JustFab: The Billion Dollar Startup with a Dark Past
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Getting fined is usually enough to get you thrown off your payment processor and added to something called the MATCH/TMF list, which you never want to be put on. Once you're on that list, you're completely and utterly fucked.
If you are terminated by one payment processor due to excessive chargebacks, and you try to get a new account with another payment processor, they first run a query on... you guessed it, the MATCH list. If you pop up on the list, every single legitimate payment processor will turn down your application "so fast it will make your head spin" (to quote a certain presidential candidate). How long do you stay on the MATCH list, you might ask? A minimum of 5 years, although I have heard from some people that you are on it for life. Basically, a MATCH listing blacklists you so you can likely never get a credit card processing account ever again.
HOWEVER... there are so-called "high risk" payment processors who "occasionally" will take MATCH/TMF merchants once you have been on the list for 6 months or more. But, it involves some luck and it will cost you.
Most mainstream payment processors like Chase Paymentech will charge you fees based on a pricing structure called "interchange plus," which is the base rate that goes to the credit card brands (Visa/MC) plus a padding fee of 25 basis points or less that goes to the processor (Chase). Depending on the types of credit card that your customers use, interchange ends up somewhere around 2 - 2.25%. But most "high-risk" payment processors won't even entertain the thought of giving you an account without charging at least 250 basis points plus interchange on a reasonably good account! But most of the time, they just abandon "interchange plus" altogether and charge you based on a 3 tiered structure (low, mid, and high rate). This allows them to pad the bill even more, of course. Not to mention that a whole mess of other fees are padded, as well, leaving you paying at least 6.5 - 7% per transaction when it's all said and done.
Oh, and I neglected to mention that if you expect to still accept Visa/MC, you still need to abide by their rules. So your options are: (a) get your chargebacks down to less than 1% of your total transactions, or (b) get less than 100 chargebacks per month. If you're a tiny operation, it's a little easier. You need to improve your customer service so that fewer customers dispute transactions. As long as the total value of your disputes is less than 3% of your total monthly revenue, you can usually fly under the radar. But if you're a small or medium sized company with 25,000+ transactions per month, you need to do some major surgery to your business model to stay at less than 1% chargebacks at all costs, and probably less than 0.75% so you have a little buffer in case your customers get a little trigger happy on the chargebacks in a given month. That basically takes subscriptions of any kind off the table, let alone "free trial" with autoship.
Which brings me back to my original point: a "free trial" with sneaky, fine-print autoship is actually INCREDIBLY difficult to pull off in this day and age. I am utterly baffled as to how JustFab, let alone Proactiv, the worst offender of them all, can pull this scheme off without getting MATCH listed. It especially makes no sense how JustFab has gotten away with this because it sounds like they have been sued left and right by private parties and the government for years. I can only postulate that they bring in such incredible amounts of revenue that Visa/MC and their payment processors simply turn a blind eye to it.
The other sneaky thing I heard some were starting to do was to determine if a card is a credit or debit card- You cant chargeback on a debit card so they treat those users worse.
The one thing I dont understand is the making it difficult for people to cancel via phone. Chargebacks cost money, so almost all of these guys give 100% refunds to anyone who calls. Not doing that seems stupid.
Its similar to back in the ringtone days how the providers would have hundreds of short codes, so that when some of them blew up, it wouldnt effect the entirety of the business.
Your original point holds true for amateurs - people without knowledge, connections and money. Pay the right people, the right amounts and you're good to go. Billing is incredibly complex thing, it's no surprise you see so many startups with very high valuations and a new one pops up every quarter. Those are just the very tip of the iceberg.
For some more lulz, google instabill and Daniel Tzvetkoff who processed billions of dollars for Pokerstars and Fulltilt.
"I signed up to get these shoes and didn't realize that they charge if you don't 'skip the month'. The first time I called and they refunded my money and said emails are sent monthly to remind customers to skip the month. Well the emails came for a few months and then they stopped so of course I forgot and was charged. I tried getting a refund and they said no so I had to use the credit. I tried cancelling the membership and my call never went through and when I started an online chat and told the associate the reason for my chatting with her was to cancel she disconnected us so I couldnt. After that my bank froze my card for some fradulent activity and issued me a new card with a new number and everything and so I thought the nightmare with this company was over. Well they charged me again and I called asking how they got my card number and they said they have a contract with a third party member that is able to get the details of my new card and that I agreed to allow that to happen when I signed up. Needless to say I figured out how to bypass the long phone prompts and was able to finally stop my membership with this company. They are ridiculous and should be out of business with the way they run things. "
Sure, updating the number is inconvenient, but that inconvenience ends up saving me money almost every time. Maybe this is a sign of my poor financial responsibility more than anything else, but I'm sure I'm not the only one.
