when it comes time to pay the bill - I didn't do it. Or maybe on the 2nd & third month - oh, I did not know it was going to keep billing me.

And for some of the merchants - I remember one person out in Malibu who was setting up websites to cheat people. He would create SSN, addresses, etc. He would shut down the bank account usually after about 45-60 days. And guess who was responsible for that money? The credit card processor. So they are somewhat trying to protect that.

It is basically dog-eat-dog. The CC processor thinks the merchant might cheat them. The CC processor has to be aware of CC fraud. The merchant is afraid of CC fraud & thinks the consumer will cheat him.

I'll try to hit each point in turn:

1. Monopoly - Visa/MC/Amex or "MasterCard" as the company in the news release states, are NOT "a monopoly." This is completely false.

Visa, MasterCard, American Express, Discover, JCB and Diner's are all separate companies. And they are all competitors with each other.

While Visa and MasterCard together share the majority of transactions, Amex and others are most definitely eyeing the same territory.

Just as Web hosts tend to formulate similiar TOS/AUP's, credit card companies tend to form similiar guidelines and rules for the establishment of both card issuing & acquiring activities under their respective brands.

In a similar vein, when one of them increases their Interchange rates to their Member Banks (which represents a large portion of profit from the banks who underwrite cardholder and issue cards), the other will usually follow suit so that they remain just as attractive to the Member Banks in question.

2. Merchants bearing 100% of the risk - while merchant agreements do hold merchants responsible and accountable for the activity on their accounts, on the practical level there are an astounding amount of losses every year that acquiring banks and ISO's take due to unpaid fees & chargebacks from merchants.

Two of the riskiest merchant categories are online computer sales and Web hosting. These have historically created a high amount of losses for many acquirers.

On the computer sales - the risk is that you have high ticket sales that may not be covered by a merchant if they are charged back, and a product that has a high re-sale value which is prone to fraud.

On the Web hosting side - you have recurring payments and sometimes for an extended period of time which creates a much longer chargeback liability window that can last for 6 months or longer.

There are numerous merchants who get started in business, process normally for a few months, then close up shop and the chargebacks start flowing through and there are no funds to pay for them. What happens? This becomes a 100% loss to the processor. And this kind of situation happens each and every day.

There are also merchants who get setup, process big sales, don't check or verify their orders - and then get hit by chargebacks which not only put them out of business but also create a loss situation once again for the processor.

These are all facts. And it is the reason why merchant processors try to look carefully at applications to make sure that they are approving "good risks" and not approving accounts that are going to create losses.

There are also numerous requirements on the % of chargebacks that are allowed on the merchant-level and portfolio-wide level and no one wants to violate these thresholds.

Then there are the penalty fees imposed on Member Banks and through to their ISO/MSP's by the Card Associations. These penalties can range from $5,000 up to $500,000/month depending on the severity of the violation.

So perhaps its more fair to say, "merchants AND their credit card processors hold a substantial portion of the risks in online transactions"... because at the end of the day, that risk is really shared.

3. Transaction Approval - when a transaction is authorized through a processing network and granted an authorization code, this doesn't guarantee anything except for the fact that a certain amount of credit line has been temporarily removed from the cardholder and it will be funded once the batch for that day is settled.

It doesn't at all mean that Visa or MasterCard or an issuing or acquiring bank or processor has given its "blessing" to the transaction nor deemed it valid and acceptable.

It just means a computer system issued a 6-digit auth code and reserved a credit line pending further action.

That is way fraud scrubbing and order verification is such a critical aspect for any online merchant these days. Doing phone verifications - whether manual or automated - is a BIG help in the fight against fraud... so are using all of the other available tools such as AVS, CVV, IP/GEO/BIN-matching, negative databases and other fraud prevention methodologies.

4. Initiatives to Reduce Chargeback Liability - as Corey mentioned above, Verified By Visa and the other Cardholder Authentication programs place much of the liability squarely back at the issuing bank for the 60% or so of reason codes that apply.

Other initiatives such as the October '04 RED (Re-Engineering Disputes) initiative from Visa represent other steps towards making it a more equal playing field.

At the end of the day, any system that involves many millions of merchants and billions of individual transactions and consumer events isn't going to be perfect... but for the vast majority of both businesses and consumers it generally performs very, very well.

BTW - Corey, that person in Malibu. Would his initials happen to be K.T.? Just wondering if it is the same one that I'm thinking of. ;)

They may be 'competing' with each other. Prolly like the gas companies are 'competing'. In the end the ones who control them are old school bankers, who are in an old boy network, one that's not very easy to break into by new competition. At any rate, as someone else posted, with today's technology, it should be relatively easy to limit fraud, and consequently loosen the reins a bit on small businesses struggling to survive.

