Discover’s ticket retrieval process is equivalent to what Visa calls copy requests: requests for information regarding a particular card transaction. These requests are typically initiated by cardholders who contact Discover to dispute or request clarification on a particular charge on their card accounts. Discover then contacts the merchant in writing and requests documentation regarding the transaction.

Once a request is received, the merchant has 20 business days to provide Discover with a copy of the sales receipt or a refund check. Discover can send the request by mail, email or by other electronic means. If the merchant does not respond within 20 business days, Discover may return the transaction to the merchant as a chargeback.

The sales receipt or a copy of it received by Discover is then sent to the cardholder for review or for identification of the card account number. Merchants can also provide a substitute transaction slip for some transactions, which needs to include the following information:

• The card account number.
• The cardholder name.
• The card expiration date.
• The transaction amount.
• The transaction date.
• The authorization code.
• The merchant name and location.
• A description of the merchandise / services.


For Mail Order / Telephone Order (MO / TO):

• The shipping address.


For transaction completed at self service terminals:

• The self service terminal locations code or city and state.


For transactions completed at an automated fuel dispenser:

• The service station identification number.
• The invoice number.

If any of the above items is missing, Discover can file a dispute, which can lead to a chargeback. A dispute can also be filed if the submitted copy of a sales receipt is illegible or incomplete. Such chargebacks are designated with code IC: “Requested Item Illegible Copy” and are equivalent to Visa’s Reason Code 60: “Requested Copy Illegible or Invalid.” Most of these chargebacks can be prevented by implementing the following simple measures:

• Do not reduce the size of the copies. All copies you make of transaction receipts should be the same size as the originals. Reduced size can produce images that are hard to read.
• Place your company’s logo where it will not obstruct the information. Make sure your company’s logo is printed on the sales receipt in a way that does not obstruct the transaction information.
• Change the printer’s ribbon regularly. Replacing the printer’s ribbon regularly will eliminate faded, hard-to-read sales receipts.
• Keep the top copy of the receipt. Keeping the top (white) copy of the sales receipt ensures better quality copies in the future. Give the colored copy to your customer.

For more on managing copy requests, review our previous article on the topic. Although it was written to address specifically Visa and MasterCard requests for information, the same general rules apply to Discover’s ticket retrievals.

Learn how to minimize chargebacks and fraud

Learn how to minimize chargebacks and reduce your processing costs. The Chargeback Management kit contains a video and an e-book:

• E-Book – Chargeback Manual (40 pages).
• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).

It didn’t take long at all! Via the Denver Post we learn that college students under the age of 21 have found a way around the recently enacted provision of the new CARD Act, which makes it much harder for them to open credit card accounts. The solution? Find an older student to co-sign for you.

Under the new rules, issuers cannot approve the credit card application of anyone under the age of 21, unless they can prove that they have the means to pay back the debt. If that’s not an option, the youngster would have to find an older co-signer.

Typically, the first co-signer choice would be a parent. Many parents see this as an opportunity to help their youngster build credit history and feel confident enough that the card would be used responsibly. If all goes well, once the kid turns 21, he or she will open their own card and the joint account can be safely closed.

However, there is a different scenario, under which the student runs up the credit line until it gets out of control. This is often a well-founded concern and the problem is that it not only destroys the youngster’s credit history, but it also damages the co-signer’s.

So many parents prefer to provide their kids with safer payment options, including debit cards and prepaid cards. While neither card helps build the child’s credit history, there can be no negative consequences either, as the damage is limited to the deposited amount.

Additionally, as FICO told us, more Americans than ever have sub-prime credit scores, making them unqualified co-signers. In the words of Estevan Torres, a 20-year-old graphic arts student at Metropolitan State College of Denver:

“I don’t have bad credit, but I can’t get a card because my parents have the bad credit,” he says. “For them to co-sign for me makes it guaranteed I won’t get a card, so I’m thinking of asking one of my friends.”

Yet, credit cards have proved irresistible and perhaps the newly imposed limits have added to their allure, forcing students under 21 to get creative. And a solution was promptly discovered. All that was needed was to enlist the help of older students. Some of them reportedly charged a fee for the service.

