Chase Paymentech Won’t Honour Authorized $28 Debit Transaction

I originally wrote this for a different blog, but as it concerns our Christian bookstore, I thought I’d share it here as well.

Although the original purpose of this blog was a space for me to vent the various injustices I felt I suffered as a consumer, we’re also small business owners ourselves, and as such we’re at the mercy of bigger businesses, in this case a mega-corporation.

As such we process sales, taking debit, VISA and MasterCard transactions on a daily basis process through a company whose legal name is, I believe, Chase Paymentech Debit Solutions.

Back in June, when our employee rang off for the night, she noticed something was wrong. One of the transactions, just under $28, even though it was clearly authorized, did not appear in the final tally of sales. It just vanished. And the next day, our bank deposit was short that same amount. But we didn’t know all this right away.

We noticed the error on July 7th as part of our monthly sales reconciliation, and notified our point-of-sale provider, Chase Paymentech, a division of Chase bank. A seemingly helpful guy who gave his name as David said that the sale had gone through on the customer’s end — the authorization number was provided by that customer’s bank — but the problem was on their end, and they would track it down and fix it within a month.

But we never heard back, and more than a month had passed. Sending them an email is difficult because you have to use an encrypted network, and our password was in a computer that seized a few days previous.

But my wife persisted and on August 31st we got a notice from them saying they had shut the whole investigation down a week later, on July 14th, and never told us. Their note basically had the attitude, ‘tough luck,’ and because ‘we’re bigger than you,’ we can declare this as ‘not our problem.’ They used different words, of course.

They really were saying that as far as they were concerned, the sale didn’t exist, but then they added in an ‘oh, by the way’ sort of manner, “the sale was MasterCard not VISA.” In other words, we can find no record of this sale, but it was MasterCard.

Furthermore, it wasn’t either. I have the transaction receipt. It was a debit transaction. It says so right on it. And they had received a scan of that.

Did they investigate it at all?

At this point they’ve worn us out.

In our type of work, $28 is a large amount. It makes a difference. More to the point, I realized I don’t want to live in a world where people get away with this sort of thing. And short-term, I definitely don’t want them as my point-of-sale provider anymore.

But on their end, $28 wouldn’t have bankrupted them.

Retailers and Wholesalers Assume Responsibility for Credit Card Chargebacks

If your point of sale terminal says the transaction is authorized, that settles it, right?

Not exactly.   These days, it’s possible for fraud artists to replicate both the appearance of the card and the information on the magnetic stripe.

Enter chip cards.   The new wave of credit card requires more sophisticated card reading equipment and an up-to-date PIN which of course, the customer can change from time to time.   (Some banks suggest changing the PIN annually.)

So the next phase in the credit card processing journey is one that will see retailers and distributors who don’t opt for the new equipment fully liable for chargebacks starting in October, 2010.

For distributors, who now process a lot of wholesale business by credit card (mostly for fear of not getting paid at all, or waiting a long time in a slower economy) the chances of this happening are fewer, since the customers are known to them.    There’s a kind of “arms length” relationship, although a greater number of these transaction are done by telephone where a card is never actually handled.

But for retailers, who largely don’t know every customer walking through the door, the consequences of not switching over to the new equipment could be disastrous.

The problem is that the processing companies are not being upfront if the new equipment involves an automatic switch to VISA DEBIT or MAESTRO processing (when it arrives) of debit card purchases.   As we’ve mentioned here before, the switch involves paying a percentage, whereas currently debit card transactions are handled by INTERAC, a non-profit organization which is actually investigating the possibility of converting to for-profit status.

The company that my store processes through, CHASE PAYMENTECH, has promised to keep the rental rate for our equipment at the “affinity rate” provided by membership in the Canadian Association of Independent Business (CFIB) but the letter avoids the debit processing question entirely.

We’ll have to do some investigating, because once installed, the costs of switching back to Interac have proved too high for some stores.

Why Everyone Is After Your Electronic Point of Sale Processing Business

You have a credit department.   Did you know that?

You have a means whereby customers can come to your store and purchase items — sometimes on impulse — and choose to make a single payment or pay the item(s) off over a period of several months.   Or longer.

Your credit department consists of your acceptance of credit cards.   When first introduced in Canada, CHARGEX (known in the U.S. as BANKAMERICARD) changed the way retail transactions are handled.   Can you imagine a world today where people only purchased if they had the money on hand?

CHARGEX later became VISA, and its counterpart, MASTER CHARGE took on the name of its U.S. parent, MASTERCARD.   At its inception, merchants were quite happy to fork over 4% or more of the total sale (including tax) to the credit card provider in exchange for the increased volume credit card acceptance was bringing to their store.   Today, 2% is considered high.