It's the old classic: The rich get richer, the poor get poorer.........................:popcorn:........z

This was a few years ago & I was meeting with Chuck Burtzloff. For some reason, that came up. He never gave me the name of the merchant. Well he did, but I doubt WHT would appreciate that type of language LOL

How i see this is visa/mc and other card companies should introduce a system like Digipass device for all card transactions. For online transactions verifiedbyvisa is doing well more and more banks are participating in this program and it should become standard for all visa transactions soon i.e no card should be processed without this verification. I hope mastercard will come up with some thing where cardholders before making online purchase can verify there identify with ssn/personal information. And a little about zero liability policy to card holder i can bet on that no crook can steal your ssn/personal information by hacking or cracking a secure site like verifiedbyvisa.com. Only way they steal your personal information by scamming and i think for this kinda fraud transaction card holder should be 100% liable for that transaction. These days everywhere online i can see identity theft alerts telling ppl dont fall in online scams but ppl still fall in those scams and give out there financial and personal information. I just cant belive what part of the world ppl live who fall in scams with availibility of excess alerts/information everywhere. There should also be a policy against cardholder for this kinda theft/fraud where cardholder fails to maintain security measures of bank and gives out his information.

1. Monopoly - Visa/MC/Amex or "MasterCard" as the company in the news release states, are NOT "a monopoly." This is completely false.

Oh no? Ask yourselves this honest question... Can your business survive without VISA?

The answer is NO. VISA holds too much market share, just like Microsoft does, that makes them a virtual monopoly even though they have competitors.

Visa, MasterCard, American Express, Discover, JCB and Diner's are all separate companies.

And they are all competitors with each other


Oh come now, that argument is stretching things a bit thin and is pretty illogical. ;)

You are claiming that merchants can choose to use Discover and American Express instead of VISA, and still survive?

I think not. Without VISA a merchant is dead in the water, so the above argument about "competition" is not valid since the competitive companies that you have cited are not anywhere even near equal competitors with VISA (especially from a merchant's point of view).

Can you SURVIVE without VISA? Can you "choose" another competitor and survive as a merchant? Nope. Everybody knows that. That is the textbook definition of having monopoly power.

A merchant could not survive even with MasterCard, they don't have enough market share.

While Visa and MasterCard together share the majority of transactions, Amex and others are most definitely eyeing the same territory.

They can eye the same territory all they want, but the same question poses itself CDG.... Can a merchant freely choose to use AMEX instead of VISA and survive? The answer is no, they cannot "choose" that option unless they want to go bankrupt.

The mere presence of a few competitors is not evidence of a lack of a monopoly.

Microsoft has competitors in every field, yet they were held to be using monopoly power in an unfair manner, and that was a federal court of law that issued that ruling.

VISA is luckier than Microsoft in the sense that the public won't rise up against VISA since they benefit from the unquestioned chargeback policy, and since merchants are outnumbered by customers this makes public outcry for a monopoly action much less likely. With Microsoft, everybody was fed up with them, since nobody benefited from their unfair practices.

A lot of people don't know what a monopoly really is. When a firm possesses so much power that it can disrupt the marketplace or force the majority of the marketplace to sign agreements which they otherwise would not sign, then that firm possesses MONOPOLY POWER.

For example, if SBC doesn't offer me a good contract for my phone service then I can choose another phone/Internet service. If ABC Computer shop tries to get me to sign an unfair agreement then I can walk away and sign an agreement with XYZ Computer shop.

If VISA forces a merchant to sign an agreement stating that they have virtuallly no rights then the merchant cannot "choose" to walk away, since they'll go bankrupt.

It's not really any more complicated than that.

Is anybody here really going to try and argue that VISA does not have the power to make merchants agree to terms which they otherwise would not agree to? Can anyone here say that merchants are free to sign up with competitors of VISA if they don't like their terms?

Sure, they can refuse to agree to VISA's terms but then they'll be out of business since in today's world you cannot survive without VISA, that's a practical reality which some people are not acknowledging.

Microsoft worked hard to build up it's brand name too, they made their money legally over the years, but the moment they dominated the marketplace and started forcing firms to sign unfair agreements they violated the anti-trust statutes (even though they had plenty of competitors).

I would actually not say someone can´t survive without VISA. Especially for Corporate payments a high percentage only pays with AmEx. It entirely depends who your customers is.

Playing Devil's Advocate for a moment, I went to go buy some supplies at Sam's Club today (Sam's is Wal-Mart's discount wholesaler for the two or three of your that have not heard of them).

As of Sept. 22, Sam's, at least this store, will no longer accept Visa. The tricky thing is, they've NEVER accepted MasterCard. That leaves debit, Discover and AMEX.

They've already lost a lot of my business by not taking MasterCard (my business charge is a plat MC), and now I can't even use my personal charge there.

It will be interesting to see how this affects Sam's bottom line.

It is funny that you mention that, Xhale. :)

We shop at Sam's Club pretty frequently and we ended up getting a Discover card in part due to the fact that they accept Discover but not VISA/MC.

It will indeed be interesting to see what happens with this policy of theirs and if it pans out for them or not.

However, the point on the substantial market share held by Visa/MasterCard is well taken. Together, they represent over 80% of all credit card transactions. Some folks have taken to calling Visa/MC a "duopoly" which might be fitting in this case.

