While you juggle payments relationships, are you trying to figure out which ones outperform the others in margin?
This can be a difficult task.
All things the same— business type, pricing, and Schedule A, you will still likely see consistent differences in margin between relationships.
There are legitimate reasons for this— card mix accepted by the merchant, method of acceptance, etc. And then there are illegitimate reasons. 🚨🚨🚨
So how can you tell one from the other?
Here’s where you can start:
💡If you’re getting summary level residual reporting from your provider, ask for more specifics— Interchange breakdown, assessment detail, etc. If they don’t have it or won’t give it to you, alarm bells should be going off. 🚩🚩🚩This is the most common place I’ve seen providers tweaking numbers for their own benefit.
💡Periodically recalculate the costs they’ve charged against your Schedule A to be sure they are accurately calculating them.
💡Compare merchant statements to the same items on your residuals— income, interchange, etc. to ensure accuracy.
💡Avoid relationships that offer a big front-end incentive. There’s a reason they’re willing to pay you upfront, and it’s not to your benefit.
💡Compare residual income as a percentage of billed fees on different providers every month to see where you’re outperforming others. It’s important that you’re comparing similar business types here. Review the data and watch for consistent trends.
Find a provider you can trust, but verify.
Many of our partners tell us that even though they think they have better pricing elsewhere, they see better margins with us. That is the power of transparency and accuracy.
Dig into the data and go get the income that’s yours.
Author: Elaina Smith
What’s Considered a Fair Revenue Share in Merchant Services?
What is considered a fair revenue share on merchant residuals?
There’s no hard and fast formula. But consider revenue share a sliding scale that depends on these factors:
👉 The amount of training you need
👉 The amount of support the ISO provides to your merchants. A referral arrangement where you simply hand off leads will earn less than one where you provide ongoing service/support to merchants.
👉 The amount of liability the ISO is taking on your behalf. Low risk/card present payments portfolios have higher revenue shares than high risk ones.
👉 Your proximity to the processor. The closer you are to the party actually processing transactions, the more revenue share. If you’re an agent sending business to an ISO that sends it to another ISO, you’re getting a split of a split. There’s nothing wrong with this as they are likely providing support or resources not available to you closer to the processor. Just know where you stand and the parties involved.
👉 The number of freebies you receive. Getting free equipment? That’s fine, but understand it’s baked into the cost of your agreement.
👉 Access to proprietary software or technology.
What’s “fair?”
⚖️ The arrangement where both parties feel it is a mutually beneficial arrangement with potential for growth.
Homework assignment:
📝 Check your existing agreements to be sure you’re earning revenue share on every item billed. This is a common margin buster for sales agents/offices.
Streamline Merchant Onboarding
What is one of the worst habits we see in merchant services? Rekeying application data over and over.
Why is this so bad? We’ll get to that in a second, but first let’s cover how it happens.
Agent collects information from the small business in the field.
Agent submits to their ISO.
ISO keys into their own CRM.
ISO keys into their processing relationship as well as any additional services like gateways.
This is:
❌ Inefficient
❌ Prone to error
❌ Often not very secure. Personal identifiable information is included here.
When is the last time you revisited your application process to eliminate redundancy and human error? Here are some tools you might deploy to tighten it up:
🔨API between interfacing applications, both internal and external, to eliminate rekeying.
🪚 Online application so that the merchant enters their own information, which feeds to your internal systems
🪛Data filters and rules to ensure validity of information collected (for example, routing number is 9 digits with valid check digit)
Yes, these things take time to implement but you’ll see a positive ROI shortly thereafter.
Plus, if you’ve ever boarded an account only to have the merchant’s first deposit bounce due to someone miskeying the account number, you might be highly motivated to make a change. That’s not exactly the best first impression.
How to Choose New Processing Relationships
When you’re shopping for a new home to place your merchant services business, what exactly should you be looking for?
There’s a long list of considerations. And not every provider will check every box in the same way.
So it’s important that you set priorities and try to find the provider that most closely meets your most important criteria.
For example, if you’re looking for lots of training and support, you’re probably going to have to sacrifice some revenue share compared to another provider that doesn’t do this.
One of the most important things you can do? Make sure their goals align with your goals.
☑️ Are they looking to exit in the near future?
☑️ In what ways are they reinvesting in their own business?
☑️ How do their partners/agents fit into the picture and what value do they place on them?
When Vendors Don’t Deliver: How to Navigate Issues
As merchant services professionals, we’ve all found ourselves in this very uncomfortable position: a vendor isn’t delivering, and we’re left holding the bag.
Here’s the thing about payments… we all want to be in control of our service delivery and destiny.
But we need processors, POS devices, gateways, security/compliance services, and an ever-changing combination of other providers to fill in the gaps and help us deliver what we hope is a seamless experience for our merchants.
Sometimes those things break. Or fall short of service levels.
Yet the merchants come to us. They bang on our doors demanding answers. As they should— often this affects their cash flow, the very lifeline of their business.