Now, this is an unfortunate side effect of the new regulations and many co-signers will undoubtedly live to regret their actions, but it is unlikely that the practice will reach epidemic proportions. Moreover, a stricter law would have punished those youngsters who would use credit responsibly. Although flawed, the law does place substantial hurdles for youngsters to open credit cards, without closing the door shut.

Accept card payments quickly and safely

Accept online payments via credit and debit cards and electronic checks at the lowest processing costs. You will get:

• Free merchant account and Authorize.Net gateway set-up.
• No monthly merchant account or gateway fees.

Via CNNMoney.com we learn that N.Y. Sen. Charles Schumer wants to force credit card companies to apply the same underwriting standards they use for issuing regular consumer cards to business credit cards. The recently passed CARD Act has placed a number of restrictions on what issuers can and cannot do regarding interest rates, fees and information disclosure, however the rules apply only to consumer cards.

Under the CARD Act, for example, if a cardholder is late on a payment, interest rates can only be raised if the delinquency is bigger than 60 days, and then only after the issuer has served a notice to its cardholder. Even then, the cardholder can opt not to accept the new interest rate, in which case he or she will have to close the account and repay the outstanding balance on the old rate. The CARD Act also limits the amount of penalty fees to the amount of the violation, but not to exceed $25.

These and other consumer protections do not apply to business cards and Sen. Schumer thinks that credit card companies are taking advantage of this loophole by making it too easy for consumers to get their hands on them. He’s asked Ben Bernanke, the chairman of the Federal Reserve, to do something about it. “I believe that credit card issuers are exploiting this distinction in order to evade the tougher regulations passed by Congress and preserve their ability to profit from unfair and excessive fees,” explained Schumer.

Schumer actually doesn’t want to amend the Act by extending its protections to holders of business cards, but rather to make them harder to obtain. One specific requirement he believes would help achieve this goal is to require issuers to collect Tax IDs from applicants. Currently, business card applications ask for little more than the business’ name, aside from the principal’s personal information. There are known instances of approved business credit card applications when a fictitious corporate name was provided.

Now, it is true that a consumer can open up a business credit card account fairly easily, but is that necessarily a bad thing? These cards are typically used by entrepreneurs and small business owners with limited access to business credit. Many of them do not have a Tax ID, using their social security numbers instead, so it would be difficult to prove that they actually own a business. It is true that credit cards are far from the ideal source of short-term capital, but for the most part entrepreneurs understand that and use it only when there is nothing better available, accepting the associated risks.

Placing additional hurdles in the application process will probably prevent some consumers from opening up business card accounts, but will also make that more difficult for small businesses. Even in the best of times entrepreneurs have plenty of issues to deal with and adding one more is not exactly helpful. Now is certainly not the best of times.

Accept card payments quickly and safely

Accept credit and debit card payments at the lowest processing costs. You will get:

• Free merchant account set-up.
• No fixed monthly fees.
• 24 / 7 customer support.

JPMorgan Chase is still considering the possibility of purchasing Discover Financial Services, according to Gordon Smith, CEO of Chase Card Services, as quoted by Reuters. However, such a move would be challenging, he conceded, because “executionally it’s very difficult – not impossible, but it’s something we can always think about.”

Chase is currently the biggest issuer of Visa credit cards, and one of the top MasterCard issuers. However, processing card payments through Visa’s and MasterCard’s payment systems means paying fees to the two networks and this is exactly what makes a possible acquisition of Discover so appealing to the issuer.

Visa and MasterCard are associations of banks that can both issue cards bearing the logos of the two networks and acquire (process) payments made with these cards. The processing of each of these payments is depicted in the diagram below.

Each participant in the payment process charges a fee. The issuer gets the biggest cut, on average about 75 percent of the total fee paid by the merchant. The processor gets most of the rest, while Visa and MasterCard charge about a tenth of a percent of each payment’s amount. However, the issuer also pays a fee for the right to issue Visa- and MasterCard-branded cards. For the time being, Chase is doing its best to keep these fees to a minimum. “What we’ve chosen to do is negotiate very aggressively with both Visa and MasterCard, and get very very good deals with them,” according to Smith.