I don't think that anyone can argue the fact that Visa and MasterCard are very powerful organizations that yield considerable influence.

I'm just saying that by the same token, they are the companies that build their brands to the point where they became a favorite of consumers.

And just because a service is very popular and highly successful - doesn't mean that the provider should no longer have the right to set rules & policies by which it wants its service to be operated.

One of the fundamental issues that companies had with Visa and MasterCard were the restrictive exclusivity terms that they had with their Member Banks that prohibited open competition by disallowing members to offer cards under other brands.

This issue was settled by the WALMART settlement and I think that over the coming years, you are going to see other card brands fight aggressively for the same turf and there may be a lot of changes that take place as a result of that... and the hope is that more than a few of these changes will benefit the acquiring (merchant) side of the equation.

Originally posted by coreybryant
Actually this is already being done. It is called Verified by Visa.


Yes. But most banks don't support it yet, and the initiative is way too slow in coming...

The verified by visa thing... that's the Emmet Smith commercial, right?

That ad has been running for years, but I've never been on a site that uses that service.

Well all gateways are compatible now. Up until this year - too many entities had to be involved. Now just the merchant needs it. If you pay a merchant who has subscribed to VBV / MSC, you will be registered at this time.

A lot of issuing banks send out promotional items as well. I know my roommate received free movie tickets for enrolling in MSC

VBV enabled on most gateways, however if the user did not register for VBV it won't be asked, and they can pay just as usual without VBV

I believe you can require VBV on your site, and it will sign the person up for it to complete payment if they're not enrolled.

but it's added hassel, you may loose customers. VISA should make it mandatory for all their customers to enroll

Well all gateways are compatible now. Up until this year - too many entities had to be involved. Now just the merchant needs it. If you pay a merchant who has subscribed to VBV / MSC, you will be registered at this time.


That's a good fraud protection measure, but since so many cardholders don't choose the VBV service I don't see the value in it from a merchant's point of view.

You can force people to use a VBV card as a merchant I suppose, but you'll be losing out on lots of sales that way. I am aware that customers can activate their VBV during checkout, but forcing them to do that will only result in lost sales.

I don't see any hope of protecting merchants anytime soon, Verified by VISA only works if the majority of cardholders use that service, otherwise it's not worth the virtual paper it's printed on.

VISA should force that option before activating any VISA cards if they want it to be effective, but they know they'd lose out on sales if they did that, so they don't force that option to activate new cards. Which begs the question "If VISA is concerned with security then why don't they force that option?"

Because it's easier to just send merchants into TMF land than to risk lost sales via forcing all cardholders to choose the VBV security measure when they activate their cards ;)

If VISA doesn't force VBV on all customers then the fraudsters have no way of being held at in check. I see nothing but band-aids being thrown out for protection, nothing substantial.

----------------

CVV is pretty much a joke, since that data is stored along with other data when merchants take orders online, so if a hacker gets the list of cc numbers you can bet they have the list of CVV numbers to go along with them.

AVS is a joke too, if a hacker gets the cc numbers then they'll have the AVS data to go along with them.

VBV only works if cardholders choose that service and most don't.

IP fraud scrubbing is a joke too, since smart fraudsters will use proxy servers, and this service only serves to block mostly legit orders from people ordering from remote locations for various reasons, althought it probably catches the few fraudsters who are dumb-as-doorknobs.

Phone verification works, but who the heck wants to phone people all day, that's a joke.

I see no substantial solutions offered, just band-aids.

Also, what about chargebacks from VBV customers?

We all know that half of all chargebacks come from scumbag customers who lie, so how can VBV stop that? Is VISA going to deny chargebacks from VBV customers? I doubt it, the merchant will probably still get somebody's virtual foot broken off in their virtual butts ;)

I see the glass as not just half empty, but I see no water in the glass whatsoever from the merchant's point of view, the merchant is like a rag doll that gets kicked around by everybody.

Well, that's enought ranting for now, I'll be back later to rant some more though ;)

Actually the value to the merchant is there. Once that Visa card goes thru the VBV gateway & then is transferred over to the payment gateway - the payment is gauranteed from fraud. It does not matter if the consumer signs up for it or not.

I'm not sure I understand what you just said Corey. It certainly doesn't help against chargebacks by unsatisfied customers that don't have a legal basis to claim a chargeback, but that's a separate issue and can be disputed at Visa and MC. With Amex, the default enrollment in the no-dispute program for many internet merchants makes accepting Amex cards even less desirable.

As of Sept. 22, Sam's, at least this store, will no longer accept Visa. The tricky thing is, they've NEVER accepted MasterCard. That leaves debit, Discover and AMEX.

Good for Sams!!. If he were alive I bet he'd of done it long ago......

You know, most people have a debit card......be cool if someone opened a payment gateway that used that. Of course they've got the Visa/MC logo on them most of the time, and the chargeback issue raises it's ugly head. But I've charged back by calling my bank, so that's a viable solution............interesting stuff.