And then came debit transactions.   As the electronic banking network grew, the PLUS NETWORK and CIRRUS changed the way we do retail transactions once again.   In Canada, INTERAC was created as a non-profit organization to oversee the transaction of sales which immediately debited the customer’s bank account and credited the merchant’s.     All the convenience of credit card processing was offered for a flat rate of about 15 cents per transaction.

But have you ever bought gas in the United States and inserted your VISA or MASTERCARD only to have the machine ask you if it’s a debit card or credit card?   You may have thought, “This is needless, of course it’s a credit card, it’s VISA.”

Not so.   Years ago, VISA and MASTERCARD got into the debit card business as well, and in the U.S., that meant charging a percent instead of a flat rate.   That sounds a bit unfair, doesn’t it?  They’re not offering the customer credit or assuming the customer’s credit risk.   But remember, the U.S. is a nation where you can inert 50 cents in a postage machine and receive 34 cents worth of stamps.   Business comes before ‘fairness,’ and if the customers might pay for it, entrepreneurship will invent it.

Even if they can’t introduce VISA DEBIT and MASTERCARD DEBIT in Canada quite yet, obviously, there’s more money to be made by the banks in switching the processing end of the transaction away from the non-profit INTERAC.

That’s why you’re getting all those phone calls.  We get one almost every day.  It’s not that phone solicitors are suddenly targeting businesses because the “do not call” list prevents them from calling homes.   (Although there’s now no shortage of people willing to switch from residential to business telemarketing.) It’s that the commissions the banks are paying telemarketers are huge because of the great gains to be made.

Yes, their sales pitch is correct.   They will give you a better rate on straight VISA and MASTERCARD transactions.   But probably, at the end of the day, most of your transactions are DEBIT.    And the percentage will apply, not the flat rate you’re paying, which these days, may be as low as 8 cents per card swipe.   They don’t tell you that.

So let’s play a game of “let’s pretend.”   Let’s say a customer purchases a $19.99 CD and a $19.99 paperback at your store.    (We’ll ignore the tax for now.)   That’s a $40 sale.   If they pay VISA or MASTERCARD your cost at 2% (for simplicity) will be 80 cents.   If they pay DEBIT your cost (for simplicity) might be 10 cents.

Now there are some different ways you might look at it:

1. You may say, “Heck, it’s only 80 cents.”
2. You might say, “It’s eight times larger, but it’s still a good deal.”
3. You might say, “I was prepared to sell the book and CD anyway, regardless of the customer’s form of payment.”

Here are some things to keep in mind:

1. Say that at the end of the year you’re looking at a 7% gross profit on sales after expenses.   Do you really want to take what’s presently a 10 cent charge on your most dominant form of payment and change that to 2%?   That could mean your bottom line changes from 7% to 5% which, if you’re a larger store,  is huge.  (Which is also why those “extra 2%” offers from publishers become significant, also.)
   
2. What happens when that sale is actually an $95 Bible?  Or a church using a debit card to make a $550 account payment?    It does start to add up.

So you need to make sure that if you’re changing processing equipment, you’re not changing the default processing of DEBIT cards from INTERAC to the VISA network.   Once you switch, you’re often locked in a contract for a long, long time and the penalties for switching back to INTERAC are high.

Better to stick with your old machine until it breaks down.   True, you may not be able to accept chip cards, but until you’re forced to, you should be in no hurry to make changes.

Oh, and those telemarketers?   I just tell them our store works on a barter system and most customers pay us in eggs or chickens or apples.    Some days, I really wish that were true.

Again, thanks to the Canadian Federation of Independent Business for keeping us aware of all these issues.   If your store isn’t a CFIB member, consider joining.  Coincidentally enough, you’ll get an affinity rate on all your electronic transactions!

MasterCard to Introduce Transaction Fee + Percentage

Although it will only apply on cards originating outside of Canada, the introduction of a fee-plus-percentage formula from MasterCard represents a change in the way storekeepers have traditionally understood the credit card fee structure.

This change will take place April 1st, and if credit card and debit card companies have their way, this will be the first of a great many changes in the way electronic transactions are posted, some of which may see retailers actually encouraging customers to pay by cash.

One way to keep abreast of the changes is through membership in the Canadian Federation of Independent Business.   In addition to offering discount rates on transactions, cell phone packages, CAA memberships, long distance rates, etc; the CFIB lobbies in Ottawa on behalf of small business.