Discover, however, does things differently. Like bigger rival American Express, it is a bank, not an association of member financial institutions, like Visa and MasterCard. Being a bank allows Discover to both issue its cards and process payments made with them through its own payment network. The payment process is much simpler and the costs are down. This is what makes this model so appealing to a giant card issuer like Chase, especially at times when tough regulations and challenging economic conditions are squeezing profits.

Discover Card was first introduced by Sears in 1985 and was a unit of Dean Witter, which merged with Morgan Stanley in 1997, according to Wikipedia. Discover was spun off by Morgan Stanley in 2007.

Discover Financial Services, like its rivals, suffered from record high consumer defaults last year, however its charge-off and delinquency rates have been steadily improving. Charge-offs are loans issuers do not expect to be repaid and write off their books as losses, typically at 180 days after the last payment on the account. The latest available data showed that Discover’s charge-off rate fell to 7.28 percent in July, from 8 percent in June. Its early-stage delinquencies – payments late by 30 days or more – fell to 4.7 percent in July from 4.8 percent in June, the seventh consecutive month of decline.

Accept card payments quickly and safely

Accept online payments via credit and debit cards and electronic checks at the lowest processing costs. You will get:

• Free merchant account and Authorize.Net gateway set-up.
• No monthly merchant account or gateway fees.

Defaults on U.S. credit cards dropped to a 16-month low in July, according to Fitch Ratings, a credit ratings agency. Consumers continued paying their credit card bills on time, with late payments on cards falling for all major credit card companies that are tracked by Fitch in its monthly Credit Card Index report.

Late-stage credit card delinquencies – payments that are late by 60 days or more – reached a 19-month low, indicating falling rates of defaults in the coming months. Fitch’s 60-day delinquency index reached 3.76 percent in July, down 0.10 percent from June.

Early stage delinquencies also fell, marking their fifth consecutive month of declines. Fitch’s 30-day delinquency index dropped 0.13 percent in July, reaching 5.00 percent. All but one of the issuers tracked by Fitch reported lower delinquency rates in July, with the lone exception being Washington Mutual Master Note Trust.

Fitch’s Prime Credit Card Chargeoff Index also fell, reaching a 16-month low. Charge-offs are delinquent loans that issuers do not expect to be repaid and write off their books as losses. The 9.65 percent rate marked the first time the index fell below the 10-percent mark in 15 months and the second consecutive monthly decline. In July, the charge-off index fell by 0.93 percent from the previous month. All major issuers reported declines in their charge-off rates. Yet, Fitch’s charge-off index still remains 60 percent above the long-term historical average of 5.88 percent.

Fitch’s Monthly payment rate (MPR) indicator also showed an improvement, although a modest one. Measuring the rate at which cardholders are repaying their card balances each month, the MPR rose 0.09 percent in July from the previous month, reaching its highest level in more than two years. Consumers are now paying back 8 percent more of their monthly card balances than they were during the same period last year.

“The trends are encouraging, but card defaults are still elevated historically and are expected to remain so,” commented Michael Dean, the managing director for Fitch. “Unemployment will continue to weigh on consumer credit quality throughout the rest of this year and well into 2011.”

Fitch’s index, which is comprised of data from the largest U.S. financial institutions, including Bank of America, Citibank, Chase, Capital One and Discover, provides yet another indication that U.S. consumers are resolved on reducing their credit card debt burden, even as the recently passed CARD Act has provided a range of protections from abusive and unfair practices, including arbitrary rate increases and excessively high penalty fees. A week ago we learned from a study by TransUnion that Americans reduced their outstanding credit card balances to $4,951 in the second quarter, a decline of 4.1 percent from the first three months of the year, and down by 13.4 percent from the second quarter of 2009, when the outstanding credit card debt stood at $5,719.

Accept card payments quickly and safely

Accept credit and debit card payments at the lowest processing costs. You will get:

• Free merchant account set-up.
• No fixed monthly fees.
• 24 / 7 customer support.

