Startup Brings Check-Guarantee Concept to Online Risk Management

A Manhattan-based startup company is bringing the concept of check guarantee to the business of processing card-not-present payments. Precharge Risk Management Solutions, founded less than two years ago, has only in the past few months been actively marketing its service but has already signed up more than 1,000 online merchants, most of them coming to the network through reseller agreements the company has made with independent sales organizations, gateways, and shopping-cart vendors. The company will add card-present merchants in about two months, and in another 10 months expects to close on an initial public offering, according to Alex Corral, director of technology and one of the founders of Precharge. The company's unique twist on risk management for online transactions is to offer merchants full payment of all chargebacks, with most reason codes covered, much as a check-guarantee company covers bounced checks. Precharge levies a per-transaction fee ranging from 1% to 5%. The specific fee depends on risk and merchant location, with some international merchants posing greater risk than those in the U.S. ISOs and other resellers can take this range as a buy rate and add their own markup. For an additional 15 cents per transaction, the company will cover the typical $25 to $35 fee banks charge merchants for each chargeback. All transactions run through Precharge's data center and are screened for fraud. The company levies no charge for any declined transaction. Precharge relies on a proprietary, home-grown risk-management system and on a database it houses on its own computers. The database, which is updated daily, includes IP addresses, zip codes, phone numbers, and bank-identification numbers. Precharge can provide gateway services or will link to merchants' existing gateways. Precharge's executives started the company out of a sense of frustration over chargebacks in online transactions. Corral had been with a pay-per-click advertising company that, he says, went through five acquirers over four years because of wrangling over chargebacks. Disputes, he says, stemmed often from episodes of acquirers withholding funds because of perceived chargeback risk. But when Corral and his colleagues started Precharge, they decided they needed something beyond standard online transaction monitoring. Chargeback guarantee, Precharge officials say, does several things for the company. It sets them apart from larger risk-management competitors. But it also allows them to attract ISOs, many of which are leery of the online market because of its perceived risk, as resellers. “It mitigates the risk for ISOs, and gives them the potential to go after guys who are higher risk and higher volume without worrying about chargebacks,” says Howard Schecter, director of business development and another founder. And it makes it easier to sell risk- management services. “Merchants' perception was that if they get a chargeback, then the fraud-screening doesn't work,” Corral says. “It became a difficult sell [without the guarantee].” The overriding philosophy, Corral says, is that merchants should get paid, and above all shouldn't have to concern themselves with chargebacks. “To get a chargeback is not only time-consuming and stressful, it's not something a business should have to deal with,” he says. “We want to be in a position where we can take away that liability, or at least make it more manageable.” Precharge, which supports e-commerce transactions from 180 countries, has established relationships so far with such ISOs as United Bank Card and CardService International.