Shago Payments, a fintech company owned by B2B e-commerce platform Alerzo, has taken Fidelity Bank to court over a chargeback dispute. Shago, which offers payments and agent banking services like Moniepoint and Opay, had its settlement accounts with Fidelity Bank.
Three sources with direct knowledge of the situation said a series of chargeback claims were filed with Fidelity Bank between June and August 2023. Those claims amounted to ₦811 million and were deducted from Shago’s Fidelity Bank account without their knowledge.
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.
The chargeback is deducted from the acquiring bank (Fidelity, in this instance), which in turn 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 representment.
Shago alleges that Fidelity Bank “unilaterally resolved” the chargeback claims resulting in “unauthorised debits” on its accounts.
The four-party model
According to one person with knowledge of the matter, Shago reported the incident to the Economic and Financial Crimes Commission in September 2023. The fintech startup also held several meetings with Fidelity Bank’s leadership between July 2023 and early 2024 to resolve the chargeback, but the talks stalled.
Eventually, Shago went to court and asked a Federal High Court in Lagos to award ₦10 billion in damages for the incident. It also asked the court to restrain Fidelity Bank from making any further debits to its accounts and for the ₦811 million the bank already deducted to be held in trust until the determination of the suit.
Global Accelerex, a Payments Terminal Service Provider, and Interswitch, a switching company, are listed as defendants in the suit.
“The 1st defendant’s failure to honour the plaintiff’s various demands, particularly by the plaintiff’s letters of 13 July 2023 and 21 July 2023, as well as emails of 31 August 2023, 22 September 2023, 5 October 2023, and 8 November 2023 amounts to a breach of the 1st defendants (re)payment obligations to the plaintiff,” said an excerpt of Shago’s court filing.
Shago declined to comment.
A spokesperson for Fidelity Bank did not respond to a request for comments.
Interswitch and Global Accelerex declined to comment, citing judicial considerations.
On July 17, the court asked Fidelity Bank to pay ₦811 million to a court-designated account pending the determination of the suit.
The court restrained Fidelity Bank from taking further action on the alleged chargeback claims by setting off the credit balances in Shago’s account numbers. The case was adjourned to August 1, 2024 for mention.