:popcorn: ..................z

But then you've got people's PIN numbers wafting through the ether-net.

I'm not sure if there's even a SSL encryption out there strong enough to make me comfortable with that, let alone unscrupulous websites collecting that info.

You know what would work? If each CC company had their own PayPal style service. The CC company links your credit account directly to your email address and password. You'd have the benefit of fraud protection without even having to remember your number.

You could perhaps purchase in this way: Go to site, fill cart, etc, get to checkout, pick CC. You're then taken to that CC card's site. Already filled in for you is the amount due. You enter the verification data and the CC co passes an approval code back to your merchant software.

Once the CC company verifies that you are you, it wouldn't even really matter where you order from or if your delivery address differs from the billing address. Given that the email address that has approval authority would be the same address that you'd get your monthly e-statements and other info from the CC co, it would be easy for them to know which email accounts are bouncing or otherwise disabled (therefore kicking up the fraud level). Disabling those accounts from making ecommerce purchases would be a simple matter of script automation.

Just an idea... it's 7:30 am and I have to be at the Dr.'s in 40 minutes - I'm not in the most rational mood at the moment. :)

Actually Discover card is doing something similar. They will give you a CC number to use for one purchase online. And then if that number is compromised later, that number is no longer valid.

To address a few items here in this thread:


CVV is pretty much a joke, since that data is stored along with other data when merchants take orders online, so if a hacker gets the list of cc numbers you can bet they have the list of CVV numbers to go along with them.


This is not correct. CVV data is NOT stored along with other data when merchants take orders online. In fact, any storage of the CVV information is a serious VISA/MC violation.


AVS is a joke too, if a hacker gets the cc numbers then they'll have the AVS data to go along with them.


This is not always the case - depending on how the card data is obtained.

Keep in mind that some fraudsters will use credit card number generators to "guess" at probable/possible card numbers. AVS can thrawt these types of attempts because it adds an additional verification element - just like CVV, which makes it exponentially more difficult.

That being said, if a waiter at a restaurant uses a "skimmer" device to read in the mag stripe and then they write down the CVV number separately... they will have more of the info.


VBV only works if cardholders choose that service and most don't.


This is not correct. If the issuing bank is a participant in VBV - which will soon become standard for all issuers - and the merchant uses VBV, they will be protected --- even if the cardholder has not enrolled in the service.

Also keep in mind that VBV doesn't protect against all chargebacks but it does defend 60% of the most common reason codes.


IP fraud scrubbing is a joke too, since smart fraudsters will use proxy servers, and this service only serves to block mostly legit orders from people ordering from remote locations for various reasons, althought it probably catches the few fraudsters who are dumb-as-doorknobs.

Phone verification works, but who the heck wants to phone people all day, that's a joke.


I will have to respectfully disagree with you on the above two comments as well.

We have seen, first hand, many of our largest merchants continue to grow their sales substantially month-to-month while reducing their fraud rates by 80% or more by implementing these types of fraud scrubbing measures.

Furthermore, phone verification can be very inexpensive and entirely automated. For instance, we are now offering FraudGate.com to all of our merchants since their solution is very affordable ($0.50 per call or less) and you can even fully automate so that you never have to lift a finger or dial a number.

If you ask me, $0.50 or less is a very inexpensive insurance policy to make sure that an order is legit - and it captures the majority of fraudulent orders placed because crooks don't like to give out their phone #'s and if its a cell phone (which could be temporary) that will also be known.


I see no substantial solutions offered, just band-aids.
Also, what about chargebacks from VBV customers?


One of the nice attributes of VBV is that if a cardholder disputes it for one of the 60% most popular reasons - it will not even be processed as a chargeback against your account in the first place.


We all know that half of all chargebacks come from scumbag customers who lie, so how can VBV stop that? Is VISA going to deny chargebacks from VBV customers? I doubt it, the merchant will probably still get somebody's virtual foot broken off in their virtual butts


Visa will - and does indeed - deny chargebacks from VBV customers under the reason codes protected by it.

This won't protect you, of course, if you don't deliver service or don't refund someone after a double-billing or if they are just fed up and unhappy with a product or service.


I see the glass as not just half empty, but I see no water in the glass whatsoever from the merchant's point of view, the merchant is like a rag doll that gets kicked around by everybody.


I can understand why you feel frustrated and why you feel like everyone is around to just beat up on merchants, given the circumstances that you went through with your prior processor.

And believe me - being on the acquiring side of the merchant processing industry, I'd be just as happy as all of our merchants if things like the chargeback ratio restrictions were loosened up a little bit or the fines that we as a merchant processor and our sponsoring bank incurs when these thresholds are exceeded.

But for all the negatives that do exist - there are a ton of major positives and we've seen so many merchants over the years benefit from accepting credit cards and grow their businesses to new heights, that it really gives us a "glass half full" perspective on the industry as a whole.