It seems like U.S. and U.K. credit card companies are going through different stages of the financial crisis. For U.S. issuers, both credit card charge-offs and delinquencies have been falling steadily this year and the industry appears to have left the worst behind it. In the U.K., however, the direction is reversed, as banks have reported record-high levels of write-offs in the second quarter of 2010, as reported by the BBC, quoting data released by the Bank of England.

The latest monthly data released by U.S. issuers showed default and delinquency levels at the biggest U.S. credit card companies were falling across the board in July:

• Capital One reported its charge-offs – overdue loans that lenders do not expect to be repaid – fell to 8.13 percent in July from 9.28 percent in June. Its delinquency rate fell to 4.66 percent from 4.79 percent.
• Charge-offs at J.P. Morgan Chase fell to 7.95 percent from 8.38 percent during the same period and delinquencies dropped to 4.06 percent from 4.13 percent.
• Discover’s charge-offs in July stood at 7.28 percent, down from 8 percent in June and its delinquency rate dipped to 4.72 percent from 4.81 percent.
• At 11.39 percent, Bank of America’s charge-off rate was the highest among its peers in July, but it was lower than the bank’s June rate of 11.98 percent. BofA’s delinquencies also fell – to 5.92 percent last month, down from 6.16 percent in June.
• Citigroup reported the most substantial drop in charged-off credit card loans among the biggest issuers. Its rate fell to 9.10 percent in July from 11.98 percent the previous month.
• American Express led the pack in lowest delinquencies, reporting a rate of 2.6 percent, down from 2.7 in June. AmEx’s charge-offs fell to 5.5 percent from 5.7 percent.

Not a single big U.S. issuer reported a rise in either the delinquency or the charge-off rate in July.

Things could not have been more different in the U.K., where the total value of charge-offs jumped more than 50 percent in the second quarter, reaching £2.1 billion ($3.2 billion), up from £1.3 billion ($1.98 billion) in the first three months of the year, according to the BBC report.

U.K. issuers wrote off a record £4.1 billion ($6.25 billion) in 2009 and are well on their way to easily set a new record this year, having already written off £3.4 billion ($5.18 billion) in the first half. Moreover, according to the London-based Times newspaper, British households have the biggest debt burden in the Group of Seven advanced countries, at 180 percent of personal incomes. There are indications, however, that Britons may have reached the bottom and that the worst may be behind them. Debt charities, offering financial advice, report that fewer people are calling for help, according to the BBC. The Money Advice Trust, one such organization that runs the National Debtline, reports that less than 60 percent of its callers were facing credit card debt problems, down from between 66 percent and 70 percent in recent years.

As is the case in the U.S., U.K. debt repayment is on the rise, according to the unbiased.co.uk, a firm providing financial advice to consumers. Britons have repaid £1 billion more than what they borrowed during the second quarter of 2010, the website reported. The latest U.S. Federal Reserve data showed that Americans’ outstanding balances on consumer credit cards have fallen by $144.9 billion, or 14.85 percent, from September 2008 to August 2010.

The common thread in all these reports from both sides of the pond is that both U.K. and U.S. consumers are clearly concerned with the levels of their indebtedness and are taking actions to reduce it, even as unemployment is at record highs in both countries. It will be interesting to see whether the trend will hold when the economy starts to recover and unemployment goes down, or whether consumers will promptly rediscover their buy-now-pay-for-it-tomorrow mood.

Accept card payments quickly and safely

Accept online payments via credit and debit cards and electronic checks at the lowest processing costs. You will get:

• Free merchant account and Authorize.Net gateway set-up.
• No monthly merchant account or gateway fees.

Credit card companies are pushing hard their small business card offerings, even as they continue to contract their regular loans. Issuers mailed out 47 million business card offers in the first quarter of 2010, an increase of 256 percent from the same period last year, according to research firm Synovate. Three-quarters of all small business applicants for credit cards were approved, according to a report from the Federal Reserve, published in May. At the same time, small business lending has shrunk by $40 billion in the first quarter of 2010 as compared to 2008. Moreover, only a third to half of small businesses were actually approved for a loan or line of credit in 2009. Often, credit card approvals were given by the same banks that previously denied the business a regular loan. Here is the gist of the Fed’s report:

The vast majority of small businesses use personal or small business credit cards. Most small businesses that use cards pay their balance in full each month, but some carry a balance, or borrow, on their credit cards. Small business credit cards differ from personal cards in that they are issued to firms, rather than individual consumers, and are intended to be used for business purposes only. Small business credit cards are also distinct from other types of card products designed for businesses, such as corporate cards, procurement cards, and fleet cards.

