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Chargebacks and Coronavirus

We are beginning to see the impact of Coronavirus on our communities and on our races and nonprofit events. We are trying to be proactive to help the industry with information about any direct impact we see and education about actions races can take.

One of the big concerns for races and nonprofit events is customers deciding to do a “chargeback”. This is where the credit card network allows a credit card holder to get their money back if what they purchased is not delivered. This can be from a cancelled event or even a postponed event. This post explains this process in depth for RunSignup and GiveSignup customers.

Credit Card Transaction. A transaction is between the buyer and seller. The credit card network merely facilitates that with a set of rules and technology. 

Chargeback.  If a buyer does not get what they bought from a seller, they can appeal to the credit card network to get their money back. This is called a chargeback. Credit card companies are making it easier and easier for their cardholders to process a chargeback – you may have even seen commercials on TV (or done it yourself) where the cardholder simply clicks a button on their phone and get their money back.

Chargeback Notification and Process. Unfortunately, this is not very automated. The credit card networks are slow to process these, and there are manual workflows involved with WorldPay that slow things more. It may take several days or a week or more for a chargeback to get to us. When we are notified, the credit card network automatically pulls the disputed amount PLUS $7.50 out of your merchant bank account.

The slow notification and payment process is bad because we can not get a real time status on this metric which would be helpful in this fast changing situation of Coronavirus.

Chargeback Dispute Mechanism. Chargebacks come directly out of your Merchant Bank Account and is pulled by the credit card network automatically – meaning you are paying up front and get your money back if our dispute is successful.  We manage chargebacks for our customers. We handle about 20 out of around 100,000 transactions (150,000+ registrations) per week. There is also a fee of $7.50 per chargeback that the credit card network charges per chargeback to process them. VISA is trending to favor the credit card holder in these disputes and our win rate has been going down because of this.

We are expecting the vast majority of chargebacks to be accepted even with robust refund rules in place by an event.

How RunSignup Fights Chargebacks.  Again, unfortunately this is a pretty manual process. Many of you might know Sue – she is the person doing all of this for you (thank her someday – I know I do!).  We use some of the tools that are built into our system like the “No Refund” policy we put on websites automatically and allow you to adjust, and the signed and dated waiver with IP address and signor details. We win about 80% of these, but it is a manual process. Sue gets those documents out of our system and returns them to the credit card network. She also updates an “Adjustment” to the race. You can see this by clicking the “Adjustments” link on your Financial Summary page. This pays the credit card company the chargeback due out of your merchant bank account.

Your Merchant Bank Account. When you create a Payment Account with RunSignup, we create a Merchant Bank Account for you via WorldPay that is held in FifthThird Bank. When someone signs up for a race, the race fee goes directly into that bank account. RunSignup administers it and can move the money to your regular bank account (these are the payments you regularly receive) and processes money back to credit card holders for things like referral reward refunds, team pricing refunds, refunds you process or allow participants to process, as well as paying for the chargebacks.

Your Financial Obligation. You have a financial obligation to fulfill what the credit card holder bought. If you do not fulfill it, they have the right to get their money back. Whether you have the money in your merchant bank account or not. No matter where your merchant bank account is held – RunSignup or any other provider, they will assess risk and create refund/chargeback reserves in your merchant bank account to assure proper funds are available. 

RunSignup Obligation.  Our obligation as the underwriter of your merchant bank account, we must protect the fundamental purpose of the credit card network and the buyer-seller relationship. This is the core reason we are helping races set the refund/chargeback reserve – it is much better to have a plan ahead of time rather than react after it is too late. For merchant bank accounts that are underfunded, we will have to collect that money at some time, and we are not in the business of doing loans to finance those merchant bank accounts that are underfunded.

Your Merchant Bank Money is Separate From Others. Each of our customers have their own merchant bank account. This is important in a potential liquidity crisis as we can not use your funds to pay ourselves or to pay for another race’s shortfall.

Summary. In summary, RunSignup will be helping races set appropriate refund/chargeback reserves to meet potential chargebacks from customers as a result of Coronavirus.

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