In This Issue
Reducing your Chargeback Risk
Reading your Merchant Statement
Direct Selling Companies Under Fire for Patent Enfringement
Stealing Data - No Technical Skills Required
What We're Watching - The Durbin Amendment
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Welcome to the heart of the summer season.  For some, this is a time of summer vacation and relaxing at the pool, while others head into the teeth of the busy season.  Mid-year offers a great opportunity for businesses to reflect on the first half of the year, evaluate performance and make adjustments to ensure that the rest of the year goes as planned, and hopefully even a little better. 
At ProPay, we hope that we can help a bit, by offering a little insight on the industry and by sharing our experiences.  In this issue of the newsletter, we address two concerns that our team often hears from clients and prospects; 1) How can we reduce our risk of chargebacks, and 2)  What is the real cost of a transaction? 
This issue also includes an analysis of a major lawsuit in the direct selling industry, and its impact on the way that Direct Selling companies interact with thier consultants and agents.  Lastly, we offer an update on the Durbin Amendment and its potential impact on interchange rates and consumers.  We hope this information is useful to you as you plan the rest of your year.
As always, feel free to forward this newsletter to anyone that might be interested. 
The ProPay Team
Reducing your Chargeback Risk
by Lance Rich, EVP of Risk

Accepting credit and debit cards is an excellent way to grow your business and increase customer satisfaction. However, it can also increase the possibility of fraud or disputed transactions. Cardholders can dispute a transaction up to 120 days after making the purchase. Such a dispute is called a chargeback.

ProPay has outlined 3 simple ways to reduce the likelihood of chargebacks:

1. Communicate with your customers what will appear on their credit-card statements.

Sometimes customers don't recognize a charge or a company name on their statement and dispute the transaction with their issuing bank.  When a chargeback occurs, those funds are removed from the merchant's account and a fee is charged. Letting your customers know in advance exactly what company name and charge will appear on their statement may help them recognize the charge and prevent the dispute. Your phone number will also appear with the transaction giving the customer the ability to contact you if they have questions. It is also a good idea to encourage your customers to communicate their card purchases to their spouses or significant others to avoid confusion.

2. Gather detailed documentation on every sale.

If one of your customers issues a chargeback, the transaction amount is conditionally returned to them. However, if you (the merchant) have detailed documentation of your sale, you can issue a rebuttal to have the funds returned to you.  The better your documentation, the better your chances of winning your rebuttal. Detailed documentation should include a receipt signed by the cardholder. Order forms, invoices, and bills of sale are also effective.

3. Verify your customer's address, especially if you're shipping or don't have an established relationship.

Sometimes your sales are not face-to-face, and your customer asks to have products shipped to them. Without a way to get a signature, or to view the actual card, you may not be completely comfortable with a particular customer or transaction. A good way to protect yourself is to verify your customer's address.

When you process a card transaction, you will enter your customer's billing address. The results of the address verification will appear after the transaction is submitted. The transaction will still be completed but if you are uncomfortable with the results, you may immediately void the transaction, contact your customer to get the correct address, and re-submit the transaction. A list of these codes, known as the Address Verification Service or AVS, can be found on our website at
Reading your Merchant Statement
by Darrel Welling, EVPClient Care

If you have a merchant account you may have experienced the frustration of trying to understand your monthly statement and determining exactly what the fees are each month. Part of the confusion is due to merchants often assuming the only fee that they need to worry about is their "qualified" discount rate. 

What many merchants don't realize when they sign up for an account is that in addition to the "qualified" discount rate - or the percentage you were expecting to pay of each sale (for Visa, MasterCard an Amex Discover transactions) -- the following fees may also be assessed on a merchant account each month:  a per transaction fee; a mid qualified discount rate; a non qualified discount rate; and an ACH transfer or "Batch fee".  Depending on the processing company you choose you may also be charged one or more of the following:  Monthly minimum; statement fee; monthly or annual access fee; equipment fees; PCI fees; chargeback fees, and fees for customer service calls to name a few.

The best way to figure out what you're actually paying each month is to divide the total amount of all fees listed on your merchant statement by the total volume processed that month.  For example, if there is a total of $375 in fees and the monthly volume processed is $10,000 then divide $375 by $10,000.  You will get 0.0375, or 3.75%.  This means you paid about 3.75% of your total credit card sales to process credit card transactions.  The total amount paid on the total volume processed is referred to as the "effective rate".

The effective rate includes ALL fees assessed on the merchant account each month, such as a statement fee, per transaction fees and downgrades (mid-qualified and non-qualified transactions) in addition to the qualified discount rate.

If a business signs up for a merchant account offering a rate of 1.89% , this is not likely close to the effective rate this merchant ends up paying for  credit card processing. For example, a merchant who has a quoted "qualified" rate of 1.89% may only see 15% of their transactions actually charged that rate and subsequently will end up paying significantly more than the expected 1.89%.  The additional 85% of the transactions in this example will be charged mid-qualified or non-qualified rates.  Depending on your merchant provider and the cards you accept "non qualified" transactions can be priced more than double your quoted "qualified" rate. 

When evaluating your merchant statement make sure you include all fees and charges in calculating an effective rate.  You may find that a merchant provider offering a higher "qualified" rate (but lower fees or a lower variation between qualified, mid-qualified and non-qualified transactions) actually offers a lower over-all cost.