No widely used / expansive system on this planet is perfect. Not the government, politics, Wall Street, the IRS or the the credit card processing industry.

But I think that the overwhelming majority of the time, it does a very good job of balancing out the interests of the multitude of parties involved.

It's nice to see both side of the issue. Thanks, CDG.

I still think they're crooks, though, and that's both as a merchant and as a cardholder. :)

LOL, well there's no changin' some opinions. ;)

Just trying to give it that "fair and balanced" perspective, is all.

Good info CDG, I feel a bit more comforted in some of the things you said.

The CVV information you provided was helpful, I did not know that data was not stored by the gateway servers or the bank's online databases ever.

If you say it's not stored ever, then I'll take your word for it.

I can understand why you feel frustrated and why you feel like everyone is around to just beat up on merchants, given the circumstances that you went through with your prior processor.


??

CDG, I think you are mistaking me with somebody who got their account shut down, I have never had an account shut down. My chargebacks have always been manageable. I just dislike VISA's policies anyway :)

I spoke up for "orderasap" in other threads, he was the one who was TMF'd and looking for help, not me.

The reason I complain so vehmently (about VISA's chargeback policies) is because I have to keep my prices lower than what I could really sell for, because the higher the price the higher the number of scumbag customers who will lie and say they never ordered something just to get their money back.

There is a direct correlation between price and scumbag customers who make up lies to get their money back via chargebacks. I know this from many years of selling both physical and digital goods.

Don't get me wrong, my chargebacks always remains fairly low even with a higher price, but the difference between being shut down (TMF'd) and having an account in "good standing" can be measured on the tip of a needle ;)

In other words, there is no wiggle room for even SLIGHT increases in chargebacks initiated by lying customers, so I take the conservative route and just keep my prices a bit lower than what I could sell for, so that my chargebacks remain very low relative to other merchants selling the same types of items.

I'm just saying that I don't like the policies of VISA, since those policies incentivize customer fraud (lying) with their "unquestioned" chargeback policies.

My pessimism comes from knowing that I have to watch my step everyday because no matter how honest I am, and no matter how low my chargebacks are over the long haul, if the wrong bunch of customers come through my site then they can shut me down by lying, with no recourse to the merchant.

There is no "set of rules" that a merchant can follow and know that they are okay, anybody can be shut down based on the lies of customers who are given carte blanche incentives to lie and get their money back.

Check this out CDG, I think you'll find it true....

The average person out there has to work for a living, and $50 or $75 to them is a lot of money, that's almost a day's "net" pay for many people out there.

So when they are told by VISA that they can say they never ordered something and get their money back unquestioned, many of them feel they have no choice but to do that when their cash situation gets "tight" suddenly one month.

When people get short on cash and have to decide between feeding their child or screwing over some merchant who they ordered from 3 months ago, there is no real choice at all for people. It's obvious what they'll do, and it's hard to blame them but that doesn't make it any less immoral or illegal.

On top of losing the money, the merchant can be shut down for these lies, without question or investigation.

I just don't see how you can defend this policy CDG, I realize this policy is not going to change but I don't think we all have to defend it like it's the only way.

I realize VISA cannot refuse chargebacks since that is not possible, they must grant all chargebacks or people will lose faith in the VISA system. I'm not saying that's what they should do.

But it should be harder to "shut a merchant down". VISA doesn't have to give banks so much leeway to shut down merchants so 'systematically' and without any appeals or investigation by humans to find out if they are really fraudsters or have just been the victim of a bad string of customers.

They could simply require banks to "temporarily" suspend the account when the chargebacks go up, and then require that the banks meet certain guidelines for investigating the matter before shutting down a merchant and telling them they can never process again.

I mean, even you acknowledged that as unfair as the story of "orderasap" was (and as much as it was clear he did nothing wrong) there is nothing that you or any other processor can do to help him.

He (and others in his situation) are simply "out of luck" and that's it. I just don't see how you can defend that policy so vehemently, I'm not asking you to disagree with it, but you seem to really believe in that VISA policy as though they have no choice but to shut down merchants without investigation.

They could temporarily suspend accounts instead, and they could require banks to meet strict guidelines before TMF'ing anybody, and not give banks so much leeway to TMF whoever they want and take off whoever they want.

Merchants should be given the same protections at ALL BANKS affiliated with VISA, merchants should not have to fear 'certain' banks and not fear others, since it's often too late by the time a merchant learns of a particular bank's TMF procedures. That's like giving DMV employees the power to terminate a drivers license, there are good employees and there are jerks who have no sympathy. There should be an "overview procedure" that ensures an equal and fair process for adding merchants to the TMF list. It's one thing to suspend an account to protect banks from liability, and it's another to permanently TMF somebody.

That's enough ranting for now, I shall be back later to continue ranting. ;)

First and foremost, CRT... you're right. I did accidentally confuse you and orderasp in previous post - my apologies on that.

Didn't mean to imply that you had been terminated when indeed this was not the case. :)

Regarding your other comments - please understand that I am not trying to "defend" Visa/MC policies so much as I am trying to explain them in as much factual detail as possible so that everyone knows where they are coming from and why they have implemented some of them.

