1. Introduction
The term “payment processor” can be broadly defined as a company that facilitates the transfer of funds between two parties (e.g., a merchant and a consumer). In this article, we intend to focus on the field of payment processor dispute resolution (PPDR) in general and, therefore, we will not refer to any specific payment processors.
This article will start with an examination of the legal aspects of PPDR (Section 2) and will continue with the provision of a summary of its business aspects (Section 3). Finally, a conclusion is drawn (Section 4).
2. Legal Aspects
PPDR is mainly based on an alternative dispute resolution, also known as out-of-court dispute resolution. The reason is that the disputes pertaining to PPDR are usually of low monetary value and it is not cost efficient for the claimant (in most cases, a user of a payment processor) to initiate court proceedings. In the West European countries, the United States, Canada, and Australia, the fees for litigators are quite high (based on our experience, they exceed EUR 300 per hour) and many law firms may charge a few thousand euro for examining the case only. Therefore, disputes with payment processors for less than EUR 5000 may not be worth litigating as there is a high risk that, if the claimant wins, he or she may not be able to recover the investment in legal fees.
Most often, PPDR-related disputes are resolved through negotiation. It starts with a complaint sent to the relevant payment processor in which the claimant explains in detail its position and the reason for which he or she believes that the decision of the payment processor is wrong. In many cases, the challenged decisions relate to (i) holds of funds which, depending on the payment processor, may range between 90 and 180 days, (ii) limitation of accounts (i.e., the inability of the users of payment processing accounts to use them), and (iii) confiscations. The latter constitutes the most serious type of disputes as, when the funds are confiscated, the payment processor considers them to be a property of the payment processor and not of the claimant. Confiscations are usually caused by serious violations of the legal documents of the relevant payment processor, e.g., the sale of counterfeit products and fraudulent activities.
One of the specific features of PPDR is that, in many cases, payment processors do not provide the claimant with sufficient information allowing him or her to understand the rationale of the challenged decision. Thus, there is information asymmetry (an imbalance between the two parties in their knowledge about the dispute). As a result, the claimant may not be able to defend himself or herself as a proper defense requires knowledge about the reasons for the decision affecting the claimant. PP Fighters noticed this information asymmetry in multiple cases and the payment processors justified the withholding of specific information about their decisions based on allegations that they are not required to disclose such information. Even if the applicable law allows them to keep such information in confidentiality, the ethicality of withholding the rationale for the decisions is questionable as it leaves the affected parties without the ability to use their funds without knowing the specific reason for that. In this regard, it is worth noting that payment processors may place the funds of their users merely because of a routine review. Thus, they may cause a profound impact on the business of their users without any serious reason for doing so.
Therefore, PP Fighters noticed a pressing social need for a legislative framework requiring payment processors to disclose the specific reasons for any decision that places the funds of their users on hold or leads to a confiscation of their funds. Under the term “specific reasons”, we refer to a specification of the exact violations of the relevant legal documents of the payment processors and evidence proving the violations. For example, a mere statement that the claimant violated a rule prohibiting the engagement in prohibited acts should not be sufficient. It is necessary to specify in which prohibited acts the claimant engaged and to provide evidence of the engagement in such acts. Without doing so, the claimant is placed in a situation where he does not have the means to defend himself and this may be regarded as a form of a social injustice. PP Fighters has recently launched a petition for a stricter legal framework for payment processors and the petition was signed by a large number of people.
3. Business Aspects
Based on our experience with PP Fighters, we observed that a business operating in the field of payment processor disputes needs to have (i) extensive expertise in resolving this specific type of disputes, (ii) mediation skills enabling the business to mediate disputes between payment processors and their users, (iii) strong paralegal support, and (iv) the ability to develop effective automatic systems for data management and processing. We would like to pay particular attention to the last two elements, i.e., strong paralegal support and automatic systems.
Without a strong paralegal support, a platform for resolving payment processor disputes, such as PP Fighters, will just stand still after sending the initial legal letter to the payment processor. However, if there is a strong paralegal support, the platform will allow its users (i) to get regular updates about their cases, (ii) to get answers to questions, and (iii) to discuss the dispute resolution strategy with experts in the field. Automatic systems permit platforms to collect from their users valuable information necessary for the resolution of their disputes and process such information quickly and effectively, thus making the entire dispute resolution process less burdensome for both the users and the platforms.
4. Concluding remarks
PPDR is still in its infancy. Although law firms, financial ombudsmans, and other alternative dispute resolution bodies are actively engaged in the resolution of disputes with payment processors, PP Fighters is, to our knowledge, the first platform that specializes exclusively in the resolution of such disputes. We have had numerous cases and helped our clients to release hundreds of thousands of U.S. dollars. We have adjusted our business to reflect the legal and the business aspects of the PPDR, thus maximizing the chance of successful dispute resolution.
PP Fighters thanks Manuela Zarate for her valuable contribution to this article.
