The Green Sheet Online Edition

June 23, 2014 • Issue 14:06:02

A fresh look at chargeback insurance

By Gene Lieb and Laura Kaiser
Business Financial Resources

In the past, many ISOs and merchant level salespeople (MLSs) couldn't afford chargeback insurance. Such plans required entire portfolios to be included. This was very expensive. Today, less costly options are available. And it's time for MLSs to ask themselves whether they can afford not to have insurance.

This is due in part to the fact that agents can now choose to either insure individual accounts or an entire portfolio. For obvious reasons, insuring just those accounts deemed riskier cuts down on the costs of insurance. And it's a great way to shore up your business, especially if you're boarding high-risk or nontraditional merchants.

Chargeback insurance is essential for those working with these types of accounts, but it can offer significant benefits to virtually any MLS in the field. For those who have chosen to avoid high risk in the past, insurance makes it easier than ever to increase fee income by broadening their merchant-type appetite. And for ISOs not currently assuming liability, a chargeback insurance program can allow them to reduce expenses associated with sponsor banks and capture fee income previously earned by said banks.

Protection pays in multiple ways

Chargeback insurance programs can preserve an MLS's bottom line by reducing uncollectible chargeback exposure. Policies cover merchant fraud, card-not-present merchants, and include Internet transactions. Protection like this is particularly helpful with future-delivery merchants like travel, furniture sales, online retailers and many others.

Examples of accounts-gone-bad that could have used this kind of protection include:

• Retail video store: $45,000 loss due to kiting
• Online furniture store: $600,000 loss after continuing to take orders despite being cut off by supplier
• Online golf retailer: $500,000 loss after being shut down by the FTC
• Retail furniture store: $350,000 loss due to not placing orders taken for future delivery
• Physician: $65,000 loss due to factoring

In addition to protecting your business, chargeback insurance gives you the power to provide added value to your merchants. For example, you can reduce merchant churn with lowered reserve requirements. This will discourage your current clients from price shopping for merchant services and may attract new ones looking for less of an upfront capital commitment than your competitors can offer. In addition, merchants will be less likely to focus only on price, and will instead focus on the value of doing business with your organization. Policies can also free up reserve capital and are even tax deductible. Chargeback insurance has changed with the times; MLSs need to change, too.

Gene Lieb is the owner and Laura Kaiser the Marketing Manager at Business Financial Resources, a merchant service consultancy located in New Jersey that works with agents and partners across the world. For more than 15 years, the company has been working on behalf of all types of businesses, including those considered high risk or nontraditional, to help them accept credit cards and other forms of payment, secure loans and save money. For more information, visit www.bfresources.com. U.S. companies should call us at 800-313-2265; international companies can reach us at +44 2036087504.

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