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The Internet age and fast, new methods of communication have caused credit card fraud to rise. Make sure your Merchant Account Provider is keeping you up to date with the latest developments in credit card technology and information. Awareness of steps you can take to reduce fraud for your business can save you considerable money.

The advent of secure online payment gateways and new encryption technology will make credit card fraud increasingly difficult. Yet despite efforts to protect merchants, we still need your cooperation to combat fraudulent transactions. Teamwork between merchants and credit card processors is required if we are to stay one step ahead of the criminals.

 

Waging War on Fraud

Make sure your Merchant Account Provider has a first line of defense against losses due to fraudulent or unauthorized transaction processing. A Loss Prevention staff should monitor daily merchant processing activity and investigate potential financial crimes - on the fly while it is happening.

Make sure your Merchant Account Provider enables you to use Address Verification Service (AVS) to merchants, giving you the ability to verify a cardholder's street number and zip code before shipping the customer's merchandise.

 

Stopping Chargeback in Their Tracks

Occasionally, merchants are approached by criminals pretending to be legitimate cardholders. If everything about a purchase appears too good to be true, it probably isn't true. Before shipping a customer's merchandise, merchants should always attempt to verify the cardholder's information by using the fraud-prevention services/features available to them. Tools such as AVS help verify street numbers, and contacting the cardholder and/or the cardholder's bank can also minimize chargebacks. The customer service number for the cardholder's bank is printed on the back of his or her credit card, and the bank should be able to verify a billing address and the cardholder's name. If the two don't match, you should discuss the matter with the customer and resolve the issue before shipping him or her any products. Using common sense and obtaining a little extra information from the customer can go a long way toward reducing chargebacks and protecting your business.

The Dangers of Factoring

"Factoring" means letting someone use your merchant account (and/or point-of-sale device) to process transactions for his or her business. Merchants run the risk of losing their Merchant Account when they agree to factor for another party. This type of transaction processing violates Visa and MasterCard guidelines. The greatest problem with factoring is that cardholders may not recognize the charges on their billing statements and, although you have no control over what services are being provided, you will be liable for any chargebacks. Remember: It's your merchant account, and you are liable for all sales that are processed. Factoring is a risk merchants should not take.

Common AVS Response Codes

An Address Verification Service (AVS) confirms numerical address information with the cardholder's bank and works only with domestic (United States) credit cards. If, for example, the cardholder lives at 123 Oak Street, you would enter 123 into the system, then input the customer's five-digit ZIP code. After completing the AVS and sales process, you will be given an authorization code and an AVS response. Some AVS response codes are:

A - the system recognizes the cardholder's street number, but not the ZIP code.

Z - the system recognizes the cardholder's ZIP code, but not the street number.

Y (yes) - the cardholder's street number and ZIP code match.

N (no) - the cardholder's street number and ZIP code do not match.

If you receive an "N" response, understand that the transaction was authorized, but none of the billing data matched the bank information. If this occurs, you must use your discretion whether or not to ship the merchandise to the cardholder. You may elect to call the cardholder or even the cardholder's bank. Common sense is your best resource at this point. Ask yourself the following questions: Is this a new customer? Do the reasons given by the cardholder seem feasible, and do you believe them?

Credit Card Security Features

Here are some of the most important security features found on credit cards:

The hologram on the credit card changes color in the light.

The image of the hologram is visible in a larger scale under fluorescent (black) light.

The signature line resists erasure and protects the cardholder's signature.

The magnetic stripe transmits special coded information that is recognized by your bank only, making duplication of the stripe nearly impossible.

The embossed credit card number on the front and back of the card should match.

The card number on the terminal ticket should match the terminal ticket should match the number on the credit card.

State of the Art Security Features

CVV2 is a fairly new verification method to be aware of designed to minimize Internet and mail-order fraud. This system allows greater security when processing transactions in which the customer's credit card is not present. It works as follows:

The customer will find a printed three-digit number on the back of the credit card near his or her name. That information, along with the credit card number, is transmitted to the processor.

