Every issue that affects merchants is a potential business-building opportunity for ISOs and merchant level salespeople (MLSs). The proposed $7.25 billion settlement of the class-action lawsuit brought by retailers against Visa Inc. and MasterCard Worldwide over alleged excessive interchange fees figures to be an exceptional opportunity for sellers, since it means money in merchants' pockets.
In March 2013, the lawsuit's class of plaintiffs - approximately 8 million card-accepting merchants and other organizations in the United States - were mailed a notice that outlined what they must do to opt in (or out) of the proposed settlement.
But who would blame business owners from glancing at the tedious document, throwing it into the "I'll get to it when I get a chance" pile and promptly forgetting about it?
However, this notice is unlike the countless pieces of junk mail that businesses receive; forgetting about it could result in small to midsize merchants missing out on thousands of dollars in settlement funds. That's where ISOs and MLSs can come to the rescue and help merchants understand the settlement mechanics and what they need to do to claim the money due them.
The proposed settlement, which was granted preliminary approval in November 2012 by a New York district court judge, is divided into two parts. The first is the $6.05 billion Cash Settlement Fund. The second is the Interchange Fund, which is estimated to hold approximately $1.2 billion.
Money from the first fund will be distributed once (and if) the settlement is approved by the New York court in a hearing scheduled for Sept. 12, 2013. Merchants will receive their portions from the first fund based on the volume of Visa- and MasterCard-branded card payments they transacted between Jan. 1, 2004, and Nov. 28, 2012.
Money from the second fund will be distributed only after an eight-month period has elapsed, with that period starting no later than July 29, 2013. The amount from the second fund that each merchant will receive is calculated based on transaction volume during that eight-month period.
There are no hard and fast numbers about how much merchants can expect to receive from the settlement. But Bill Hoidas, Director at Matrix Payment Systems, estimated merchants might receive from the first fund anywhere from $400 to $600, based on every $100,000 in card payments over the nine-year period set forth in the settlement.
Therefore, even a small mom-and-pop shop that did only $100,000 in card transactions per year could expect to see a check from $3,600 to $5,400. Given the travails of the economy, that money could be used by merchants to grow businesses or stay in business.
As for the second fund, refunds will be calculated based on 10 basis points (one-tenth of 1 percent) of card transaction volume over the designated eight-month period; so for each $10,000 in card transactions processed, claimants can expect to see $10. Once again, that money can add up quickly based on merchant size.
To take part in the settlement, merchants must take action. If they don't file the required paperwork with the claims administrator, they forfeit their right to settlement funds. Additionally, failure to file also results in merchants losing the right to sue the card brands for "past conduct," the notice said.
What's more, if merchants object to the proposed settlement and don't want to take part, it's not enough to lodge a silent protest. They must officially opt out of the settlement by filing the proper paperwork, or they also waive their right to sue the card brands over past issues.
Payment attorney Paul Rianda said the legal maneuver is part of the class-action process so defendants know that once the case settles, they will not be subject to further claims. "Any of the potential claimants are free to opt out of the settlement if they do not like it, but most do not because if you opt out, you have to pay for your own attorney," he said.
"The court and parties go to great lengths in order to ensure that the possible claimants are notified of their right to make a claim. The system is set up so that it really is unlikely anyone will lose any rights to sue that they really care about."
The legal hoops are also an efficient way to deal with apathetic class defendants. "Most people that fail to file a claim usually are just not too concerned about a case in the first place that they want to take the time to make a claim," Rianda added.
The opt-out deadline is May 28, 2013. If merchants want to file objections to the proposed settlement, they must also do so by May 28. The deadline for the actual filing of a claim, pending approval of the settlement, will be set after the Sept. 12 hearing. The proposed settlement details will be spelled out soon at www.settlementfactsheet.com.
So how do ISOs and MLSs go about informing merchants of their options? Jeff Brown, Acting President at SignaPay Ltd., said the Texas-based ISO has not formalized how it will go about communicating the settlement details to its merchants. However, he said SignaPay is in regular contact with merchants about relevant and timely information related to payments - such as data security issues and surcharging - via newsletters, email and social media.
However, communicating about the settlement must be undertaken with care. Brown believes a combination of phone calls and email, for example, might not be the best approach. Nancy Drexler, President of Acquired Marketing, favors an expert-advisor approach via a white paper that lays out the settlement details in a fact-based manner.
