The Green Sheet :: Company Profiles

Winning by the rules

When it comes to chargebacks, it is typically merchants versus cardholders. And it's tempting for ISOs and merchant level salespeople (MLSs) to take sides – favoring their clients, naturally. But there is another approach: relying on the rules.

The payments industry implemented rules and regulations so ISOs, MLSs and merchants would all understand proper procedures and adhere to them – or face the consequences of not doing so.

Even with the rules in place, however, some feel cheated or treated unfairly once fines are handed down. If people are unhappy with a policy or a decision, there are channels to go through to change or appeal it. But navigating the channels isn't easy; who can they turn to for guidance?

Transmedia Payment Services Ltd. is a credit card chargeback loss prevention consulting firm that works with merchants, acquirers and issuers to help them understand the rules and navigate the often murky chargeback waters.

When a business is challenged with a disputed transaction, Transmedia steps in to ensure the chargeback laws and policies are properly explored and exercised. It handles approximately $5 million in chargeback case volume each month.

Start of something different

Transmedia is made up of loss prevention experts and self-proclaimed "dispute gurus." "Our mission is to make card transactions secure by appropriately providing recourse to remedy disputed transaction for merchants, acquirers and issuers," said Sam Neuman, Transmedia's Director of Sales.

The company was founded in 2003 by Bernard Klein and is currently headed by Klein, Isaac Klar and Neuman. It employs a staff of 19, operating from its Brooklyn, N.Y., headquarters.

The investigative team works aggressively to find the people behind fraudulent transactions or locate missing merchandise. The team can either find the individual who will pay for the transactions or reverse chargebacks.

Transmedia started its business with just a handful of merchant clients. Over the years, many acquirers, issuers and merchants have been added to the company's portfolio.

In fact, Transmedia has had more than 100 percent growth for four consecutive years.

Neuman attributed the business increase, in part, to the company's uniqueness. "It's a brand new idea," he said.

"There are maybe two other companies that have a similar service, but they are more tailored as a basic outsourcing service and not focused or capable to handle lost chargebacks. It's a very exciting opportunity that we bring to merchants or acquirers. They can't lose. It's a win-win situation."

Transmedia provides other services, including:

Identifying fraudulent transactions
Disputing defective claims
Disputing shipping and restocking fees
Professional advice to prevent chargeback
Professional consulting on how to meet the credit card chargeback regulations
Merchant educational seminars

Transmedia also has two programs in pilot phases, with hopes of launching them in the summer of 2008. One trial ensures merchants for all chargeback reason codes, while the other purchases merchant chargebacks, similar to when collection firms buy debt.

Always room to improve

Transmedia is focused on the areas of card Association dispute resolution guidelines, regulations and extensive fraud investigation.

"With the expertise in these areas, we have developed procedures and methods to effectively recover and prevent definite losses to merchants, acquirers or issuers," Neuman said. The company also serves law enforcement agencies.

Transmedia investigates all types of card-not-present transaction scams. "When we look at the pattern of a fraud claim and order, we will very easily determine what type of fraud scenario that will fall under, and whether merchandise may still be retrievable," Neuman said.

The company stays on course with payments industry rules because it knows policies were created to better serve all payments professionals.

"Our research and practice finds the federal credit acts, as well as the bank card Association rules, to be well constructed programs with fine streamlined resolutions to assure that the most reasonable and fair results are achieved by those rules," Neuman said.

However, Neuman pointed out that this does not mean the system is perfect. Over time, many of the rules have either been ignored or forgotten. "The only problem is that over the years, most of the useful detailed rules have been undermined, unstudied and unknown to the communities for which they were created," he said.

Neuman wants payments professionals to know there is a problem with the way chargebacks are handled, and it is costing money. But, he also wants to inform them that something can be done about it. "ISOs and merchants are so used to the idea that a chargeback has to be paid and there is no way to reverse it," Neuman said. "ISOs can reduce their liability. There is money out there."

Chargebacks are, in fact, reversible and winnable. "Often you need help to initiate a chargeback, and often you need help to fight a chargeback," Neuman said. "We are here to get into the driver's seat to assure that reasonable justice is accomplished and to assure that all technical requirements are properly met."

All merchants need chargeback guidance, not just those who are high risk. "Every retailer has a 5 percent return," Neuman said. "Every card-not-present merchant has at least one-tenth of a percentage of chargebacks. There are always some instances that can't be resolved in good faith."

ISOs, MLSs and merchants can hire Transmedia on a case by case basis or on retainer to train staff on chargeback guidelines. Merchants don't need to face a chargeback issue to benefit from education. The company works with merchants to help them learn procedures to prevent and fight future chargebacks.

Breaking bad habits

The company believes card issuer chargeback programs have been running out of control. "Just because a chargeback can physically be initiated by the push of a button, chargebacks should not be a dictating mechanism unless it has met appropriate and reasonable requirements before initiated," Neuman said.

According to Neuman, the habits of cardholders and issuers have allowed such programs to be misused, and both sides are responsible. "It's the same with the opposing side of the table," he said. "Credit card transactions are often inappropriately initiated, causing losses for issuers and cardholders in the billions of dollars, all because the merchant was trusted with a merchant account."

Neuman noted that in many cases, a chargeback arises when a cardholder claims the merchandise received was defective, while the merchant insists the item is adequate. In instances such as this, the issue becomes more about making a point and being right, which is not helpful for winning the dispute.

"We would typically never argue that merchandise was not defective," Neuman said. "That's useless. That is not going to make you win that case. You have to look into other causes."

There are many requirements to make a chargeback valid, and it must be proved that all the rules necessary for a chargeback were followed. "If you don't raise the appropriate cause, you are going to lose the case," he said.

One of Transmedia's key service features is the minimal involvement of merchants. The company can usually resolve half of its cases without merchant participation: In issues that do not involve fraud, it resolves more than 90 percent of the chargebacks; in issues of fraud, the rate is approximately 74 percent.

Referrals worth making

Transmedia works with referrals from acquirers, ISOs, MLSs and others. ISOs earn revenue by recommending the service to their merchants. Transmedia staff closes the sales, but ISOs must perform the initial introductions and offer personal recommendations.

"After we close the sale, there is nothing that we require from the ISOs to keep up, except if they stop giving us the chargeback, we may ask the ISO to call the merchant and refresh them about us," Neuman said. Transmedia also "locks" merchants to the ISO by not servicing merchants if they decide to switch. ISOs can choose one of two compensation programs: a flat referral fee, or a 10 percent residual for the life of the account. "Depending on the frequency and the number of leads, we have different commission-based programs to sales partners," Neuman said. "These programs can start as little as just a one-time bonus and as high as lifetime residuals."

Whenever there is a dispute or disagreement, it can be difficult to see who is right or wrong; there is plenty of room for shades of gray. It can be helpful to have a set of rules nearby to transform those areas to black and white. But those rules are only helpful if they are properly understood and implemented.