There are often a lot of myths and misnomers that exist about credit card processing and I always try to clear up the facts behind the situation whenever possible.

At the end of the day, I really believe that this helps provide merchants with the ability to make better and more educated decisions - and to avoid a lot of the common pitfalls that they might otherwise fall into.

I also happen to agree with you that it is way, way too easy for cardholders to charge back a purchase. And, like you, I would also prefer that the guidelines to be made much more specific with respect to a few of the requirements to place a merchant on the MATCH list.

So you won't find me disagreeing with you on what we'd "like" the situation to be like. However, in the mean time, the next best thing is for everyone to understand how the situation "is" right now so that they can take appropriate measures to protect themselves while maximizing the benefits provided by credit card processing.

At least that is my two cents. And for what it's worth - I think threads like this are actually very helpful as the issues brought up here are concerns that I'm sure many merchants have.

I've been knee deep in paperwork all week. It looks like I missed a great thread.

Let me add my 2 cents...

Visa and MC may be seperate entities, but in reality V/MC are ALWAYS together when you apply for a merchant account. They are like partners with the same flawed rules. Then you have the others labeled seperately... Amex, Discover, etc. V/MC are the cake, the others are only icing. There is a monopoly here.

As CRT pointed out, I was indeed TMF'd by my processor over a year ago. Look here to see how easy it can happen: http://www.webhostingtalk.com/showthread.php?s=&threadid=307924

If you think it won't ever, or can't ever happen to you.. think again. The general perception of TMF'd merchants is "they are scammers, crooks, and deserve what they get". This may be true sometimes, but not all the time. The rules and regulations merchants must abide by may sound good in a corporate meeting or on paper, but in practicality and fairness they are severely lacking.

I think the big issue here is internet transactions.

V/MC are still playing by brick and mortor rules and they are not practical in ecommerce. From some of the posts, it sounds like they are making attempts to catch up with the technology, but they really need to focus in and try harder. Making an effort is not good enough if they are not reaching the goal. It makes me question what their true goal is.

I think the frustration and bitterness from internet merchants comes from the fact that we are burdened to implement 'solutions' that are ineffective, impractical, or commonly non-existent. V/MC get fat from our hard work, but if you dare stumble (due to unreasonable rules) you will be chewed up and spit out like a 5 cent bubble gum. They don't care, and its quite apparent by the rules.

Also, there are 3 required parties involved here:
1. V/MC
2. Merchants
3. Consumers

Merchants are what allows V/MC to do business with consumers. We are, in essence, their gateway. Their interface to consumers. But somehow we are disposable. We are the fat kid and they are the bully. They must figure out that we are valuable too, and help us help them.

They MUST take internet businesses seriously. Ecommerce is growing by leaps and bounds, and I believe will eventually surpass face to face transactions. Obviously, there are issues involved with card not present transactions. These issues must be addressed now. Not later.

Blacklisting and penalizing merchants is not the solution. This has been their focus to date. "It must be the merchants! Bad merchants!" Wrong. The problem is there are no real solutions to the issues involved with card not present transactions, and then throwing fuel on the fire by inviting consumer disputes.

Maybe my family is dysfunctional, but I can make a list of distant family members who wouldn't think twice about disputing a legitimate charge to their credit card bill. I could and have explained to some of them its wrong, but it doesn't make a difference. I'd bet that you know the same kinds of people, whether you would admit it or not.

Part of the problem is society and moral breakdown. But the other part, which is more significant to this discussion is that V/MC instigates, invites, and promotes this activity.

Consumers MUST be held responsible. We must ALL be held responsible. V/MC, merchants and consumers. All of us.

V/MC has all the power. With power comes responsibility. They must take the first steps to correct and prevent the problems. Not the other way around. Then we as merchants and consumers can follow their lead.

I would like to know how we can effectively motivate change. The only solution that comes to mind is litigation. That stinks.

I think that you've articulated some very valid points. And clearly, not every merchant on the MATCH deserves to be there.

This is much akin to people who have been arrested and jailed for a crime that they didn't commit. Neither situation is fair and neither system (the justice system or merchant processing) is right 100% of the time.

Of course, that aside - we still need courts & jails to prosecute the people that do wrong and we need the MATCH system to protect against losses from those bad merchants that create loss situations.

That being the case - I'm in 100% agreement that some of the rules for placement on the MATCH list really should be tightened further. For instance - if a merchant creates a loss or factors or commits an egregious breach of Card Association rules - that's one thing.

But if a merchant disputes a cancellation fee after leaving a processor - in my opinion that shouldn't warrant placement on the MATCH list. If they want to duke it out in court over the balance, that should be a separate issue but it shouldn't prohibit them from getting a new merchant account.

There are clearly some inequities in the current system.

You have also articulated an excellent point about the lack of responsibility that exists in our society at this time with respect to what is wrong or right. I am sad to say - you are right on the money with that in many ways.