Drexler noted that SignaPay might thus send out an email blast to its merchants with the white paper as an attachment and then publish the white paper on its website as well. She said, "As a merchant services provider, you don't want to inundate the merchant with information they aren't immediately interested in or can't immediately use, because when you do that, they tune out. It's a fine line between communicating important information and intruding on their business."
At Matrix, Hoidas has taken a different tack. Matrix contracted with New Jersey-based claim recovery firm Settlement Recovery Group LLC to preregister Matrix's merchants for the settlement. SRG is in the process of sending forms to those merchants. "It's actually a real simple agreement," Hoidas said. "It's very easy for the merchant to fill out. It's basically one page of not too many words. You put on the second page any merchant numbers that you've had in the last nine years."
SRG Senior Account Executive Marc Rosenberg said the value of merchants filing claims through third-party settlement recovery firms is that they can potentially receive much more settlement money than if they file directly with the claims administrator.
The payment records the claims administrator uses to evaluate individual merchant claims is often incomplete, according to Rosenberg. "If a merchant did a million dollars in credit card sales and let's say they file a claim direct, they may only be getting a refund on $100,000 in credit card sales because that's the only data that was provided by defendants," he said.
Rosenberg noted that this phenomenon is commonplace across all the industries where SRG handles class-action settlement claims. "It's just because of systems and record keeping," he said. "People are people. So records over the years get lost and just aren't provided or they're shut down. And, remember, this is based on sales that merchants did dating all the way back to 2004. So you are talking about a significant amount of time."
SRG's job is to "fill in the gaps" in transaction histories, Rosenberg said. For example, the card brands may provide data from only one store for a merchant with three stores, or transaction data from only recent years. Rosenberg said SRG will work with the claims administrator to locate the missing data, or generate estimates. More complete records thus result in merchants receiving more settlement money.
Rosenberg believes estimates will be necessary for most merchants it will work with concerning the interchange settlement. But he could not speculate on how much more money an average claimant might receive if he or she opted to use a third-party settlement recovery firm.
However, he offered a corollary to the settlement from another class-action involving LCD screens. In that case, defendants provided records that said a particular company had purchased only $3 million to $4 million in LCD items, while SRG was able to get that company approved for close to $30 million in settlement funds, Rosenberg said.
Since Hoidas first heard about the proposed settlement details last summer, Matrix has contacted its merchants six times to inform them of it. The response has been typically lackadaisical. He said, "Each time I get guys saying, 'Oh yeah, I should sign up for that.' 'Yeah, you should. I keep telling you, you should.' I just want them to get their money."
Rosenberg said merchants, especially small ones, may write off the settlement process as not worth their time, as the payout may be too small to make jumping through the hoops worthwhile. But Rosenberg thinks that attitude can be turned around.
"Well, you know what, if it's not going to be worth your time, then outsource it and we may be able to get you a heck of a lot more," he said. "It's kind of like, 'Hey, you can take on the work yourself, and maybe get 100 bucks back. Or you could outsource it. The worst case is you get $75. But the best case is you get a thousand. What would you rather do? It's less work on your end with a lot more upside.'"
SRG works on a contingency fee basis - a percentage of the company's portion of the settlement. "We're only compensated if we're successful in getting refunds for businesses," Rosenberg said. "It's pretty much a found money opportunity either way. There's no risk of losing money."
Regardless of whether merchants decide to participate in the settlement and, if so, how they choose to proceed, it is an obvious opportunity for ISOs and MLSs to provide a value-added service.
"We're always looking for topics that are relevant and timely that we can communicate to our merchants," said SignaPay's Brown. "For them to get that information passed to them through us, it shows us as adding value to the overall relationship we have with them.
It's not just the commodity of processing transactions and paying them on time. This gives them a little additional value that we can push toward them."
Hoidas, meanwhile, seeks to be an advocate for merchants. He said informing merchants of their settlement rights and obligations is part of that mission and translates into less merchant attrition. He said Matrix has only a 1 percent annual attrition rate.
The settlement opportunity might also create an opening to win new business. "It would be a different way to lead in to talk to a new merchant possibly," Brown said. "'Has your old provider discussed this with you and the opportunity that may be there for you to take advantage of?' And then kind of break the ice that way on new business."
Such an approach presents ISOs and MLSs more as expert advisors than simply salespeople. "Expand that role a bit and set yourself apart from the normal calls that they get," Brown noted. "Rather than just trying to quickly close the deal and switch it over, this can be more of a consultative approach."
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