A chargeback disagreement has led Shago Payments, a fintech startup owned by B2B e-commerce platform Alerzo, to sue Fidelity Bank in court. Shago used Fidelity Bank for its settlement accounts. Shago provides agent banking services, such as Moniepoint and Opay, as well as payment services.
According to three people with intimate knowledge of the matter, between June and August 2023, a number of chargeback claims were sent to Fidelity Bank. Without their knowledge, ₦811 million was removed from Shago’s Fidelity Bank account to cover those claims.
The case highlights the dynamics of chargeback claims. In a typical “four-party model,” when cardholders dispute a transaction, their bank contacts the card processor (in this instance, Interswitch) and asks for a chargeback.
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The chargeback is deducted from the acquiring bank (Fidelity, in this instance), which debits the merchant (Shago Payments) that provided the service to the cardholder.
Merchants can appeal these chargebacks by showing evidence that the cardholder’s transaction was legitimate and should not be reversed in a process called representation.
According to Shago, Fidelity Bank “independently resolved” chargeback claims, causing “unauthorised debits” on company accounts.
Shago’s Report to EFCC: What Happened Next?
According to one source aware of the situation, Shago reported the event to the Economic and Financial Crimes Commission in September 2023.
To address the issue, the fintech startup met multiple times with Fidelity Bank’s management between July 2023 and early 2024, but the discussions reached a standstill.
Shago eventually went to court and requested a ₦10 billion damages award from a Federal High Court in Lagos for the incident.
In addition, it requested that the ₦811 million that Fidelity Bank had already taken out of its accounts be placed in trust until the lawsuit has an outcome and that the bank be prohibited from making any more debits to its accounts.
Global Accelerex, a Payments Terminal Service Provider, and Interswitch, a switching company, are listed as defendants in the suit.
According to a portion of Shago’s court filing, “the 1st defendant’s failure to honour the plaintiff’s various demands, particularly by the plaintiff’s letters of July 13 2023 and July 21 2023, as well as emails of August 31 2023, September 22 2023, October 5 2023, and November 8 2023, amounts to a breach of the 1st defendants (re)payment obligations to the plaintiff.”
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Unravelling the Credit Dispute at Fidelity Bank
A Fidelity Bank representative still needs to be able to answer an inquiry for remarks. Citing court concerns, Interswitch and Global Accelerex declined to comment.
On July 17, the court asked Fidelity Bank to pay ₦811 million to a court-designated account pending the suit’s determination.
By shutting off the credit amounts in Shago’s account numbers, the court prevented Fidelity Bank from pursuing action regarding the purported chargeback claims. On August 1, 2024, the matter was postponed for discussion.