As of the end of 2009, 83 percent of small businesses used credit cards; 64 percent used small business cards, and 41 percent used personal cards. Despite the widespread use of credit cards, only a minority of small businesses – 18 percent – reported borrowing on credit cards. About 12 percent of small businesses borrowed on small business cards, and about 12 percent 2 Board of Governors of the Federal Reserve System borrowed on personal cards. In the aggregate, credit card debt represents a very small percentage of total debt held by small business owners to finance their business operations. In 2003, when 24 percent of small businesses reported borrowing on credit cards, credit card debt accounted for just 1.4 percent of all debt held by small businesses and the majority of credit card–borrowing firms reported borrowing less than $5,000 in total on all their credit cards.

It is not all that hard to understand the rationale behind the banks’ lending decision process. On the one hand, credit card interest rates are typically higher than those of regular loans and contracts can be changed much more easily.

The bigger reason for the banks’ eagerness to issue small business credit cards, however, is the fact that they are not covered by the protections of the recently passed CARD Act. Yes, although they look the same on the surface, there are huge differences between business and regular consumer cards.

The CARD Act’s ban on inactivity fees and the $25 cap on late fees, for example, do not apply to small business cards. Nor does the requirement that cardholders get notified prior to a rate increase, of which they can opt out and close their accounts. Additionally, issuers can retroactively raise interest rates on small business cardholders, even if they are only late on a payment by a day. Retroactive fees can now only be applied to consumer cards if the cardholder is late on a payment by 60 days or more. For a more detailed list of the protections the CARD Act provides to consumer card, you can review this summary of its key features.

So you should think twice before responding to your next small business card offer. Yes, you will have a higher chance for approval, but you may end up paying dearly for it and will probably be better off sticking to your personal card.

Accept card payments quickly and safely

Accept credit and debit card payments at the lowest processing costs. You will get:

• Free merchant account set-up.
• No fixed monthly fees.
• 24 / 7 customer support.

The mobile payments market has just become even more crowded. QuickBooks maker Intuit and mophie, creator of the JuicePack battery for iPhone, have launched the Complete Credit Card Solution, which enables iPhone users to accept credit card payments, the companies announced. The product is now available in Apple stores and will soon be available online as well.

We have seen a number of credit card processing product releases for smart phones and specifically for the iPhone in the past few months, most notably Square, but also MasterCard MoneySend, Visa payWave and Swipe It, among others. In fact, Mophie first announced that it was planning to start producing credit card readers for the iPhone back in December of last year.

The Complete Credit Card Solution works by integrating “Intuit’s GoPayment credit card processing app and quick-to-activate merchant account with the mophie marketplace iPhone credit card reader,” according to Intuit. Users can have the service up and running “in as few as 15 minutes.”

Unlike previous announcements, this one comes with a fairly detailed pricing list, which is worth taking a close look at:

The Complete Credit Card Solution from Intuit and mophie is available for the iPhone 3G and 3GS for $179.95 at Apple Retail Stores and soon on Apple.com.

…

GoPayment, including the Intuit merchant account, offers competitive pricing at $12.95 a month, a 1.7 to 3.7 percent discount rate and $0.30 to $0.34 per transaction fee. There are no long-term contracts, cancellation, gateway or set-up fees, and one account can enable up to 50 users.

