The fraud protection stuff at PayPal is better, though not great (too many false positives to call it great), and our rates are much lower.
I do have a fear that someday they'll just decide to screw us and close our account, since it has happened to so many people. That'd be a bad day, for sure. But, in the meantime, I'm spending less money and have a dramatically better UI for managing things like chargebacks and refunds.
Unfortunately, that's sort of standard practice for credit card processors, even ones that we've seen people recommend on HN. We've got it in our contracts with http://FeeFighters.com processors that they can NEVER raise pricing, don't have any hidden fees, and we have reviews on them so you can see how other people have liked them.
I don't know enough about fraud protection at PayPal, but we've heard a lot of horror stories when people come over to merchant accounts.
Yeah, I know. That's why we switched to PayPal.
The rates started out great (I think it was 2.1% when we started). Then they climbed every few months to being ridiculously expensive; they'd labeled our business "high risk", or something, somewhere along the way (despite the fact that all of the problems were because their fraud protection mechanisms were nonexistent). Doing anything about it required sending faxes back and forth with the provider, and waiting on the phone for half an hour to talk to a human, who would fax us forms, and then ignore them when we faxed them back.
Anyway, at this point, I have a strict No Fax policy. If a company requires me to fax them something, or requires me to accept faxes from them, I won't do business with them, under any circumstance. The merchant services thing was the last straw on that front, and it seems the majority of merchant services companies still want to do business via fax (even BrainTree, last time I checked, who are reportedly a great company to work with...but if I have to fax them, even once, I'm not going to ever be their customer).
Basically, discussing merchant services with me is like poking a hornets nest with a stick. I hate those people. I've dealt with a number of merchant services companies over the past dozen years I've run businesses, and I've hated every single one of them with a fiery passion. There may be good ones, but I've never met one I liked.
I don't like how much PayPal charges, either, but they've yet to screw me over, so far. And, the rates are close enough to merchant providers that I wouldn't be willing to send a single fax to change it (and if history is any indicator, I'd have to send/receive dozens of faxes a year, if I switched back to a regular merchant account).
If you're selling software, there's no reason you should ever have a chargeback happen against you. Just make sure your policy is to refund anybody for any reason at any time. I remember reading a JoelOnSoftware article where he talked about running 4 years straight with zero chargebacks using a policy like that.
- what they actually bought
- how to contact you
There are a dozen little things you can do to reinforce the message that "we don't want your money unless you're amazingly happy". If your customer wants his money back, he'll get it one way or another. If you make it easy to simply reverse the transaction through you, they won't ever need to get their bank involved.
This is a fairy story.
We have a no questions asked 60 day full refund policy. We have at least one chargeback a week due to stolen credit cards. We, of course, don't have any reason to fight them over it, so we just accept the chargeback when that happens. But, we definitely get chargebacks.
I do occasionally get phone calls from people who don't know who we are. I answer their questions, and if the description doesn't ring a bell (sometimes they'll say, "Oh, I need to ask our system administrator if he bought that." and I never hear from them again), I process a refund immediately.
But, software companies definitely get chargebacks. There's no way to completely avoid fraud without refusing lots of legitimate customers (AVS, for instance, doesn't work for most non-US card holders, and we do half of our business outside the US, so we can't reject orders with an AVS mismatch).
My audience is highly technical, and the particular segment is rife with piracy. Even though our product is 95+% Open Source (and so there is a free version that people can use to do nearly everything the commercial version does), we still have people who use stolen credit cards to order our products.
And, it may also be a factor of product pricing. Your products are under $100, right? Ours run from $149-$999.
Sounds like our sales volume is actually about the same as yours. Looking over the actual numbers, chargebacks are less than my initial estimate. More like once every 2-3 weeks, and sometimes we'll go a whole month or two between; but some months we'll see a rash of them. It averages out to a couple a month.
But, it's definitely something we deal with regularly. Are you doing anything in particular to prevent fraudulent orders, or is it just the nature of your customer base that it simply doesn't use stolen credit cards to buy software?
Also, how much of your business is international? We've found that 95% of our fraudulent orders are from overseas (but 50% of our legitimate orders are also from overseas, so we're not willing to make it difficult for those folks to buy from us).
We actually can back that up - Fog Creek is a FeeFighters customer!
Most people, when noticing their card has been stolen, will simply request chargebacks of every unrecognized item on their bill. The vendor never hears about it, and has no idea it has happened, until after the chargeback has taken place.
Anyway, I am just sharing about the differing experiences we have had with PayPal and with our merchant bank.
But regardless of who you're technically fighting with, it's still a matter of you trying to keep money from people who want it back. I can't come up with very many reasons you, as a business, would ever want to do that. All you'll accomplish is making those customers angry enough to tell the world how much they dislike your business, and they'll still get their money back through the chargeback.
Seems like a losing proposition.