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With restrictions on public gatherings and the subsequent modification and cancellation of events, our customers are at a greater risk of chargebacks. As detailed below, both RunSignup and our customers have a fiduciary responsibility to uphold the rules of the credit card network, and our policy updates are designed to ensure that those responsibilities can be met. These policies will be evaluated and updated as more information and data becomes available. For a deeper explanation of the impact and process of chargebacks and a look forward, please watch Bob's Coronavirus Update webinar below.
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.
These are not permanent % rates and delays and rules for delays. This is a fluid situation, and as we get more information and data we hope to improve these and someday return to policies close to where we were previously.
We know the delayed payments are difficult for your operations, but as discussed in the webinar, all payment processors are required to protect the fundamental basis of the credit card network. To clarify that sentence, a race registration fee that you collect is actually a liability and not real revenue to you until the promised service is delivered – you are essentially borrowing money from the credit card holder until the event happens. Under normal circumstances the event is usually delivered, but the shut down of so many events means cardholders can often win chargebacks regardless of your no refund policy.
Also note that we are not alone in implementing these types of procedures. Eventbrite announced they are holding all funds until after an event successfully completes. We are trying to implement policies that allows cash to flow to event producers yet still uphold both our obligations and your obligations to credit card holders as a payment processor.
Pre-Race Reserve Requirements
There is a requirement for both the 10% race reserve and the 5% payment account requirements to be met before additional funds are transitioned to your payment account. These also apply to virtual races as these traditionally have risk associated with them, and there is not a good way to track shipments and results. Let’s look at the various use cases:
Scenario 1: You list a new race, with a new payment account. In your first week, you collect $1,000 in race registrations and $500 in donations.
We will pay 90% of registration revenue and 100% of donations on the regular schedule. So, in your first week, you will be paid 90% of the race registrations ($900) plus all of your donations ($500) for a total of $1,400 transferred to you on Tuesday (for weekly payments). The 10% reserve will be paid according to the Post-Race Reserve Requirements below.
Scenario 2: You have a single existing race in your payment account that has $19,000 of registrations that have already been paid to you. The next week you collected $1,000 of registrations plus $500 of donations.
You have now collected a total of $20,000 of registrations with a reserve requirement of $2,000 – so we would hold the whole $1,500 to put into the reserve if it is a single payment account.
The next week, when another $1,000 of registrations plus $500 of donations are collected, then the total registration fees collected would be $21,000 and the reserve requirement would $2,100 (10% of $21,000). So we would hold $600 to meet the reserve requirement, and the remaining $400 plus the $500 donations would be paid on the next Tuesday. Moving forward, 10% of all registrations will be held in reserve each week.
Scenario 3: You have a multi-race payment account in which Race A has $20,000 of race fees and has a $2,000 reserve. Race B has $60,000 of race fees and a reserve of $1,000.
While Race A has met its reserve requirement and looks like it would only have 10% held moving forward, there is also an overall payment account requirement of 5%. For this account of two races ($20,000 + $60,000) = $4,000 reserve requirement. So if Race A gets $1,000 of registrations, it will not have the full 90% released because the $1,000 is needed to meet the overall payment account reserve of $4,000.
In the above example, if Race A instead collected $2,000 of registrations then the payment account reserve requirement of 5% * $82,000 = $4,100. Since there is already a total reserve of $3,000, then only $1,100 would be held back to meet the total payment account reserve requirement and $900 would be paid to the race.
Again, we hope to lower both the race and the payment account %’s over the coming weeks and months as risk is reduced.
Post-Race Payment Policy
This new algorithm for post race will go into effect this coming week. This replaces the 30 day hold we announced earlier on payments.
We continue to iterate and account for nuances and corner cases. For example, we hope to add logic so that a very large race’s payment is not totally withheld for a single chargeback. If a large race has $100,000 in reserve we don’t necessarily want a single chargeback to trigger the 3-week hold. Instead, either some % of registrations as chargebacks should be used as the trigger, or a smaller reserve should be required if the % of chargebacks is below a certain threshold. Those changes are expected to be made in the next 2 weeks.
We also hope we can reduce both the % reserves and the holdback times. We do think the algorithms we have built will enable us to smoothly migrate to the new normal over the coming months and improve customer cash flow.
Chargeback Notification. We have a new notification email that will go out to race directors as we get chargebacks in. What can you do with that? Call them! Be polite, be compassionate, and be kind, and see if you can talk them into reversing the chargeback. We have some suggested templates here.