I've personally worked on some risk investigations, called up customers and they have told me - point blank - that they charged back a purchase because they were "upset" with the merchant... even after receiving the product! (Clearly, this is completely unfair to the merchant and it makes you wonder how the customer can sleep at night!)

The fact is - some people will take advantage of a situation at every opportunity. And it is WAY too easy for people to issue chargebacks. Some can call up their bank and do it over the phone these days without even needing to fill out any paperwork.

So the first step in stopping the flood of unfair chargebacks would be to put a higher burden of proof to the cardholders when they dispute a transaction and to make it a little bit more arduous than it currently is to dispute purchases.

In terms of changing society's attitudes - I wouldn't even know where to begin on changing that.

As a last point to your post - please keep in mind that Visa and MasterCard are huge organizations with numerous Member Banks, authorization & settlement networks and ISO/MSP's that handle many countless billions of dollars in transaction volume.

They are all working towards re-engineering the way the system works to better adjust for Internet sales. But they can't "turn on a dime" given the sheer size and complexities inherent in these bankcard systems.

I think that they are now on the right track in a lot of ways. The Cardholder Authentication programs, the RED Initiatives and others are all changes that will help to balance the playing field.

Litigation isn't going to help and would only make things worse. If you want a perfect example of that, look at what happened post-WALMART settlement. New competition entered the market and interchange costs realized their biggest increases ever.

I really believe that help is on the way and over the next few years you are going to see the situation become much more friendly for merchants and all of us on the acquiring side of the industry.

But like anything else - it takes time. Credit cards processing has been around for decades but in just the last 5-10 years there have been a mind boggling number of advances in technology - both internal and external - to the industry. Sometimes it is hard for such large organizations to keep up with it all as fast as we would all like. :)

you've got to be kidding?

Credit card processing technology is archaic, out-of-date, and changes happen at a snail's pace.

For example:

Expiry dates are a joke! run a card with an invalid expiration, just bump the year forward to any year in the future and boom - it passes.

AVS is a joke! AVS matches only the numeric part of the street - it will "pass" even with obviously wrong addresses.


Encryption - been around for ages, yet we still read every day about millions of credit card accounts being stolen simply because someone broke in or got physical access to the plaintext database storage of credit card numbers at a merchant or store.

Chargebacks:

Sorry, I don't buy your line about protecting the clearing nets. The truth is, by denying all chargebacks the credit card processors keep the discount fee, keep the high chargeback fees, and keep the penalties. It's very profitable for them to ignore fraud and force the charges back onto the merchants.


Originally posted by cdgcommerce

but in just the last 5-10 years there have been a mind boggling number of advances in technology - both internal and external - to the industry.

Do you honestly disagree with my comment that the world has changed a lot in the last 5-10 years due to the Internet?

Frankly, maybe I'm biased because I work a lot with e-commerce merchants but I think that the "Dot Com" scenario has changed the buying patterns of many consumers and made the Internet a very viable channel for sales transactions.

As I've stated above, these massive changes have resulted in the credit card processing industry being behind and having to play a game of catch-up... and things are finally starting to shift in the right direction.

Technologies like AVS (which can verify the Street # and Zip Code), CVV (Cardholder Verification Value) and the Verified by Visa/MasterCard SecureCode authentication are all steps in the right direction. More are on the way and there are numerous commercial solutions designed to reduce the fraud risk for merchants, such as Fraudgate.

I'm also very curious what you base your comments about how it is "profitable for them [credit card processors] to ignore fraud"?

Chargebacks are the #1 source of risk and loss for all merchant processors. They are the single biggest liability that all merchant processors have. They are also the single biggest threat to merchants.

The only people who find it "profitable" for fraud to be ignored are the fraudsters.

Chargebacks are the #1 source of risk and loss for all merchant processors. They are the single biggest liability that all merchant processors have. They are also the single biggest threat to merchants.

Yes, that sounds true.

There is a different issue which I would like some insight into CDG.

I understand how the acquiring banks will suffer losses "if" the merchants close up shop and cannot pay them, that's a real loss for the banks. No argument there.

But what about VISA itself suffering losses as a result of chargebacks?

VISA requires all acquiring banks to make up the losses which each bank is responsible for, and I would not think too many banks go bankrupt relative to the entire VISA network of banks as a whole (some do, but not many probably). So where is VISA's incentive to take such a sharp stand against chargebacks and give such a low threshhold before TMF'ing everybody?

*Obviously VISA loses the "transaction fees" which are reversed when a chargeback happens, but those losses are not "CHARGEBACK losses" since those transaction fees would be reversed even if a customer had a normal refund issued. (so those losses are not particular to a chargeback situation, and thus do not apply to my question)

So I'm not talking about those normal transaction fees since those would be reversed no matter how the customer decides to get their money back.

I'm talking about the actual losses to VISA (not the acquiring banks) from CHARGEBACKS only. How does VISA suffer actual losses from chargebacks if they require all acquiring banks to pay for ALL losses?

