1 Jul, 2011 By: Curtis Kleinman

A growing rift among direct response merchants, underwriters and the payment processors that love them is leaving underwriters between a rock and a hard place.

Since the Visa and MasterCard card associations’ infamous crackdown in 2009, underwriters are more stringent when it comes to approving E-commerce merchant accounts. The merchants, eager to get the account approved to start processing credit card sales, are growing increasingly frustrated by the seemingly minor trivialities that need to be addressed before approval.

Before we go into a few of these, let’s review some underlying core principles:

Chargebacks are easy for consumers. It has become outrageously easy for consumers to charge back a transaction. The consumer simply needs to call their issuing bank and say the right buzzwords in their complaint about the merchant — some issuing banks will actually ask guided questions that will lead the customer to express dissatisfaction regarding customer service, being denied a refund, a damaged shipment or even fraud — and presto, the merchant is debited money.

A chargeback is not just a chargeback. When a merchant is hit with a chargeback, they are first debited the amount of the sale. Then, the processor, or acquiring bank, will charge the merchant anywhere from $15-35 per chargeback. In some cases, if the product has been delivered to the consumer or the service already provided, the merchant can also lose money on the product/labor and shipping fees. (Even if a merchant wins a chargeback, it will remain on a record that may put the merchant on a chargeback monitoring program — either by Visa or MasterCard — which could result in fines based on the number of chargebacks, transaction count and average ticket size.)

In this difficult environment, what are underwriters demanding?

Terms and Conditions. A common pushback from underwriters is that the “Terms and Conditions” (T&Cs) on the merchant’s website need to be reformed. Typically, this is because underwriting is looking for simplicity. Contrary to popular belief, many customers actually do skim the “Terms and Conditions” before ordering a product (T&Cs should be prominently displayed), and if the merchant has multiple offers — or if the T&Cs seem more like a treatise than a page of information — the merchant can be at a greater risk of experiencing customer chargebacks. Furthermore, per the card associations, merchants must provide multiple different avenues of cancellation within their T&Cs. Painful as it may be for the merchant to have a customer cancel their order or subscription, the dreaded chargeback is worse.

Refund Policies. Many processors actually mandate a 10-day minimum refund policy in order for the account to be approved. Optimally, however, merchants should be giving their customers at least 30 days to cancel for a full refund. Many merchants feel that such demands by the processors on their refund policies are unfair and detrimental to their profitability. But experience shows that the more merchants refund their customers, the less prone they are to chargebacks, and thus are able to minimize their losses. There is often more detriment to a merchant’s  ROI by not refunding, and hence welcoming chargebacks, than refunding the sale. Some merchants even refund customers before receiving the unused/damaged returned goods.

Payment Capture Pages. Underwriters are sending merchants back to their Web developers time and again to reform such things as SSLs, pricing and trial-offer disclosures. This is to avoid chargebacks. Merchants, wondering what all the fuss is about, should notice their chargeback ratio lower after they comply.

Merchants may also notice underwriters paying particular attention to the legal entity and federal tax information before approving an account. Even such minor details as address discrepancies may see underwriters pushing back on merchants. Why? Effective this year, payment processors and acquiring banks are obligated to report their merchants’ batches to the IRS to be scrutinized for tax fraud. ■