In her time using Square as a payments processor, Stephanie Rubio’s digital marketing agency had never had a customer challenge a card transaction.
So the May 14 email came as quite a surprise. Rubio was told that, beginning in seven days, 20% of the payments her SoVerve Marketing Group received through Square would be held as a reserve against any future disputes. The money wouldn’t be available for four months.
“I wasn’t expecting that at all,” Rubio said. “I get this email in the middle of COVID. It threw me for a loop because I’m already having to make drastic pivots in my business.”
The world’s biggest payment companies have grown increasingly worried about a surge in disputed card transactions at retailers, especially as the coronavirus pandemic stifles economic activity. The pain is particularly acute among smaller “mom and pop” shops that get by on thin margins in the best of times and are often unaccustomed to dealing with demands for chargebacks on purchases.
“You’ve had merchants that weren’t in the dispute game all that much needing to understand these rules,” said Colleen Taylor, head of merchant services at Wells Fargo, which has also begun requesting additional reserves. “If we see they’re experiencing the ‘double whammy’ as we call it of reduced charge volume and increased chargebacks and refunds, we’re reaching out.”
Transactions for more than $7.5 billion of goods were disputed in 2019, according to the consultancy Aite Group. And now consumers are flocking to banks to dispute charges, often for purchases of trips or concerts that were canceled. As the pandemic worsened, chargebacks climbed by about 25% compared with a year ago, according to Chargebacks911, which helps retailers manage disputes.
“A lot of these retailers don’t even know how to address chargebacks and now they’re hit with thousands,” said Monica Eaton-Cardone, chief operating officer of Chargebacks911.
Rubio’s SoVerve was among a wave of businesses affected by Square’s actions in recent weeks. Starting in late March, the company created reserve requirements for certain sellers, including those who collect payments in advance or those with a high rate of customer disputes.
“Like most payment processors, we may use reserves to enable riskier businesses to continue processing payments through Square while ensuring these sellers are able to cover issues like disputes, refunds, or outstanding fees without running a negative balance on their accounts,” Square said in an emailed statement. It said fewer than 1% of its sellers have reserves.
Processors like Square and dozens of other firms help retailers handle billions of card transactions every year, taking a fee each time a card is swiped. The role is typically that of a profitable middleman, but can carry risk. While it usually falls to the merchant to resolve a disputed transaction, if that business goes under, the payment processor is left to make sure the consumer is made whole.
That’s why firms have begun requiring retailers to increase reserves, which act as a rainy-day fund. Some merchants, including Rubio, say they haven’t seen an increase in chargebacks but are already facing higher reserve requirements.
The reserve will “protect you and Square from unexpected loss events,” Square said in an email to another customer, which was used as an exhibit in a lawsuit filed against the company over the practice in May. “We realize this is a challenging time for many business owners and we remain committed to supporting you.” Square declined to discuss the suit.
For retailers, it’s not just canceled plans that are causing the increase in card disputes. The pandemic prompted a massive shift to online commerce — which is more prone to fraud — as businesses across the country remain shuttered and consumers look for no-contact ways to buy goods.
That means some of the surge stems from a quirk in the rules set by payment networks like Visa and Mastercard. Merchants can avoid being liable for in-store purchases by upgrading point-of-sale systems to accept chip cards. No similar mechanism exists for online purchases.
“Small merchants, as they’ve scrambled to make sure they can be relevant in this new normal for all of us, they’re also now bringing on the liability for those transactions,” said Nicole Jass, a senior vice president at Fidelity National Information Services Inc.
The world’s biggest payments companies often say the ability to dispute a transaction is a key reason consumers are comfortable using electronic payments. Banks in recent years have sought to streamline the dispute process, and it can take just a few clicks to charge back a purchase.
Those moves rankled retailers, who can be charged a fee of as much as $50 every time they face a dispute. And merchants contend they’re seeing something known as “friendly fraud,” in which consumers dispute legitimate purchases rather than return goods for a refund.
“Friendly fraud is hard to quantify, given that the genuine consumer has conducted the transaction and is subsequently disputing it,” Aite Group said in a report last month that showed 16% of consumers admitted to perpetrating such fraud.
In response to the pandemic, Visa implemented a monitoring program to help reduce the volume of invalid disputes. American Express is extending the amount of time merchants have to respond to a dispute to 30 days.
“For many businesses, it’s the first time they’re experiencing this,” said Max Neukirchen, head of merchant services at JPMorgan Chase. “And we want to help them on their journey. A lot of these changes will stick even after we reach some form of normal again.”
Cryptocurrency Cards: An Unnecessary Solution That Should Be Stopped
It is high time for traditional financial institutions to see that the crypto industry has matured enough and does not possess high risks.
This Week in Fintech ending 7th August 2020
This weekly summary from our 8 experts, brings you insights based on their experience as investors, entrepreneurs & executives.
