It was only a matter of time before innovative payment companies would be stifled by regulators in the USA.  A few years ago, while attending the NACHA Payments conference, they had the founders of Square share their vision and then those gentlemen took some pretty intense questioning from the banking experts.   After the session the conversations that I heard centered around that fact that the risk of underwriting in the environment that they discussed such as ‘babysitters can now take credit card payments’ and ‘dog walkers can now accept credit cards on their phones’ would never be realized in the current banking environment.  As we now know and saw demonstrated, Square was able to find a bank and sell them on their vision and in 2012  processed at least $10million in payments.

It seems likely that their sheer size and new products have them in the spotlight resulting in the regulators in Illinois issuing a Cease and Desist order.  If you are so inclined, here is the actual order   There are numerous posts, articles etc about this C&D if you simply query it on the web you will be able to find lots of chatter about it.

It appears that Square and others that are moving money will need to be licensed to do so.

banding togetherBy Melody Lashmar – Issue 4: merchants must bear the responsibility for addressing this fraud as there is no incentive for anyone else in the chain of the transaction to take corrective action.


It is time for the regulators and card associations to return some balance to the networks.  If the card associations and regulators can tout setting chargeback ratios and penalties for those merchants and acquirers who exceed those thresholds as successful in combatting fraud, then the same structure should work on the issuing banks.  It is my belief that the consumer’s banks should also have to stay under a given ratio of chargebacks or unauthorized transactions that they initiate.  After all, it is the issuing bank that takes the call from their consumer and processes the complaint that leads to a chargeback.


To support this concept, I analyzed a year’s worth of return data for ACH transactions.  I have included the graph below.  I grouped the return data into 3 groups: NSF, Invalids and Unauthorized. I then calculated the ratio of each banks returns to see the split of the three groups against their own returns.  You would hypothesize that the ratios would be similar across the majority of banks.  What I found was enlightening.   Continue reading

Liar BuyerBy Melody Lashmar – Issue 2: Consumers lie and steal at a rate that easily surpasses the restrictions for fraud placed on merchant accounts.


It is unrealistic to think that consumers will stop lying and stealing, especially when there is no real consequence for so doing.  There is only the rewards of getting something for nothing and their money back. I believe that there are two actions that can take place to assist with this issue.


First, the majority of consumers simply want their money back and they do not want to call the merchant because that would be lying directly to someone’s face…which, for the most part, is still taboo.  But if there were a return reason code that was not considered merchant fraud but more along the lines of buyer’s remorse or account misuse then everyone would be happier as the consumer would get their money back in the first call, the issuing bank keeps their consumer happy, the card associations still wave their “secure network” flag and the merchant wouldn’t have to bear the additional negative consequences that a chargeback creates.  Keep in mind that the merchant still bears the financial implications of each negative sale on their business.


The second action has to be that every time there is a transaction that is returned as unauthorized or fraud, the consumer’s payment account has to be terminated and they have to get a new one.  This solution would not be complete without a penalty to the consumer’s bank for not following this rule.   How perfectly suitable is that solution?  If you really did have an unauthorized transaction on your account, then you and your bank should be very keen to shut down that exposure.  The consumer incurs the additional headache of updating any automatic or stored billing options they have with others, and the waiting period for the new cards and checks but their account was compromised… isn’t closing the account and opening a new one the responsible thing to do?  If someone stole their house keys, I bet they would change their locks, even if they knew the culprit.  Issuing new accounts also costs the issuing bank money as they have the administration and the physical costs associated with account setup.  Further, those nasty merchants and fraudsters would not have the new account information so the consumer’s and bank’s money and reputation are all safe and sound.



balanceBy Melody Lashmar – Over the last few months I have been investigating and writing about consumer initiated fraud.  I have been defining the issue, giving recent examples of the issue, providing data about the issue and demonstrating that it is a known issue and has been for quite sometime.


Along with providing to you a solid foundation of understanding regarding the issue of consumer initiated fraud, over the next few blog posts I am going to propose some ideas on ways the networks could actually tackle the issues that exist.


To sum up my previous conclusions, consumers lie and steal at a rate that easily surpasses the restrictions for fraud placed on merchant accounts, online transactions suffer from a lack of systems that can guarantee the identity of the person entering the transaction information, online purchasing is targeted by fraudsters with computer programs to find and use card numbers and finally, merchants, the most impacted party, must bear responsibility for addressing this fraud as there is no incentive for anyone else in the chain of the transaction to take corrective action.

Continue reading

March has arrived and that means St. Patrick’s Day is right around the corner. Although St. Paddy’s Day is in its essence a religious holiday, it’s also a great excuse to eat, drink and be merry…all of which I will be doing on Sunday, March 17th. My dad’s grandparents were Irish, so I’m pretty sure that makes me 99% Irish. Or maybe it’s 12%? It doesn’t matter. I’m 100% Irish once a year in March.

According to Irish folklore, this is also the time of year when a creepy, bearded fairy known as a Leprechaun makes a magically delicious breakfast cereal, only to selfishly hoard it for himself. If he didn’t want to share, he shouldn’t have made those tasty marshmallows! Seriously, nobody cares about those oat pieces.

Speaking of Leprechauns, St. Paddy’s Day is also a good time to reflect on the confounding film franchise in which a Leprechaun visits various locations including “the hood” and outer space over the course of 6 movies to wreak havoc and, at one point, perform a rap song about being an evil Leprechaun. No, I’m not making this up and yes, somehow funding was secured for the making of 6 separate movies starring a killer Leprechaun who has an affinity for rap music. So if anyone has ever accused you of having a dumb idea, rest assured that someone else had a dumber one. 6 times over.

Here are some other fun facts about St. Patrick’s Day that you may not have known:

-The actual color of St. Patrick is blue. Green became associated with St. Patrick’s Day during the 19th century. Green, in Irish legends, was worn by fairies and immortals, and also by people to encourage their crops to grow.
-In Chicago, on St. Patrick’s Day, the rivers are dyed green!
-The very first St. Patrick’s Day parade was not in Ireland. It was in Boston in 1737.
-The “L” in “L3” stands for Leprechaun. Just kidding.

And now on to business. The luck of the Irish is strong with L3 in that Melody Lashmar works for us and continues to crank out informative, thought-provoking articles on a consistent basis. Her latest entry titled “ACH Account Validation” is the first in a series of articles to come discussing methods wherein a business or financial institution can validate the accuracy of a consumer or business’s account information. Check it out if you haven’t already and give us  your thoughts on this important topic.

In February one of our main focuses was improving settlement timeframes for ACH merchants, and we did just! What’s more, we were turning around new merchant accounts in as little as 24 hours. And true to our mission statement here at L3, we kept our merchant’s accounts healthy by monitoring  chargebacks and providing useful analysis to aid in preventing any potential issues down the road. Another successful month behind us and we look forward to doing it all over again in March!

Don’t forget to follow us to the end of the rainbow where a pot of gold awaits you on Facebook and Twitter! Well, maybe not gold, but definitely some interesting information.

Have a great month, everyone!