Like any online business, chargebacks are a way of life for online forex and binary options brokers. Estimated to affect between 0.5% to 1.0% of total credit card transactions for regulated brokers, chargebacks can reach even higher percentages for non-regulated firms. While chargeback percentages vary from broker to broker and are often highly correlated to the marketing channels a firm uses to source customers, the problem is felt by nearly every broker.
Recently emerging from stealth mode to provide a solution for the chargeback problem is RisqLogic. Created by online trading industry veterans with lengthy experience in broker compliance work, RisqLogic provides a solution to help firms contest chargebacks and work with credit card networks to reverse negative transactions against them.
Finding the key pieces of evidence necessary for a successful challenge
Speaking with Finance Magnates, RisqLogic founders explained that when it comes to contesting chargebacks, the key question that needs to be first answered is which cases have a chance of being reversed. RisqLogic explained that “this is highly dependent on the examination of the data at hand and finding the key pieces of evidence necessary for a successful challenge”. According to the company, by analyzing the important characteristics of chargebacks, RisqLogic is able to win the majority of chargebacks cases it takes on as it understands what is critical in the eyes of the issuing banks and highly relevant credit card policies traders may be violating when charging back.
To fight against chargebacks and automate portions of the process, RisqLogic is looking to develop an API for brokers to easily transfer the data necessary for contesting chargebacks, also called submitting a representment within the payment industry. With the current standard integration, the product connects with brokers to send them an automatic notification from the broker’s PSP to alert RisqLogic about new chargebacks.
Depending on the integration with the brokers’ CRM, RisqLogic is then automatically provided access to information about the chargeback customer. With details from the PSP about the type of chargeback transaction as well as details about the problematic client such as how much they have traded and emails confirming their desire to open an account, RisqLogic makes a decision whether to contest the chargeback. According to RisqLogic, upon sending the representment, the case takes about 45-60 days before the case is settled and the PSP sends the broker a notification.
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Why not do this themselves?
Affecting nearly every broker, chargebacks are also a process they can contest and handle internally. Although this is true, according to RisqLogic many brokers simply see chargebacks as “a cost of doing business” and do very little to fight them. Adding to the problem is a lack of experience for compliance staff at many brokers to not only submit representments, but also understand which ones are worth challenging. According to RisqLogic “companies that are not winning the majority of their representments are doing something wrong”.
Beyond the millions of dollars a month charged back by customers which gets subtracted from a broker’s bottom line, firms are also at risk of having card related fees increased or accounts at merchant banks closed with too many chargebacks. RisqLogic’s founders also highlighted another hidden fee that is often neglected when calculating chargeback losses: acquisition costs. This includes the opportunity cost spent by salespeople to convert and support the clients as well as any marketing costs such as from PPC campaigns.
Only pay when you win
Aiming to put its money where its mouth is, RisqLogic’s business model is based on only being paid when they succeed in reversing a chargeback. According to RisqLogic this model aligns them with its broker clients to best work together to win cases instead of charging a fixed rate per case without aligning it to the success of representments.