Fighting Chargebacks

Stephen Yagielowicz
One of the least talked about effects of the dwindling economy is a worsening of consumer behavior. Mainstream retail outlets are citing a dramatic increase in "past authorized date" merchandise return attempts, sometimes on items that were purchased more than a year ago; rampant "re-ticketing," where shoppers peel the price tag off a lower cost item and then attach it to a more expensive item in an attempt to give themselves a discount; and a rising incidence of shoplifting and employee theft. All of these situations will likely increase as the holiday gift-giving season moves into full swing.

In online adult, we are experiencing a similar phenomenon which manifests itself in two major ways: consumers are turning to tube sites rather than paysites, and they are more willing to perform a chargeback if they do join a premium website; especially when the credit card bills from all those shortsighted cross-sales — pre-checked or otherwise — rapidly come due and add to the motivation for slashing costs.

I'll avoid the temptation to rant extensively about how unscrupulous operators — who burn through programs and merchant accounts in an effort to wring the last few dollars out of the "pay for content" membership site model — are a major part of the problem. Instead I'll focus on something that individual website operators can do to keep more of the hard-earned money they make from membership sales: successfully contesting and reversing as many chargebacks as possible.

While some operators may question the need, efficacy or cost-efficiency of such pursuits, the effort is made worthwhile by the realities of tightening sales; the decreasing chargeback ratios imposed by the credit card associations, which can result in you losing your ability to process transactions; and the fact that chargebacks often cover several months of recurring charges which may amount to a substantial dollar value, especially once affiliate payments and chargeback fees are added in..

Know the Facts
The first step in the process is to understand the nature of a particular chargeback and to decide if pursuing a reversal is "worth it." While domestic U.S.-based operators may feel that disputing all chargebacks is a smart way to stay below the one percent ratio, some overseas operators may choose to only pursue higher euro-value reversals.

Another issue to take into consideration is your goal: do you want to simply have the chargeback reversed or do you also want to keep your money? It may not be possible to have both.

I'm a big believer in the vagaries of human nature and I understand that a customer — or the customer's spouse — might call the bank directly to demand a chargeback rather than calling a porn site to dispute the charge. I also understand that the customer service agent at the bank may not be a porn fan, and he may be more than willing to initiate the chargeback with no investigation or questioning of the merchant — regardless of any official bank policies.

These same vagaries of human nature can also work for you, however, if you are able to convince the bank representative that, in line with your company policy, all the customer had to do was to contact you directly to receive a full and immediate refund. Sure, you'll still be out-of-pocket on the bandwidth and processing charges and any other overhead, but at least that black mark might be erased.

Having said that, your chances of success may be much better if you can show that the customer who claims they "would never visit a porn site" actually visited on 97 different occasions, and that you have all the logs and supporting data required to prove it.

One tool that can provide paysite operators with this information is Phantom Frog. Among its many features are a 30 day bandwidth history for all users, complete with access dates; daily and total bandwidth consumed; and the unique IP address from which the account was accessed.

A Helping Hand
Once you've identified the chargebacks that you wish to pursue for their monetary value — whether or not the bank reverses the chargeback— you have two choices: do it yourself or hire an expert.

I don't know about you, but if I ran a restaurant I wouldn't waste my time chasing folks down the street who had skipped out without paying their bill — I'd call the cops on them. Likewise, I don't want to chase deadbeats who may intentionally be joining paysites knowing that they can do a chargeback later to avoid paying. I'd rather use a professional debt recovery and collections company to pursue frivolous or expensive chargebacks. Several services, some with adult experience, exist to assist merchants in contesting illegitimate chargebacks — recovering funds from folks who reneged on their porn payments.

While each individual website operator needs to make their own unique judgment as to how far to go in pursuing individual chargebacks and the cash flow that they bleed from the operation, the message is clear: chargebacks are not a one-way street and you are not helpless in the face of them — even if the most effective weapon against them is to minimize their initial number by making good on your promises and delivering what the customer expects in the manner he expects it.