Payment Platform and PayFac Disputes

Rome LLP represents payment platforms, PayFacs, marketplaces, and embedded-payments companies in disputes arising from their relationships with acquiring banks and other payment providers.

In one matter, the firm coordinated the recovery of more than $15 million in platform reserves and merchant funds from a PayFac.

Payment platforms may be responsible for merchant activity while depending on an acquiring bank, PayFac, or other payment provider for settlement, risk reporting, and account controls. When that relationship breaks down, the platform may face substantial losses without the records or authority needed to respond.

Platform Risk and Portfolio Oversight

Platform agreements typically make the platform responsible for chargebacks, refunds, card-brand assessments, and other losses generated by its merchants. They also require the platform to monitor merchant activity, apply risk controls, and suspend or terminate accounts that exceed applicable thresholds.

The platform’s ability to manage merchant risk depends on the reporting and account controls it receives from the provider supporting the program. Card brands determine monitoring status from network data and may impose assessments. The provider may use those assessments and its own risk analysis to increase reserves, transfer funds, or require the platform to replenish an account. If the reporting does not identify the affected merchant, reconcile with the card-brand figures, or explain a reserve adjustment, the platform may be unable to investigate the charge, respond in time, or allocate the loss.

The platform agreement governs the platform’s obligations to its bank or payment provider. Merchant or submerchant agreements determine what losses may be passed through to the underlying businesses and what account controls the platform may exercise. Card-brand rules operate separately and may impose additional monitoring, oversight, and compliance duties on the acquiring bank, PayFac, or other registered participant.

Reporting, Monitoring Programs, and Card-Brand Assessments

A platform may receive one set of figures through its dashboard and a different set through a monitoring notice or later accounting. A dashboard or statement may also group activity from several merchant accounts. Differences in dispute count, sales count, or dispute ratio can determine whether a merchant crosses a monitoring threshold and whether an assessment is imposed. The figures should be traceable to the responsible merchant, the relevant transactions, the program period, and the card-brand assessment.

A platform may receive the merchant-level data or monitoring notice only after assessments have begun accruing, limiting its ability to remediate the account or pass the resulting loss through to the responsible merchant. The provider may contend that the activity was visible in the dashboard, while the platform maintains that the reporting was incomplete, internally inconsistent, or insufficient to identify the merchant at issue.

Reviewing the assessment requires determining whether it was correctly calculated, whether the platform had enough information and account control to stop additional exposure, and how the resulting loss should be allocated under the agreements.

Platform Reserves and Merchant Balances

Platform relationships may involve a platform risk reserve, merchant-level reserves, and positive merchant balances held by the bank or payment provider, sometimes through an FBO or other settlement account. Negative merchant balances may be collected from the platform or offset against its reserves.

Positive merchant balances are ordinarily payable to the underlying merchants, subject to authorized deductions and setoff. To have those balances paid to the platform for distribution to the merchants, the platform may need written directions from each merchant authorizing the transfer. The provider may also require an indemnity against competing claims. The release process should identify each merchant’s balance and any merchant-specific charge or liability asserted against it.

Funds may be transferred from the platform reserve to cover negative merchant balances without a transaction-level explanation. Duplicate transfers, continuing fees on terminated accounts, and unexplained card-brand assessments may further reduce the reserve. The platform may then be asked to replenish the account without receiving the records needed to verify the shortfall.

The provider may be entitled to one dispute fee while the platform’s agreement with the merchant permits a higher charge. If the provider deducts the full merchant-facing fee but does not credit the platform’s share, the platform reserve may be depleted beyond the platform’s own liability and the platform’s fee revenue may go unpaid. Similar issues can arise with alert fees, currency charges, account-updater fees, and services billed after merchant accounts have been restricted or terminated.

Allocation of Losses and Recovery

Different charges may be allocated to different parties. Card-brand assessments, chargebacks, negative balances, reserve transfers, and merchant-level fees may be deducted from merchant balances, platform reserves, or both. Each deduction should be traced to the merchant, transaction, or event that generated it and tested against the agreement governing the account from which the funds were taken.

An FTC investigation may also require the platform and its payment partners to account for merchant onboarding, transaction routing, settlement, and account restrictions.

Rome LLP also drafts and negotiates the bank, processor, and program agreements that allocate these responsibilities.

Rome LLP handles these matters before suit and through arbitration or litigation.