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Rick's Rants: Chargebacks (May 2004) - by Rick Latona, Dollars.com
You don't have to be unethical to have chargeback problems. Sparse content and aggressive marketing methods are only two potential causes of chargebacks. The bottom line is that any program doing significant joins has to deal with the issue.
There are a number of factors that can cause you to go above the 1% chargeback ratio allowed by Visa, including natural attrition, your members' area, webmaster fraud, support issues, cross sells and your price point to consumers. If you want to stay below the 1% mark, you'll need to deal with every one of these points.
The other day I was reading the Terms and Conditions for processing through Jettis and I noticed a clause in their contract that required you to phase out processing over a six month period if you wanted to leave them as a client. This is because people rarely get notified each month when they are billed. It is quite common for a customer to notice that they have been getting billed recurrently only after some time has passed. If you don't send new charges through the same IPSP account over and over, natural attrition of your customer base will put you over 1%. I know of one well-known very high volume sponsor program that processed through Jettis for years, and then switched to Epoch for various reasons. Recently that sponsor has had to start sending charges through Jettis again because they went over 1% by not sending them new joins. Now they will need to go back to Epoch for new joins because they will have the same problem there. What's the solution? Get your own merchant account, and run all of your primary processing through it, or rotate two separate IPSPs so you don't put all your eggs in one basket.
Technically, customers aren't supposed to charge back fees just because they don't like the product. However, in reality this happens all the time. Having a great members' area will not only decrease chargebacks but will also increase your total billing! At CJ Bucks, we do everything we can to keep the customers happy, including separate members' areas for each of our sites and tons of well-organized content.
This may come as a surprise, but there are many fraudulent webmasters! All program owners regularly cancel webmasters for pushing through fraudulent transactions. The frauds want to get a check from you before you've noticed, so the key is to notice and catch them before you send the check. Most IPSPs will inform you of fraudulent webmasters, but you can always catch more than the processor by taking ownership of the issue yourself. Some methods are easier than others. One easy way to catch the crook is to look at their conversion ratios. If you have a webmaster pushing through joins at 1:3, odds are they are defrauding you. If you show me a traffic source that converts at 1 in 3, I'll buy all of the traffic for sale because such a thing just doesn't exist. A much more difficult technique would be to build a system that checks to see if members log in to their members' areas. If a webmaster sends five joins to you, and none of those joins log in to the sites, odds are that they are fraudulent. The bottom line is that you must have a system in place to protect yourself against fraud. At CJ Bucks we have many, so most crooks look for an easier target.
Your support systems can make a huge difference. When a pay site member needs support, or chooses to cancel, they have two choices: go to your site and look for support channels or go to the e-mails they received when they joined the program. Those e-mails most likely came from your IPSP and contain e-mail addresses, links and/or phone numbers. Your IPSP couldn't possibly answer questions about your members' area or the encoding of your videos. I know of at least three sponsors who have asked their IPSP to change the information on those e-mails so that all requests funnel through the sponsor who actually sold the membership.
Cross sells are often blamed for the chargeback problem. Again, it's how you use the cross sells that counts most. Some programs bury in their terms and conditions that the end user is joining more than one site, while others use check boxes or even pre-checked boxes on their join page. Clearly there is a middle ground here -- your job, as a program owner, is to find that balance. I prefer the pre-checked boxes, but I leave the recurring monthly price for those memberships at 24.95 or less. I think that hooking someone up with two separate $39.95 a month memberships is just a bit too much, and, besides, the CEO of a major IPSP assures me that many banks won't charge back charges of less than 25 dollars.
Chargebacks are obviously an important concern for everyone involved in a sponsor program, but the issue isn't as cut-and-dried as simply offering better content. Of course, when selling an intangible product, it never hurts to deliver above and beyond your customers' expectations, but unless you efficiently shore-up all points of potential chargeback leakage, you still might find yourself running afoul of the 1% policy.
Rick Latona's company started with Consumption Junction and has turned into a powerhouse delivering tens of billions of banner ads and text links monthly through a network of free adult sites. Each of his sites has strong consumer brands that generate bookmarkers and a loyal fan base. Recently we've seen him launch Dollars.com which as a B2B advertising exchange only puts him in charge of even more traffic. Visit www.kblogger.com for more of Rick's tips.
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