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Originally Posted by Titan
Your assuming that it takes 3 months for people to chargeback their credit card. If they chargeback within a couple weeks then scrubbing will most certainly be effective in lowering chargeback ratio for the month. Heavy scrub + rebills will dramatically lower chargeback ratio. The other major flaw in your logic is that you say by increasing transactions you will decrease the chargeback ratio. This obviously isn't correct if the chargebacks take less than a month to occurr. The other major problem with this is that even if you assume that chargebacks take an average of 3 months to occur, by increasing transactions you will increase the chargeback ratio dramatically in 3 months. So if they increased transactions they would destroy themselves in 3 months unless they dramatically increased transactions processed every single month. This would be basically a ponzi scheme where at one point the bubble would burst. Since ccbill/paycom have been around a long time I find it highly unlikely they would do this. So logically if chargebacks are high this month they would scrub immediately to prevent more chargebacks. And assuming a long term chargeback ratio they would still scrub to avoid a bubble bursting scenario.
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While it's nice that you have have listed your theory above, I'm not wrong. I spent 2 years as a VP at CCBill (00-02), worked with ePassporte for 2 years, and currently underwrite merchant accounts for some very successful accounts.
The majority of chargebacks do not occur within the month that the charges were incurred. They occur in months 2 and 3 after the charges. Also, the majority of accounts that would incur chargeback problems are normally high volume accounts with affiliate programs. The average single girl site, run by the girl or her other half, does not run into chargeback issues. The volume isn't there and the personal touch/support they offer pretty much precludes problems with the account.
The goal in processing is to continually grow the volume, while minimizing the chargebacks. There is such a thing as good volume, as well as such a thing as bad volume. Alot of this can and most often does, have to do with affiliate traffic, especially in a pay per signup environment.
Identifying this troublesome traffic and eliminating it is the nature and purpose of fraud scrubbing. No one, including the processor, makes more money by choking the transaction level down, unless there are other factors involved that create an unusual situation. I've seen very few unusual situations in the last 7 years.
The balance of adding good transactions to the mix and removing the bad ones is not an easy calculation sometimes. To further compound the problem, once an account is in trouble, the amount of time before fines or termination occur is generally less than 90 days. Month 1 of chargeback problems is over and done with before most account holders realize they have issues. Month 2 is the halfway point where the situation has to be taken in hand and improved, with Month 3 being the make or break point.
No one is exempt from this cycle, it's part of every merchant account agreement that's issued, since the 3 months is a card association rule, not an arbitrary bank rule that some banks issue and some do not.