Direct Selling Companies Under Fire for Patent Infringement
by Tony Allen, General Counsel

Reshare Commerce, LLC of Hopkins, Minnesota filed suit, alleging patent infringement, on April 30, 2010 in the United States District Court, District of Minnesota against twelve direct selling companies, Close to My Heart, Inc., Gold Canyon International, LLC, Green Irene, LLC, Nature's Sunshine Products, Inc., Nikken, Inc., Rodan & Fields, LLC, Scentsy, Inc., Shure Pets, Stampin' UP, Inc., Stanley Home Products, Inc, Syntec, Inc. and Tupperware Brands, Inc.  Reshare is demanding a jury trial and claims jurisdiction over all the defendants due to their contacts in Minnesota which it claims amount to doing business in that state.  None of the defendants' principle place of business is in the state of Minnesota.

On July 15, 2003, Reshare was granted a U.S. Patent No. 6,594,641, entitled a "Computer Facilitated Product Selling System."  Quoting from the patent, "This invention relates generally to a system for routing electronic data to effect the sales of products directly from a supplier of a line of products to a customer, using a computer network, preferably the Internet, while protecting a local distributor or retailer from loss of business. This system would allow a customer to make supplier direct purchases of products which have traditionally been available only through retailers . . . ."  Thus, the customer deals directly with the supplier or wholesaler who charges normal retail prices and its automated system forwards some or all of the profit from the sale from the supplier or wholesaler to the distributor or retailer based upon customer ID, customer preference or closest distributor geographically to the mailing address of the customer.

Reshare's Complaint alleges that each of the defendants offer products for resale through authorized distributors and also offer its products for direct sale through a company website.  Defendant's customers have the option to purchase products directly from the website or through a distributor.  When purchasing from the website the customer can search for a distributor based upon the address information entered by the customer or select a distributor from the address information entered by the customer.  Based upon the amount of the customer's purchase the defendant compensates a designated distributor who did not participate in the purchases made by the customer directly from the defendant's website.  Reshare alleges that this course of business dealing infringes on the claims of their patent and that as a result it is entitled to injunctive relief and damages, including pre-judgment interest.

ProPay, Inc. offer its Clients that provide their distributors with replicated websites an alternative solution, SplitPay.  The customer comes to the distributor's website to place an order to purchase products, the funds are deposited into the distributor's account, and the purchase price is split in real time between the distributor and the supplier who ships the products to the customer.  For more information of the advantages of SplitPay go to:

Stealing Data - No Technical Skills Required
by Chris Mark, EVP Data Security and Compliance

When we hear of companies experiencing data breaches, it is easy to assume that some skilled uber-hacker has infiltrated the network and has surreptitiously stolen sensitive data.  Unfortunately, the truth is often less interesting and more frightening. 

Increasingly data breaches are the result of either simple 'social engineering' attacks or 'drive by' infections.  The goal of a data thief is to place malicious software on a computer in the hope that the software can identify, copy and transmit sensitive data to the thief.  While hacking into a computer directly happens frequently in movies, in the real world thieves often rely upon human error or naivete to infect systems with viruses, worms, Trojans and other malicious software. 
In a spear phishing attack a data thief will send out emails to individuals that includes enough information to make the individual believe it is a legitimate request.  Often these emails will masquerade as a message from a software vendor imploring the person to update their computer.  When the user clicks on the email they are directed to a website that surreptitiously infects their system with malicious software. 
In a drive by attack, data thieves will put malicious software on websites and simply wait for people to open the site in a browser.  In August 2009, McAfee listed Jessica Biel as the most dangerous search term for a celebrity.  This means that if a person were to search for a website related to Jessica, that website had a high probability (20% chance) of being infected with malicious software. 
It is important to understand that technical abilities are not required to steal data any longer. Often, human nature lends us to unintentionally assist the thieves in stealing personal data.  Understanding how the data thieves think, and the techniques that they use, can help you to protect you and your customers from data compromise.
To read more you can read the ProPay whitepaper Data Compromise Basics.
What We're Watching
by Heather Mark, PhD, SVP Market Strategy

Sen. Richard Durbin has proposed an amendment to the Financial Reform Act that would allow the Federal Reserve Board to set " reasonable and proportional" interchange fees on debit card purchases.  The amendment, widely referred to as the Durbin Amendment, has generated heated debate. 

While merchants and smaller banks support the law, banks and the card brands propose that it would result in higher costs to the consumer.  Particularly smaller community banks cite their reliance on the interchange as a significant stream of revenue.  These groups are concerned that consumers will have to pay higher fees and receive no more benefits and there will be no difference to them at the check-out. 
The National Restaurant Federation, however, calls interchange a significant hidden fee on merchants.  According to their research, restaurants pay approximately $48 billion in interchange fees annually. 
The Durbin Amendment was passed in the Senate version of the Financial Reform Bill, but was not included in the House version.  The entire bill is currently in conference committee, where the two legislative bodies will try to reconcile the differences in the versions.

DISCLAIMER:  ProPay, Inc. provides this newsletter only for general information or educational purposes.  Nothing herein should be relied upon without seeking the advice of an attorney or other professional appropriate to the subject matter.  While ProPay, Inc. strives to ensure information in this newsletter is accurate and current, ProPay, Inc. does not guarantee or represent that the information is correct, complete, or up-to-date; nor shall ProPay, Inc. be liable for any indirect, incidental or consequential damages (including lost data, information or profits) sustained or incurred in connection with the use of, operation of, or reliance upon any information contained in this newsletter.