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The initial Ethereum team consisted of Vitalik Buterin, Anthony Di Iorio, Bitcoin Magazine co-founder Mihai Alisie, Amir Chetrit and Charles Hoskinson. The team printed black Ethereum t-shirts and started working on the Ethereum Blockchain in 2013. Later, they added three more co-founders Joseph Lubin, Gavin Wood, and Jeff Wilcke. They didn’t know each other very well or have a detail plan of what they would finally create. But they had a vision. They wanted to create a “world computer” that would transform not just money, but allow anyone to write smart contracts, decentralized applications and create their own arbitrary rules for asset ownership. Ethereum went live on 30 July 2015, with 72 million coins minted. That was five years ago. Today, stablecoins and DeFi, have turned Ethererum into the most used blockchain.
Editor note: Ilias makes a persuasive explanation of why Ethereum is doing well, citing traction in the key new markets of the future – stablecoins and DeFi.
Tuesday Efi Pylarinou @efipm our Swiss-based Fintech Adviser, founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019 wrote A selection of 7 themes on ETFs and robo-advisors
A mini digital detox in August, may reboot and upgrade my operating system. In this post, I am sharing a selection from this year`s posts focused on ETFs (a 50yrs old innovation) and robo-advisors.
2020 started with a healthy and growing $5trillion global ETF market. In the US there were 2,000 already trading on platforms with zero commissions.
Editor note: the trend towards low cost, mostly passive, investment vehicles stays very strong even if we are now past the Cambrian explosion era and into a consolidation phase when a few big winners emerge.
Alan Scott Managing Director EMEA at 24 Exchange @Alan_SmartMoney wrote Stablecoin News for the week ending Tuesday 4th August
This weekly snapshot is the news that matters in the Stablecoin market.
Wednesday Guest author Amber Sutherland wrote A bankers guide to AI Part 2. What if the AI learns the wrong behaviours, such as bias?
Editor note: In every industry, banking included, much money will be made from AI automation (and sadly, many jobs lost). This 5 parter gives you some of the nuances and complexity of making that happen in banking.
Thursday Patrick Kelahan @insuranceeleph1, our US based Insurtech expert (a CX, engineering & insurance professional, working with Insurers, Attorneys & Owners who also serves the insurance and Fintech world as the ‘Insurance Elephant’) wrote Become a captive and be freed- an alternative to traditional risk management
Knowing there are risks that are challenging to underwrite or expensive to share with a carrier does not have to limit a firm’s or groups options for risk management, nor does a prospective firm need to engage a top-heavy syndicate where 40% of premium dollars result in expense costs. For those firms with stout hearts, clever advisers and an urge to have closer management of risk there are captive insurance schemes. And there just might be tax savings, too.
Editor note: Required reading fornsurance companies figuring out how to add value to corporates who do insurance in-house.
Thursday Christian Dreyer @x3er, our Swiss based CFA who focusses on how XBRL changes our world wrote XBRL: real-time reporting, extensible lists and rulesets
Editor note: This weekly snapshot is the news that matters in the XBRL market.
Editor note: This weekly snapshot is the news that matters in the Alt Lending market.
Bernard Lunn @lunnbernard, the CEO of Daily Fintech and author of The Blockchain Economy, wrote:Interview with John O’Neill of Silent Eight on how to use AI in financial services
Editor note: Read this to learn about AI for detecting money laundering, accounting fraud and consumer scams
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Cambodia payments fintech Clik lands $3.7m
Clik, a Cambodia-based fintech delivering mobile payment solutions to enterprises, merchants and consumers, has landed $3.7 million funding.
It marks the largest ever seed round in Southeast Asia to date, according to Crunchbase.
The round was led by strategic investors Openway – a Belgian digital payment software – and POEMS, a Singapore-based online trading platform. The funding also includes $2 million of commitments announced at the end of 2018.
Funding and partner network
Click intends to use the new capital to flesh out its product engineering and customer service teams.
Yet to formerly launch, the capital will also underpin its launch in Cambodia sometime later this year.
Since its founding in 2016, Clik has focused on building its partner network. It now has around 2,500 merchants on its books, alongside five financial institutions. These partnerships provide it with access to more than 56,000 merchants across Cambodia.
Some of its heavyweight partners include Ucare Pharmacy, Kiwimart and conglomerate Chip Mong Retail.
“After two years of scaling up and defining the fundamentals of our regional market strategy, we’re ready to accelerate our growth with the closure of our seed round,” says CEO and co-founder Matthew Tippetts.
The CEO thinks the round proves “investors are eager to back future proof platforms for the ‘new normal’ that will inevitably exist post-covid”.
He also thinks it nods to the attractive opportunities for investment in Cambodia, “especially in start-ups with robust regional potential”.
What does Clik do?
The start-up claims to be the first Southeast Asian provider of PCI-certified mobile point of sale (PoS) and software PoS merchant acquiring payment solutions.
The fintech is currently developing a platform which helps merchants build consumer loyalty and boost profits.
Having developed its own Know Your Customer (KYC) solution, Clik claims it can onboard consumers and merchants “in minutes”.
The new capital arrives as Clik announces a series new hires. They include its chief operating officer, Patrice Vignes, who previous served as chief financial officer of Amret, a Cambodia-based micro-finance provider.
Olivier Mermet is also welcomed into the fold. Having worked at Procter & Gamble for more than seven year, Mermet will now serve as Clik’s chief design and strategy officer.
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