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
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
N (no) - the cardholder's street number and ZIP code do
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
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
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
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.
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
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