Waived Processing Fee for Refunds. We have removed the $1 processing fee to issue refunds. Additionally, we have reduced the fee for adding funds to your refund reserve to 2.3% - or you can do so for free via check or ACH.
Races have a Financial Summary page that has drawn more attention than usual. If you'd prefer the video version of this information, you can find that here. Let’s take a look at a simple use case to understand the basics. We will also take a look at the Payment Account, which is where you can see your estimated next payment.
Transactions: $62,836.27 – This line is the total transactions charged to customers. The link provides a report of all transactions with all the details. These are all transactions in real time. Note that does not mean they have “Settled” in the credit card network, which may take a day or more if over a weekend. Also note that some transactions may disappear if the participant clicks on the cancel within the 15 minute window.
Transaction Processing Fees: – $3,889.30 – This is the processing fee RunSignup charges to process the transaction. It may include other fees from the timer or race operator for some of their services as well.
Sales Tax Remitted by RunSignup: – $2,756.27 – In marketplace states, we calculate and collect the sales tax from the participant, which is part of the total transaction amount paid. We also take care of paying the appropriate state(s).
Refunds: $0 – If we had processed refunds, you would find them here. This might be refunds you initiate, it can also include automated refunds like referral rewards or when a fundraiser meets their goal.
Refund Processing Fees: $0 – We usually charge $1 per refund processed. We have waived that fee during the crisis to make it easier and less expensive for races to process refunds. It does cost us money to process refunds, and this usually covers those costs.
Holdbacks: –$9,358.40 – These are the reserves we hold to cover potential chargebacks. You can read our reserve policies here. Currently, we hold 20% of the registration fees. At this point, it is useful to take a deeper dive on how this is calculated.
Reserves are only required on the registration fees. NOT the donations or memberships or processing fees. If you click on the Holdbacks link, it brings you to a page that looks something like this:
The third row of the top left table won’t appear for you – that is a data field we see as RunSignup Administrators.
You will see the current Reserve is $9,358.40. Yet the “Desired Reserve” is $10,056.40. That means this race is $698 short of the 20% reserve required by RunSignup which is typically the registration fees on this race plus processing fees allocated to the registration fees.
You might be wondering why the desired reserve is $10,056.40 when the total transactions are $62,941.20, and 20% of that would be $12,588.24. There are two reasons:
1. This can be difficult to calculate since only settled transactions are included. Said another way, you might drive yourself crazy if you try to calculate this all yourself, although you could from downloading all the detailed transaction reports once transactions are marked as settled.
2. The Holdback page shows a number of Refund Reserve Transfers:
We do calculations to determine new transactions that have come in and add to the reserve once an hour, however again it is only for settled transactions. It is likely that tonight the $698 shortfall will be picked up from transactions that are happening later since this is a successful virtual race that is seeing continuous registrations on a daily basis.
Finally on the Holdback/Reserve section… If your race is not actively taking in enough new transactions, then there is a “Manage Reserve” button that will allow you to add to your reserve with a credit card or with an ACH or Wire transfer.
Adjustments: +$207.47 – This happens to be a special situation with this race where there was money moved from another race into this race, and is generally not relevant. A more typical scenario today is that you will see chargebacks or additions to a reserve via credit cards. From another race, here is an example:
Again, this is a RunSignup Admin view, so your view will be a bit more limited. However, you are able to see why there are negative adjustments like a chargeback or a refund, as well as positive adjustments. Here is an example of a race doing refunds in some cases:
Here is another example of an adjustment page. This one shows (from the bottom up) a check the race sent us to fill their reserve, a chargeback and then that customer calling their credit card company and reversing the chargeback (Yay!):
Owed to Race: $47,162.97 – This is a total of the above items.
Payments: $0 – There have not been any payments to this race yet as they recently opened.
Balance Owed: $47,162.97 – This is how much is owed to this race. HOWEVER!!! It is not necessarily the amount that will be paid on their next payment. To View that, you have to look at their Payment Account information to determine the amount to be paid and when.
Note the Estimated Amount is only an estimate. If you click on the “Manage Payment account, you will see more details on that:
Note that these are also estimates until the final payment date is reached and there is a reconciliation done between all of the race payments in this payment account as well as all of the requirements for reserves at the pre-race, post-race and payment account level. There are little helper information buttons over each line item in this that provide more information. Also note that if transactions are coming in as well as potentially chargebacks then these numbers can also change since the system is real time for all of this.
Andrew makes confusing math easier with Monopoly money.