Vital Processing Services’ buying 51% of a dispute-resolution company represented an admission that the seller’s system for handling credit card chargebacks was better than its own, according to the head of Vital.
The outfit Vital bought, Merlin Solutions LLC, had developed a state-of-the-art process for handling chargebacks, which occur when credit card holders dispute purchases on their cards. The 12-employee firm was founded by former executives from the First Data Merchant Services division of First Data Corp.
“The chargeback business is one of the more complex and troublesome parts of the business, and there is significant liability if it is not done well,” Vital president and chief executive officer Beverly Wells said in a telephone interview in October.
“It is a paper-intensive process” that typically requires coming up with the signed receipt from the original purchase, Ms. Wells said. “You have to confirm the claim is legitimate. The work includes the merchant, but a lot of the access to documents is handled by the acquirer.”
Vital, a merchant processor based in Tempe, Ariz., is a joint venture of Visa U.S.A. and Synovus Financial Corp. Ms. Wells said that its buying the majority interest in Merlin (the price was not disclosed) sent the message that Merlin had figured out a faster and more efficient way to handle disputes.
“We needed to be in a position to influence this company’s direction,” she said.
Merlin Solutions, of Frederick, Md., will gain: “Although they were enjoying success as an independent, this will give them better access in the market,” Ms. Wells said.
The Frederick, Md., company founded five years ago by its president, Andrew P. Weare, and chief operating officer, Andrew C. Benjamin, former First Data executives who relied mostly on their own money in starting the venture. Before completing the deal with Vital last month they owned 82% of Merlin, with the rest owned by other employees and a small venture capital firm that made an early investment.
The company offers dispute-resolution services mostly to acquirers and independent sales organizations “who either don’t want expensive in-house systems or want somebody to take over chargeback processing for them,” Mr. Weare said. “Nobody else does it like we do.”
He said some smaller processors shy from dispute resolution because of MasterCard International and Visa U.S.A. rules that could leave them paying the tab if a chargeback is mishandled. “In five years processing over 500,000 chargebacks, we have yet to pay a single cent out” for mishandled chargebacks, Mr. Weare said.
