My Merchant Account Blog

Some Ways to Help Internet Merchants Reduce Fraud and Chargebacks

Sunday, January 15, 2006

Chargeback can occur for a variety of reasons. From the simple "I didn't do it", to the package was not received, or maybe it was not what I expected. Ten common reasons that chargebacks happen:

Failure of merchant to respond to retrieval request.
Cardholder was billed more than once for the same transaction.
Cardholder denies making or authorizing a transaction.
Failure of merchant to follow correct procedures in completing the sales slip at the point-of-sale.
Account numbers don't match.
A credit or refund was not properly processed.
Failure to obtain proper authorization.
A card was used either before or after its valid date.
Merchandise or service not received by cardholder.
Cardholder disputes quality of merchandise or services.

The key to preventing most chargebacks is communication. Keep the lines of communication open between you and your customer. When the customer is on your check out page, put the name of your business by the submit button. This name should be the same as what will appear on the consumer statement from the issuing credit card company. Since most credit card companies offer online access and people can review this at any time, it is important to know what company is charging their credit card.

For example, I ordered an address label from a company on the web. Their url was www.artisticlabels.com. When I received the invoice from the company, it came from the email address cs@artisticdirect.com. But yet on my credit card statement, it had ADI*ROLLED ADDRESS LBL 800-845-3720 NY. This is somewhat a bit confusing since I do not remember seeing the name Rolled Address Label anywhere on their site. I called their toll free number and then immediately remembered what it was. I hung up without speaking with anyone.

If your phone number does not appear on the credit card statement, contact your agent or your merchant account provider today and request it be placed on there. This way, the customer sees your number and this will increase your chances of them calling you - whether the call might be "What company is this" or "It was not what I expected".

Depending on the reason of the chargeback, you might get a retrieval request. This request is from the issuing bank. Some merchant account providers will charge you for this retrieval request on top of chargeback fees. This retrieval request is your first step in preventing a chargeback. As you can see above, failure of merchant to respond to a retrieval request will cause a chargeback to be issued. Once again, communication. You need to respond to the request immediately. Most merchant account providers will allow online access to your account or maybe even email you. Check this daily and to help you properly respond to the request.

Usually each gateway will send you an email for all transactions completed. If you receive two emails that look like the same order, review your shopping cart and then cancel the order through your virtual terminal. Doing this before batching out, can possibly even prevent the customer from knowing what happened.

If a cardholder denies making the authorization or transaction, this can potentially be fraud. There are a variety of things that you can do to prevent fraud. The first step is AVS (address verification service). This is an archaic method that Visa and MasterCard used to rely on quite heavily to prevent fraud. With so many problems though, they came out with a CVV (Card Verification Value) or CVC (Card Verification Code). Most Visa and MasterCards in the market today will have one of these numbers on the back. Electronic payment gateways will send you a transaction / order ID on your completed transaction. In this ID, you will be able to tell if the address and the CVV matched. If there was a problem., you need to scrub the transaction even further. And be very diligent in this - especially if you are allowing electronic downloads. A few other red flags could be:

Free email address
Phone number does not match the GeoIP or not entering a phone number
Do a GeoIP look-up (this will help to verify that the IP matches near the address of the consumer)
Purchasing quite a few of the same products

These are just a few reasons to scrub the transaction, I would guess that 99% of all consumers will not mind being called to verify the transaction.

If you sell a lot of high ticket items, consider faxing a credit card authorization slip over to the consumer. This can be as (link to authorization form).If you have some pretty strict return policies, consider adding some of those on this simple page. This way, If the consumer does a chargeback (and depending on the reason), you might be able to beat the chargeback. MyChoiceFax will provide a toll-free phone number with 100 free minutes for $9.95 a month if you need one.

Also, have you shopping cart verify the expiration date as well as the credit card number using the Lunh's method before submitting it to the gateway. This will help prevent a consumer using an expired card. Sometimes, the gateway or the platform will not check the expiration date.

Whenever possible, use a carrier that will provide you with proof of delivery. Having this on file will also help in some chargebacks.

And when you think the merchandise has been received by the consumer, send them a follow-up email. This will help to maintain the communication between you and your customer. This way in case something is wrong with the order, your chances will be increased that he / she will actually contact you.

Posted by Administrator at 2:04:51 PM in Merchant Accounts (34) | Comments (0)

Electronic Payment Gateways Explained

Saturday, January 14, 2006

An electronic payment gateway is the virtual connectivity between your website and the credit card companies (e.g. Visa, MasterCard, Discover, American Express, JCB, Diner's Club). It is similar to the point of sale (POS) terminal that you find in the grocery store or restaurant.

In the United States, there are a number of them: Quantum Gateway, LinkPoint, Authorize.net, Verisign's Payflow, Cybersource, Itransact, etc.

Authorize.net is probably the most advertised electronic gateway. A lot of people think they can sign up with them and immediately start to accept credit cards. They do not realize you need a merchant account as well. Authorize.net even uses the First Data platform to help facilitate transaction processing. Since we started using Authorize.net in September 2003, they have been down about seven times. This meant thousands of dollars lost in sales for merchants around the United States. Authorize.net's prices are usually about $15-$25 a month and each transaction is about $.10-$.15 in addition to the transaction charge imposed by the merchant account provider. They also charge $25 a month for recurring billing.

