First Data Corp., the largest acquirer in the United States and privately owned by investment firm KKR & Co. LP, double-billed a sizable amount of its merchants on one day in early August 2013. The merchants affected were those whose transactions are processed on First Data's Omaha platform, one of five platforms First Data operates in the United States. A number of ISOs have been inundated with calls from affected merchants.
In a statement to The Green Sheet, First Data said: "Over the weekend, some clearing bank clients reported receiving and processing duplicate month-end files from First Data. In some instances, this resulted in double postings of monthly fees to merchant accounts. Reversals have been sent to affected bank clients in order to reverse the amount debited or credited to the impacted merchants. We apologize for any inconvenience this may have caused." A payments industry insider, with access to a reliable source of information about the double-billing issue, told The Green Sheet that the problem may have originated from duplicate automated clearing house (ACH) files.
The source said acquirers like First Data send monthly ACH batch files to merchants' banks, where merchant accounts are debited the fees acquirers charge merchants for processing credit and debit card transactions. The double-billing may have occurred when First Data sent the same files twice, according to the source. The source noted that the ACH batch file process is a combination of an automated and a manual process, and that the problem may have come to light after a merchant noticed double the size of a single debit from an account or two debits of the same amount.
The source said double-billing snafus are usually limited to "one-off" incidents; however, in the case of the First Data error, an entire platform was involved, with "many thousands" of merchants and "dozens of ISOs" affected, making the error "a pretty big mistake."
Such an error could have serious repercussions. Double-billing could drain a merchant's account and cause checks to bounce, or it could affect a merchant's line of credit, the source said. The error could also be damaging to ISOs. If merchants were already disgruntled or close to abandoning their First Data ISOs already, "this is the kind of thing that would put a merchant over the edge," the source said.
But First Data's size and influence in the merchant sector could cancel out merchant attrition, according to the source. ISOs can make the case to affected merchants that it doesn't make sense to go to a rival service provider if that provider also processes through First Data and thus experienced the same double-billing error.
An ISO with several thousand First Data accounts characterized Mon., Aug. 5, 2013, as an "insane, everybody-goes-to-happy-hour kind of day" during which call volume more than doubled from merchants calling customer service over the double-billing.
The ISO expects call volume to rise over predictable events, such as when it sends out a bulletin to merchants that interchange fees are going up or when merchants are assessed an annual fee. But Monday "was just a nightmare, damage-control day," the ISO said. Nevertheless, the ISO noted that most merchants were reasonable about the situation and they were, for the most part, "happy that we acknowledge that it happened," and that the situation was being remedied.
However, the ISO predicted there will be fallout, particularly among small, "shoestring" merchants terminating the merchant services relationship after experiencing overdraft difficulties due to the error. But it's still too early to tell what the cost will be, as not all merchants check their account balances every day, the ISO said.
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