From the CEO:
Some concerns have been raised regarding KB’s policies on terminated studios and chargebacks.
Terminated (or deleted) studio content is deleted from the site. KB does not sell or market content that is not maintained by a studio owner.
Chargebacks (or retrievals) are only deducted from studio’s balances when the funds are taken from KB. Funds are taken from KB at the beginning of a dispute, and then essentially held in escrow by the bank, pending the resolution of the dispute. If the dispute is upheld, then the funds are permanently refunded to the card holder. If the dispute is defended or terminated, then the funds are credited back to both KB and the studio. This dispute process is the norm for all businesses of all types.
Recently a studio dealt with a particularly difficult chargeback situation. In this case, the studio reached out to KB prior to the chargebacks occurring because the studio already suspected they would be charged back. KB recommends that studios be extremely careful with big ticket customers, especially when they have a track record of similar fraudulent transgressions. This studio was suspicious of the customer, but still knowingly accepted the transactions in return for online chat time and phone calls.
KB received an email on 5/16/11 regarding approximately $2600 in tributes. An email like this had never been received by KB, and we found it peculiar that the studio was already predicting problems:
“I’m writing you guys b/c of the tributes I received on Saturday from Derek *********…he has never done a chargeback on me and previous payments he has put through your site to me have not had any problems. However, I have heard of him attempting chargebacks in the past for services he has used with other girls. I really doubt he will attempt to dispute the charges since that has not been my personal experience with him, but if he does I can provide you with proof he used my services and authorized those payments himself. Again, I am mostly confident the payments will not be disputed since he happily handed it over all day on Saturday, but I’m writing just in case – I have phone records, emails from him, chat records etc. Just sending this is a precautionary measure more than anything.”
KB responded to the email, and processed the studio’s payment on June 1st, which included the commissions derived from these sales.
KB received a call from the card holder’s bank on 6/26/11 stating that the card holder for these transactions was claiming fraud and that chargeback requests would be forthcoming. KB immediately reached out to both the customer and the studio in order to resolve this situation. The customer continued to claim fraud, but again, the studio confirmed that this reaction was rather expected in an email on 6/26/11:
“Hi, yes I actually emailed you guys regarding him when he originally paid me through your site in case he tried to cancel. He happily paid me at the time, but I have heard of him canceling payments. He canceled amazon gift cards on me and some vegas.com gift cards as well. If you google his phone number, you will see him listed on a fraud site. I have proof that we spent hours chatting, chat records that are hours long and more. I will do whatever I can to help you guys. I hope he is not attempting a chargeback…it really upsets me that he thinks he can get away with ripping people off. I earned whatever money he sent me fair and square.”
KB asked the studio for any/all evidence available to dispute these potential chargebacks, to which we were given a link to a fraud website (numberinvestigator.com) and an email response:
“Unfortunately I’m on a road trip and the hard drive I saved that stuff on is all packed up right now and being shipped. I am forwarding you some emails from him since I have those right now saved in my email. The bank should really be looking at how much and how frequently he cancels purchases and how often he orders a new debit card. This freak actually gave me his social security # and a couple diff card numbers (not that I would do ANYTHING with them). I erased him from my contacts and put him out of mind since I found out he canceled the vegas.com gift cards esp so close to my trip. Too much stress. He has also put payments thru to me on clipvia and niteflirt, though 2 weeks after he paid me through niteflirt he said he couldn’t use niteflirt anymore….probably b/c he did a chargeback. I hate him so I really hope he does not get away with this. I could get the phone records from my canadian cell phone company showing we spoke on the phone for HOURS, but its going to be really difficult, I’m in the Rocky Mountains right now.
Anyway forwarding an email I have giving me permission to spend his money and giving me his home address…will look for whatever other info I have and send along as soon as possible. But seriously, tell the bank to look at his spending history. Ridiculous he is trying to get out of this.”
Again, the studio expected this to be a problem, because the customer has a history of this type of action, but still accepted the transactions and was still paid on those transactions by KB. Even with this issue looming, KB paid the studio over $1000 in August as a part of July earnings.
The chargebacks for these transactions arrived mid-July, and the funds were deducted from KB bank accounts at that time. KB did not remove the funds from the studio’s account because it would have left a large negative balance and we hoped to resolve the matter with the credit card companies, but the studio owner was made aware of the situation. During this process, KB support not only provided information to the banks, but reached out to the customer directly as well as answered any/all questions of the studio immediately and forthcoming.
On 8/15/11 the chargebacks were upheld as the disputes had been lost. Not only was KB deducted $2600 in chargebacks but an additional $320 in associated fees. Not giving up, we continue to appeal the bank’s decision.
On 9/27/11 an official email was sent to the studio stating that the appeal process was continuing and that the funds would need to be suspended, but if the appeal process was successful and KB received the funds back, that they would be credited back to the studio.
KB suspended the September payment to the studio until KB could recoup the approximately $2,000 in commissions that had been paid. To date, only approximately $600 has been recouped. We asked that the studio work with us to get back in positive standing, and even offered to push the studio via marketing channels and additional exposure.
The studio subsequently deleted their studio leaving KB with a negative balance of approximately $1,400 and over $320 in additional fees (that are never passed along to the studio).
For any merchant, the chargeback process is difficult and complicated. The burden of proof is on the merchant to provide enough documentation to the credit banks (Visa/Mastercard/Discover/Amex) that their customer is either wrong or being dishonest. With online transactions of electronic content or voice/chat, it is especially difficult for the merchant to prove their case. How can KB show, without a doubt, that the merchandise was received by the individual owner of a specific card? It is almost impossible. And while credit card fraud is a crime punishable with fines and jail time, dishonest people will continue to perjure themselves and risk getting caught.
KB responds to every inquiry, but unless the customer admits their mistake, remembers the purchase, or fails to maintain the dispute, the card holder will always win. We block offender credit card numbers, but as a part of filing a chargeback, banks issue card holders new cards making our blocking redundant. We take other measures as well, and update our security regularly.
One way for studios to protect themselves is that if you know a customer has a bad reputation, then do not commit resources to that customer. In this unique example, the studio owner had knowledge of the customer being fraudulent, performed service for the customer anyway, received the funds from KB, and does not wish to deal with the repercussions.
It is always interesting to the Customer Service desk when studios get upset about changes to the site, new restrictions, or adjustments to the look/feel. KB is on the studio’s side first and foremost. Everything that KB does is to provide a better platform and service so that studios can sell better, feel safe that they will get paid on time, and build an environment of commerce. It is not as if KB makes changes or enacts regulations on a whim; but rather it is so that we can all continue to conduct business, and hopefully get better at doing it.
Chargebacks are one of the largest challenges facing online commerce in general, but as much as it hurts you the studio it damages KB that much more. The average transaction on KB is $25, and the bank fee of losing a chargeback is an additional $40. That bank fee is never passed along to you the studio. The personnel hours cost spent addressing this issue is never passed along to you the studio. These issues are part of the costs of doing business, and every day KB tries to find ways to minimize those costs, provide better tools, and become more transparent.
KB views studios as partners, and we are all in this together. The better you do, the better we do, and vice versa. KB is the leader regarding innovation, customer service, payout capabilities, and revenue channel development. Version 2.0, which is expected prior to year end, will once again revolutionize our industry and give studios advanced capabilities, ease of use, and additional transparency.
As always if you have questions about this or anything else, please reach out to us at firstname.lastname@example.org, or you can call us at 877-418-8690.
At your service,