The LinkPoint payment gateway is probably one of the most deprecated electronic payment gateways out there. It is owned by the First Data Corporation. First Data has been doing electronic money transfers since 1969 and they were the first processor of both VISA® and MasterCard® bank-issued credit cards in 1976. First Data processed 12.2 billion transactions in North America alone in 2003. The last time the LinkPoint gateway went down was in January 2002. LinkPoint's charges are usually about $15-$25 a month. No other fees are charged, except for LinkShield. Recurring billing is free and no other transaction fees are imposed.

Verisign also has a payment gateway. Verisign is probably the most recognized name because they also offer other services and products for the internet (i.e. SSL certificates, domain registration, hosting, etc). You do not need to purchase everything from Verisign to have a successful e-commerce business. Verisign's prices are a little more than the others. They charge extra for their API and recurring billing.

The above gateways offer both an API and a secure website to capture your consumer's credit card data. An API allows you to capture credit card data on your secure website & process the transaction. The consumer never leaves your website and you maintain consistency throughout your website. If you wish to use the gateway's secure website, there is usually some simple HTML coding to direct your consumer over to that webpage. Once processed, they will be re-directed back to your website.

Using an Internet Payment Service Provider (IPSP) (like 2CO, Paypal, CCAvenue) means you have to use their own proprietary gateway. This helps to stay in compliance with Visa and MasterCard. This also means that your customers will be directed over to the third party processor's secure webpage. Some will allow you to co-brand this page (your logo and theirs on the page), but the consumer must know who they are paying and this page must state that.

Posted by Administrator at 2:07:12 PM in Electronic Payment Gateways (7) | Comments (2)

Electronic Payment Gateways Compared

In the United States, there are a number of them: Quantum, LinkPoint, Authorize.net, Verisign's Payflow, Cybersource, Itransact, etc.

The LinkPoint payment gateway is probably one of the most deprecated out there. It is owned by the First Data Corporation. First Data has been doing electronic money transfers since 1969 and they were the first processor of both VISA® and MasterCard® bank-issued credit cards in 1976. First Data processed 12.2 billion transactions in North America alone in 2003. The last time the LinkPoint gateway went down was in January 2002. LinkPoint's charges are usually about $15-$25 a month. No other fees are charged, except for LinkShield. Recurring billing is free and no other transaction fees are imposed.

Posted by Administrator at 12:03:20 PM in Electronic Payment Gateways (7) | Comments (0)

Sell Your Chargebacks

Saturday, January 07, 2006

Ever get hit with a chargeback for service or product provided? Are you tired of giving away your hosting services, other services, or products for free? Why not consider selling your chargebacks and NSF checks. There are companies, like CRB Company, that specialize in buying chargebacks and NSF checks. You get paid, upfront, a % of the face value of the chargebacks/NSF's and they are responsible for locating and collecting from the consumer. For those that are selling webhosting plans for $19.95 a month, this might not seem to be worth it to you. Now, with the help of Host Legal, we have come up with new TOS for your company which may allow you to add fees to your chargebacks / NSF's. You have to have the fees listed in your TOS to be effective. These fees will vary from state to state.

Once these fees are calculated, you might be able to get at least the money back for the services rendered as well as the chargeback fee imposed by the Merchant Account Processor (MAP) or Third Party Processor. While it will not help you on your chargeback percentage, it will help on your receivables. Each service, chargeback, and returned check is different – just like a merchant account. I recommend that you contact CRB Company for more information on selling your chargebacks and returned checks since they also have some minimum requirements, which vary from merchant to merchant. They primarily deal with United States consumers. And if you have a webhosting company, check out Host Legal for more information on TOS if you are a web hosting company.

One thing to keep in mind, if the charge is known to be fraudulent, CRB or any other company, will not buy your chargebacks. The easiest way to tell this is if there was a police report filed. If so, CRB Company and most other companies cannot enforce these on the consumer. Feel free to contact CRB Company today for more information. If you provided the services or products to the consumer within your TOS and AUP, and they do a chargeback, chances are that you should be able to get your money back. For example, someone signs up with your hosting company and they use your services for one month. The uptime is well within your SLA. Yet, at the end of the month, they leave and decide to do a chargeback. Consider getting your money back. Or maybe you sell a script to someone. And maybe even help them install it. Then two weeks later - you get the chargeback notification. You know they are using it, but due to Visa's rules on chargebacks and the internet, you really do not have a leg to stand on. Consider speaking with CRB Company to get your money back for that script.

The extra charges that you are able to tack onto a chargeback or NSF check is state sensitive. Unfortunately, the resources to locate each of these numbers are very low. I recommend that before you update your TOS, to check with your attorney or State's attorney.

Now you are probably wondering what fees might be imposed? Well - to only give you an idea, let's say that you have a webhosting plan that is $19.95. After one month, the consumer cancels service and does a chargeback. What happens now? You get charged $15-$50 for that chargeback on top of the $19.95. So you are out $34.95-$69.95 right now. Now here is where it becomes tricky. What to "charge" exactly. You can charge the $19.95 and the chargeback fee. This is a start, but CRB Company and others are only going to give you a small percentage, so right now you are looking at probably only looking at $3-$7.00. Not too much so you will need to determine what your state might allow, possibly 3-5 times the amount of the chargeback along with a not too exceed amount. Let's say you charge 5X the chargeback, $60 recovery fee and your other chargeback fees ($25.00 from your MAP). This would be $204.70. And selling it to CRB could net you about $20.00. This is only an example.

Guess it is about time to update those Terms of Service. Good luck!