Even if a few banks go bankrupt (thus leaving VISA with a few losses here and there) I would still think VISA can pass on those losses to the entire network of "healthy banks" (and to merchants) via slightly manipulating the rates here and there (by a few hundredths of a point).

So I just don't see how VISA needs to be so harsh with chargebacks since they don't stand to lose much if they require the banks to make up all losses (and since they have the power to pass on those losses to other banks in their network, or to the merchants themselves).

VISA seems to be "sitting pretty" no matter how many chargebacks happen, so I don't see why they cannot ease up a bit on the chargeback rules. I would think the acquiring banks are in a better position to absorb more losses than actual merchants, so I think VISA should take away power from the banks and give more power to the merchants, since there will NEVER be any shortage of acquiring banks trying to affiliate themselves with VISA for the privilege of being a part of the VISA system.

I have heard you talk about the high risk and the super low profit margin of acquiring banks CDG, but if the situation is that bad then why do so many banks line up to offer VISA services? If it's that bad then why don't all the banks stop offering that service? It sounds like acquiring banks make a lot of profit to me.

I don't think VISA suffers from chargebacks, I think only the banks suffer and VISA seems to allow the banks to take out their anger on the often innocent merchants. I think power should not be given to the banks like that, I think VISA should not give away that power to people under them so casually. That's the real problem, the banks have too much power and that fact could be changed sooner rather than later. Yes, it would take work and some time, but nothing worth having comes easy.

I just don't see VISA as even attempting to change this, it's just hard to imagine this power structure changing anytime soon.

Obviously VISA cannot allow unlimited chargebacks or they would suffer, I'm just saying they could ease up by a percentage point or two and not really suffer themselves.

That's my rant for the day, I'll be back to rant more tomorrow. :)

You ask some excellent questions. Here are some clarifications to help answer your question.

Just bear with me as this is a very lengthly response but I'm hopeful it will answer some questions, LOL. :)

Visa and MasterCard are both Membership Associations comprised of and owned by banks. This is an important distinction between Visa/MC and other card types and it is the most fundamental difference between them.

With other card types like American Express, Discover, JCB and Diner's - BOTH the issuing & acquiring side of their operations are handled in-house by these respective companies.

With Visa and MasterCard, numerous financial institutions are registered and setup as Member Banks to handle Issuing, Acquiring or both functions.

Thus, 100% of the actual Acquiring & Issuing are outsourced to thousands of different banks - with the Visa/MC Interchange system being the central component that keeps it all together.

Each of these Member Banks is held fully responsible for any financial liability or losses incurred as a result of their processing of transactions either on behalf of cardholders or merchants.

For an Issuing Bank - their risk is the possibility of default by a cardholder. Their reward are the Interchange fees that they benefit from on every transaction from the Acquiring Banks... along with secondary forms of revenue such as interest on cardholder credit lines, annual cardholder fees, etc.

Thus... 100% of all Interchange revenue goes straight back to the cardholder's issuing bank. And thus, when you hear about an Interchange fee increase - Visa/MC do not directly benefit from this but rather this means more profits for all of their issuing banks.

The most recent rate increases were actually done not just to offset some of the losses from the WALMART settlement but also to keep their Issuing Banks from swaying to other card brands like Amex who have higher Interchange pricing. The only entities that "won" from these increases were really the issuing banks who now make more profit on various interchange pricing tiers.

For Acquiring Banks - the risks are just as you stated above. The risk of loss due to unpaid chargebacks and/or fees. No need to go into any more depth on that here. :)

Now I'm sure you are asking - if the issuing banks get the Interchange fees, where does Visa and MasterCard make their money?

The answer is: dues & assessments. As with any membership organization, the members "pay in" to the system. Dues & assessments are the cost that Visa and MC charge acquirers on ALL volume put through their respective systems and this is the main source of profit for the Visa/MC organizations.

In addition, Visa and MasterCard collect numerous other fees for such things as access into their networks, registration, service & penalty fees for non-compliance, etc.

The profits that Visa and MasterCard generate are then used in part to fund their global advertising & marketing campaigns to promote their brands on behalf of their Members... as well as to maintain the centralized networks and develop new technologies to benefit their Member Banks.

And so this brings us back to your original question... and the answer is that the Visa and MasterCard Associations do not directly incur any losses on transactions - but their Owner/Members do indeed have a very direct and vested interest in this since they DO hold full liability.

And thus, as an end result, these Associations have rules designed to protect and limit the exposure held by their Issuers & Acquirers. Also keep in mind that their charter members have substantial input into all of this and sit on the board of directors for these organizations.

So you could really say that the Visa/MC rules are a reflection of the attitudes and mindset of their Member Banks. It is very much a "symbiotic" relationship as opposed to being one central organization that merely dictates terms to its banks without any input or feedback on their part.

Let me know if that answers your question. I wanted to go into as much of the "behind the scenes" details to help give you a perspective on how it all works... hopefully I did an ok job with answering what you were asking!