It can put us in what feels like a very helpless position. But here are some constructive tips to help you weather the storm:
✔️ Communicate clearly with your merchants and vendor. Share enough information, but not so much that it’s overwhelming or irrelevant. Tell your merchants how this affects them. Tell your vendor how this is impacting you and your merchants without being whiny. This is an art form, practice makes perfect.
✔️ Take responsibility. Even though this is not “your” issue it has now become your issue. Pointing fingers not only does you no good, but it says something about you (and it’s not good.)
✔️ Keep your cool. Losing your composure on an innocent bystander employee of a vendor will get you nowhere.
✔️ Hold vendors accountable, respectfully. Ask these kinds of questions: “Do you have a timeline for resolution?” “May I expect an update by the close of business today?” “Do you have any suggested workarounds, even if temporary?”
✔️ Offer to help your vendor. Often we are uniquely positioned to provide insight that can potentially expedite resolution. It’s amazing how this small gesture can change the dynamic of a big problem.
✔️ Reach out and collaborate with others facing the same challenge. Not because misery loves company, instead so that you can brainstorm and share potential workarounds.
✔️ See this as an opportunity to know exactly who you’re doing business with: how does the vendor act when it’s not smooth sailing? Are they owning the issue by getting in front of it? Or taking a nothing-to-see-here approach?
If the vendor is a repeat offender and never takes ownership, it might be time to find a new one.
It’s not a matter of if you will find yourself in this situation, but when. How you handle it can have a big impact on the outcome.
Help Your Merchants Increase Their Chances at Winning Chargebacks
Responding to chargebacks is important, but did you know that how merchants respond to chargebacks can drastically increase their chances of winning?
The “how” of their response largely depends on the reason code. Merchants should use this as a baseline of what relevant information to include in their response. The card brands each have their own reason codes that help classify chargebacks based on the reason they are initiated.
For example, a merchant would not respond to a reason code 13.1 Merchandise/services not received chargeback in the same way they would respond to a 10.4 Other Fraud, Card-Absent environment chargeback.
A response to a 13.1 chargeback should include proof that the merchant delivered the good or service.
For a 10.4 fraud chargeback, the cardholder is claiming they didn’t initiate the transaction and therefore the burden is on the merchant to prove that they attempted to confirm the buyer is who they said they were. If the merchant attempted CVV2 and AVS but the issuing bank does not participate, that evidence should be included. The same holds true if the merchant used 3DS but the issuing bank does not participate.
Reverse the response on these chargebacks and one thing is certain: the merchant will lose.
There are a variety of tools merchants can use to ensure their response contains all the necessary elements. They can also help merchants provide responses in a timely manner, since responding to chargebacks can be time-consuming.
As you’re assessing tools to use to assist with chargeback response, you’ll want to find one that:
✔️ Customizes the response based on the reason code.
✔️ Automatically pulls any relevant data from the transaction or the merchant’s company profile into the response.
✔️ Simplifies the chargeback response process as much as possible by removing any cumbersome or redundant steps.
How and When Should Merchants Respond to Chargebacks?
When is it worthwhile for the merchant to respond to a chargeback?
This is a tricky question, and to understand the right answer, it’s probably best for us to start with when it doesn’t make sense to respond to a chargeback.
Here’s the thing that many merchants don’t realize: there are fees that follow chargebacks through their life cycle. It can also be time-consuming to respond to a chargeback. So, a merchant should weigh the costs of these fees and the time it will take to respond. If the transaction was for a small dollar amount, and it’s not typical for the merchant to receive chargebacks, it might not be worth the time and resources to fight it.
There are also chargebacks that simply cannot be won, and those are not worth fighting. The most common scenario for this? The response timeframe has already expired. Another reason? The merchant cannot produce sufficient evidence to win the chargeback.
However, if the dollar amount of the sale outweighs the resources needed to respond, and the merchant feels that they have a chance of winning, they should definitely respond.
Here are a few tips to increase the likelihood of winning:
✔️ Include a rebuttal letter that summarizes key pieces of evidence. Stick to things that are relevant to the case.
✔️ Ensure the response includes compelling evidence given the chargeback claim (we covered this in detail yesterday)
✔️ Respond within the allowable timeframe.
✔️ Use chargeback response and automation tools. Ask the Secure Bancard team to help identify the best products that match the merchant’s needs.
What Are Friendly Fraud Chargebacks?
As a merchant services professional, if the businesses you serve are encountering friendly fraud chargebacks, how can you help them?
But first, what are friendly fraud chargebacks?
Friendly fraud happens when a cardholder uses the chargeback process incorrectly:
· As an intentional attempt to get something for free -or-
· An innocent misunderstanding.
Here are a few examples:
· Someone uses the card of a family member without letting them know. The cardholder sees the transaction and does not recognize it since they didn’t make the purchase.
· A cardholder doesn’t recall a transaction because the billing descriptor shown on their statement doesn’t seem familiar.
· Someone signs up for a service with a free trial, forgets to cancel before the free trial ends, and then calls their bank to complain once the charges hit.