Whether you want to consider it a feature or a bug, its certainly unexpected. My bank tells me "we have closed your old card", and then proceeds to accept charges for said card. How am I to react, other than "wtf"?
I can appreciate that for many consumers, having your card expire is an annoying anachronism with no benefit. They simply want it to keep working so that their Netflix account keeps working.
The fact that this "feature" exists suggests that the credit card companies have realized and accepted this, and wish to offer a way to effectively circumvent card expiration. That is reasonable, but instead of refactoring the status quo to enable cards with longer (or simply indefinite) expiration periods, they implement this "feature". And now credit cards and payment processing becomes even more complicated. Bleh.
I'm sure there is substantial regulatory and technical inertia that can explain why they're doing it this way, but still.. Bleh.
Personal story time:
Where I live, the local toll authority has a very bad reputation for their tactics of enforcement (surprise). Well, following the TJMaxx hack, my financial provider saw I shopped there during the window, cancelled the card and got me a new one. Very cool. I updated as many of my accounts as I could remember. Forgot the toll authority, whoops.
They send me a bill in the mail somehow turning 35 unpaid tolls into a fee of $700+ dollars. I wrote them explaning that in good faith I had it on auto pay, and I would be happy to pay the tolls, 1 late fee, and 1 processing charge. A total of ~$70.
They waited until the absolute last day to respond (according to postmark), which meant by the time I got their letter telling me "NO!" they had already sent my information to collections. Eventually a collection letter showed up. I responded in writing noting that the debt was not valid as written ($700+) and if they got the number right, I would pay it...never heard from them again, and it never showed up on my credit report.
Anyway, the feature you describe is good for businesses, but when some businesses act shitty like that toll authority, the feature benefits the consumer in a clear way.
For non-fraud related reissues, it's not a flaw but actually an enhancement: you don't have to remember to update your card information whenever your card expires.
[1] http://www.mastercard.com/us/merchant/pdf/MasterCard_Automat...
https://www.ftc.gov/news-events/press-releases/2014/11/ftc-i...
The FTC fines seem to be quite affordable to these players, who may just see them as a minor cost of doing business. Sensa for example had sales of $300m, fines of $26m. The example above has annual sales of around $250m. The profit margins on the sales numbers for these kinds of products are very high too.
In case you're wondering, I'll save you a trip to Archive.org; here's what Matrix Partner's website said before they memory-holed SENSA:
The pair became fast friends, and when Intermix was acquired by News Corporation in 2005, Don and Adam were quick to start their own company. In 2006, they created an e-commerce brand incubator platform called Intelligent Beauty. The company became the home to SENSA, a weight-loss system based on groundbreaking research from Dr. Alan Hirsch, and DermStore, a service created by a board certified dermatologist who wanted to provide accurate skin care information and qualified skin care products online.
An investor even chimes in to defend the company.
Similar topics discussed in there as are in this one. This ride doesn't end.
Rookie mistake. The most coveted achievement is to exit for over a billion dollars.
It has earned another distinction, as a unicorn. Having a value of north of $850 million, valued in an investment by silicon darling Andreesen Horowitz. Andreesen Horowitz partner Chris Dixon went on to proclaim that the company was a great investment and would be a legitimate media entity.
Buzzfeed, have you forgotten you are Buzzfeed. You can't write a quote like this, and be taken seriously:
In practice, that meant a factory of winking pop-ups, banner ads, advertorials, and landing pages everywhere from Yahoo Mail to AOL and MSN, displaying pictures of old women transforming into young ones and scales tipping to lighter numbers. The rapid A/B testing and modification of these ads has always been Goldenberg’s strength
The irony is glaring and the funniest part is they don't realize it.
[1]https://www.techdirt.com/articles/20120420/10560418585/to-re...
From reading the link below to the JustFab investor though it doesn't really seem like they are intentionally being that deceptive but idk
Nobody can (or should) think for you.
A bit offtopic (or not): One of the major differences (if not THE) between western and eastern (Chinese influenced) is about conversation. In western civilization the speaker is obliged to make himself clear and understood by the listener. In Chinese culture it is the opposite - the listener has the obligation to discern the meaning of what is said. Both have pros and cons.