Do you ever monitor your daily batch deposits? Do you know how your daily transaction volumes vary over a week or a month? Do you track how your average sale’s amount or transaction count changes from month to month? No? Well, your processor does and, if you want to avoid potential unpleasant surprises resulting from changes in these or other patterns in your daily batches, you should too.
Unfortunately, such unpleasant surprises occur far more often than we would like. They come in the form of an audit of the merchant’s credit card processing practices and can take anywhere from a day to a week or more to be resolved, depending on how quickly the merchant provides the requested documentation (e.g. sales invoices, bank statements, etc.). The worst part of an audit is that, while it lasts, the merchant’s funds are frozen and no deposits go into its checking account.
So what is it that processing banks are looking for when monitoring your daily batch deposits? To answer this question, we should look at the requirements that Visa and MasterCard (the Credit card Associations) have set for their member banks. Whether your processor is Bank of America, Wells Fargo, First National Bank of Omaha or any other bank, they all have to comply with the Associations’ rules.
Processing banks are required to generate daily reports or real-time alerts monitoring merchant deposits no later than on the day following the deposit, which must be based on the following parameters:
- Increases in merchant deposit volume.
- Increase in a merchant’s average ticket size and number of transactions per deposit.
- Change in frequency of deposits.
- Frequency of transactions on the same cardholder account, including credit transactions.
- Unusual number of credits, or credit dollar volume, exceeding a level of sales dollar volume appropriate to the merchant category.
- Large credit transaction amounts, significantly greater than the average ticket size for the merchant’s sales.
- Credits issued subsequent to the receipt of a?áchargeback with the same account number and followed by a second presentment.
- Credits issued to a card account number not used previously at the merchant.
Moreover, there are a couple of additional metrics that processors are either required or encouraged to monitor and you should be aware of them:
- 90-day rule. Processing banks are required to compare their merchants’ daily deposits against the average transaction count and amount for each merchant over a period of at least 90 days, to lessen the effect of normal variances in a merchant’s business. For new merchants, processors should compare the average transaction count and amount to other merchants within the same merchant business code (MCC) assigned to the merchant. In the event that suspicious credit or refund transaction activity is identified, the processor should consider the suspension of transactions and initiate an audit.
- 150 percent recommendation. To minimize the probability of investigating variances that are consistent with the merchant’s business cycle (i.e. seasonal, monthly, etc.), the Associations require that merchants that appear in the monitoring reports should exceed the average by 150 percent or more. However, the amount over the average is left at the processing bank’s discretion.
So if you want to make sure that you don’t get surprised by an audit, which by the way always happens at the most inconvenient moment, start monitoring the eight parameters listed above on a daily basis. Implement the 90-day rule and, whenever your transaction count or deposit amount exceeds the average by 150 percent or more, be proactive and contact your processor and alert them. You will find that they are much easier to work with when you show that you understand their concerns.
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