· Someone makes an online purchase, receives the merchandise, misses the return window and then files a chargeback instead.
Why should merchants care whether a chargeback is friendly fraud vs. malicious fraud?
Friendly fraud is a chargeback that they have a chance of winning, which means they can recover the revenue that is rightfully theirs.
Malicious fraud is not.
That’s a big difference.
If your merchants are encountering friendly fraud, we dive into the specific ways to help them in this post.
Friendly Fraud Chargebacks
How can we help merchants that encounter friendly fraud chargebacks?
This is when the cardholder misuses the chargeback process– either intentionally or unintentionally.
If the cardholder is misusing the chargeback process unintentionally, it is probably because they don’t recognize the charge. Here is how we can help:
CLEAR BILLING DESCRIPTOR
The billing descriptor is what appears on the cardholder’s statement. The merchant should ensure that the descriptor used is easy to understand and accurately reflects the business where the charges occurred. Ideally, the merchant’s phone number should be included in the descriptor with 24/7 customer service available, if possible. The descriptor helps eliminate friendly fraud where the cardholder simply doesn’t recognize the charges.
Merchants can also take advantage of Ethoca’s free logo program. Through the program, merchant brand marks/logos will be linked to corresponding transactions in the digital banking applications of participating card issuers.
Now let’s work on fighting the chargebacks that happen with intentional misuse from a cardholder:
CLEAR PRODUCT AND SERVICE OUTLINES
The better merchants can be about setting expectations and service levels with their customers before the sale takes place, the better. If a customer charges a purchase back because they missed the return window, the merchant should be able to win that chargeback provided they submit sufficient evidence.
CUSTOMER SERVICE AVAILABILITY
Most cardholders have immediate access to their statements and pending charges on their account. The dispute initiation process is easier than ever and, often, can be completed without even picking up the phone. Merchants should keep that in mind and attempt to make their customer service experience every bit as available to their customers. If it’s a frustrating experience to get in touch with customer service to resolve an issue, many cardholders will default to using the dispute/chargeback process.
BLACKLIST OFFENDING CUSTOMERS
Many friendly fraudsters are repeat offenders–if they file one illegitimate chargeback, they will likely file another. By blacklisting offending customers, you can prevent them from making future purchases as well as the chargebacks that are likely to follow.
ANALYTICS
If friendly fraud chargebacks are happening, you’ll want to first understand more about why they’re happening. You can use analytics to narrow them down to a specific product, service, marketing promotion, issuer BIN, geographical area, etc. Check out In-Depth Analytics and Reporting from Midigator to help with this task.
Implement 3DS
EMV 3-D Secure 2.0 is a security protocol that allows issuers to authenticate online consumers. Providers of this service, like PAAY, can provide fraud liability protection for certain reason codes. See this post for more detail.
Chargeback Monitoring Programs
A merchant has surpassed a chargeback threshold and is now on a monitoring program. Now what?
The card brands have specific limits on chargeback counts and volume that merchants must abide by. They typically receive a warning, and then are automatically enrolled in a program.
These programs come with fines attached. But the real risk is merchant account closure — which could limit transaction and sales volume to a point that impacts the business’s bottom line.
If this happens, this is how you, as a merchant services professional, can direct them to the right resources.
➡️ The first step is to understand why the chargebacks are happening. Can we narrow it down geographically, a specific product line, issuer BIN, or payment plan (annual plan vs. monthly subscription?) The merchant will also need to track card-present and card-not-present disputes separately. The key is to drill down as much as possible into the source and reason for the chargebacks, and then strategize as to how to reduce or eliminate them.
➡️ Put together a remediation plan, including a timeline for remediation. The merchant will need to present this to the processor and the card brand’s monitoring program.
➡️ If the chargebacks are mostly friendly fraud chargebacks, please refer to that post for tools to fight that specific issue (see link below.)
Here are some specific tools that can be put in place to stop the bleeding:
CHARGEBACK PREVENTION ALERTS
Once subscribed, a merchant will receive instant notification when a cardholder disputes a charge with its issuing bank. This gives the merchant an opportunity to intervene before the dispute is formally filed. Merchants can subscribe directly to chargeback Prevention Alerts through Ethoca or Verifi. Alternatively, merchants can manage their disputes on a single platform, like Midigator, that incorporates these services. Learn more about these services in this post.
RAPID DISPUTE RESOLUTION
This is a chargeback prevention tool created by Verifi and made available to technology resellers. When an issuing bank is ready to process a chargeback, the RDR platform allows the acquirer to automatically issue a refund to your customer instead.
MODIFY PRODUCTS/SERVICES TO REDUCE HIGH-CHARGEBACK CHANNELS
This is the simplest solution, yet the most challenging to business owners. The reason? It often results in immediate slashes to top-line revenue. But merchants must weigh the costs of chargebacks with a reduction in revenue.
Merchants should carefully assess and implement the solutions that best fit their needs. No two merchants will be the same. It is possible to exit the programs once enrolled, most commonly once the merchant is below the card brand’s threshold for 3 consecutive months.