If all of the information matches at the cardholder's bank, the bank sends back a response code of "M." The CVV2 system prevents a cardholder's bank from processing "fraudulent mail/telephone order transactions"

Ask for Identification

It is your right as a merchant to ask for identification any time a credit card is presented to you. In fact, many cardholders actually write "Ask for ID" on their credit cards to prevent unauthorized use. Customers should always have identification when presenting a credit card to a merchant, and you should use diligence when accepting cards. Here are some tips to aid you when requesting identification:

If the back of the customer's credit card is unsigned, say, "I see your card is not signed. Could I check your ID to verify your signature?"

Try calling the customer by the name on the card. If the cardholder does not respond, you should definitely ask for identification. Or you might purposely mispronounce the customer's name so that he or she will correct you. If the cardholder ignores the mispronunciation, you should definitely ask for identification.

It is clearly stated on the back of all credit cards that a card is not valid unless signed. You can point this out to customers who have unsigned cards and no ID in an effort to get them to sign their cards.

Code 10 Security Authorizations

If you determine that a transaction is "suspicious," you should call your Merchant Account Provider "Toll Free Hotline" (Make sure they have one). If they are doing it right an automated system will guide you through the Code 10 call by asking you to enter the customer's card number and the transaction information.

Request for Further Assistance

From time to time, the Loss Prevention Department of your Merchant Account Provider may contact you to help them identify a specific transaction. If this occurs, please understand the following:

The transaction authorization code verifies only that a cardholder has funds available for that particular inquiry. The transaction authorization code does not guarantee that security work has been done to confirm the sale with the cardholder.

Be aware that Merchant Account Providers typically do not have access to a cardholder's information and, occasionally, they may contact you to assist us in verifying a charge. They may request an invoice or shipping documents to help them verify that a charge is legitimate. They may even call to let you know that your business has been so successful you have exceeded your initial approved volume. A good Loss Prevention Department should be there to prevent not just the Merchant Account Provider's losses, but YOUR losses as well.

Fraud-Stopping Tips


Stopping fraud begins with the merchant. You are the first line of defense against potential losses. Here is a summary of some of the security measures available to you that could help prevent fraudulent credit card purchases:

Use AVS to its fullest potential by inputting all of the numerical address and ZIP code information.

Check the AVS response codes.

Check the security features on the credit card. Compare the signed credit card to the signed sales receipt.

Do not hesitate to call the toll-free customer service number on the back of the card to verify a cardholder's information.

Ask for identification, or ask the cardholder to fax you a photocopy of his or her driver's license and credit card for first time mail/telephone purchases and Internet orders

ABOUT THIS GUIDE
About the Author
A Word About Our Membership Community
Frank Merchant knows how to get the best price
The Internet Marketplace
   
UNDERSTANDING IT ALL
What are the advantages (and disadvantages) of accepting credit cards for your business?
6 Benefits of Accepting Credit Cards
Disadvantages of Accepting Credit and Debit Cards
Who are the players? How does the money get in your bank account?
Credit Card Transactions Step By Step
Should I go visit my banker for my merchant account?
How can I tell if I will get good customer service?
Be on the Lookout for Deceptive Sales Practices
How to Avoid Your Money Being Held By Your Non-Cash Transaction Processing Company
Banking Terms You Need To Know
Benefits of Debit as a Payment Option
What You Need To Know About Leasing a Credit Card Terminal
Fraud Protection 101
Cardholder Security: Avoid Monthly Fees, Fines, and Penalties What Is PCI Compliance (PCI DSS)?
   
THE PROCESSES
Four Key Components to Conduct eCommerce Successfully: What They Are, and How They Work
Web Site
Your Merchant Account
Secure Payment Gateway / Payment Transaction Software
Shopping Cart and Catalog
Should I use a third party processor like PayPal?
   
ANALYZING IT ALL
Quick Summary of Costs
Detailed Summary of Setup Fees, Recurring Fees, and Risk Estimate
Total Risk Estimate (TRE)
Total Risk Estimate Worksheet (Low-Medium-High)
   
THE DETAILS
Are you being stung with "Non-Qual" fees for keyed orders?
Have You Ever Felt Betrayed By Your Credit Card Processing Company?
Your Customers' Credit Card Numbers at Risk
Visa: Heartland, RBS WorldPay no longer PCI compliant
PayPal
Marketing 101: Gift and Loyalty Smart Card Technology Ensures Customer Loyalty
Check Warranty and Check Acceptance Policies
How Can I Prevent Credit Card Fraud?
Identity Theft
Merchant Account Comparison Worksheet
Glossary
 
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