First, it should be noted that mophie’s card reader enables the acceptance of “card-present” transactions, which get the lowest processing rates from Visa and MasterCard. Now let’s break down the pricing:

• Cost of product – $179.95. This is essentially the cost of uploading the GoPayment app to an iPhone. It seems a bit excessive, as similar uploads to point-of-sale (POS) terminals are typically provided for free. True, you don’t have to actually buy a terminal, but it’s still high.
• Merchant account fee – $12.95. This fee is comparable to what other merchant account providers charge for keeping the account open.
• Discount rate – 1.7 – 3.7 percent. Most processors now charge qualified rates of around 1.65 percent and non-qualified of 3.25 – 3.50 percent, so GoPayment is priced higher than the average.
• Per-transaction fee – $0.30 – $0.34. Here is the most substantial pricing difference. The average qualified rate for card-present transactions in the industry is currently $0.20, 50 percent less than what GoPayment charges. The average non-qualified rate in the industry is $0.30.
• Other fees. Most processors no longer charge set-up fees, and a gateway fee is not associated with card-present accounts. GoPayment does offer a no-contract service, however the user must pay $179.95 upfront to enroll.

Overall, the service does seem a bit pricey and it is unlikely that it will be adopted by consumers who may just want to have another option for splitting up a restaurant bill with friends. The more likely adopters would be the small business or self-employed types of users who need a way for accepting card payments on the go, e.g. at a trade show or at a customer’s location. These types of users, however, typically only need the service intermittently, which makes them highly cost-sensitive and may cause them to balk at paying a high upfront fee, in addition to the monthly fee.

We’ll have to wait and see how well Intuit and mophie will deal with fraud-prevention and reliability issues, which have plagued previous entrants into the mobile payments market, including Square.

Whether this particular venture will succeed or not, however, the concept of using smart phones for processing payments will eventually be proven right. After all, wireless credit card processing terminals use the same signals to transmit transaction information that cell phones use to communicate voice and data. Why not combine them?

Accept card payments quickly and safely

Accept online payments via credit and debit cards and electronic checks at the lowest processing costs. You will get:

• Free merchant account and Authorize.Net gateway set-up.
• No monthly merchant account or gateway fees.

American Express is the highest-ranked credit card company in J.D. Power and Associates’ Credit Card Customer Satisfaction Study for a fourth year in a row. The study’s results are based on responses from more than 8,500 credit card users, collected in May and June. Here are the top three issuers:

American Express ranks highest in customer satisfaction for a fourth consecutive year with a score of 769 and performs well across all six factors that drive satisfaction. Discover Card follows with a score of 757 and performs particularly well in the interaction factor. U.S. Bank ranks third with a score of 727.

Not surprisingly, the top-ranked issuers shared high scores for the quality of their rewards programs and benefits and for the problem-solving abilities of their customer service departments.

The report, released earlier this week, shows that cardholders were more satisfied with their credit card companies than they were a year ago. Issuers scored 714 on J.D. Power and Associates’ 1,000-point satisfaction scale, up slightly from 709 a year ago. Somewhat contrary to this result, however, the proportion of cardholders who “definitely will not switch” their primary cards in the next 12 months continues to decline, reaching 22 percent in the 2010 study, down from 25 percent in 2009 and 30 percent in 2008.

Here is how J.D. Power and Associates defines “customer satisfaction with credit cards” and explains the study’s results:

The study, now in its fourth year, measures customer satisfaction with credit cards by examining six key factors: interaction; credit card terms; billing and payment process; benefits and services; rewards; and problem resolution. The increase in overall satisfaction from 2009 is driven primarily by improvements in satisfaction with credit card terms and billing and payment process. The largest increase in satisfaction with credit card terms is among revolvers, or customers who typically carry account balances from month to month. In contrast, satisfaction among transactors, or customers who always or usually pay their entire credit card balance each month, has declined slightly, compared with 2009.

One interesting result from the study is that the largest increase in customer satisfaction was recorded among what the study authors call “revolvers.” The reason it’s interesting is that these card users are the ones most affected by the sharp increase in credit card interest rates that preceded the full enactment of the CARD Act’s provisions. According to CreditCards.com, the average interest rate on new credit card offers stood at 14.23 percent on 2 June, 2010, up 1.52 percent from December 2009. The study shows that 29 percent of revolvers saw their interest rates increase in 2010, up from 24 percent in 2009.

How do we explain that? Well, one plausible explanation is offered by Michael Beird, director of banking services at J.D. Power and Associates. “It appears that revolvers are expressing a perception that ‘it could have been worse,’” said Beird. “In addition, revolvers, who tend to be more sensitive to fees and rates, are significantly more likely to say that CARD Act disclosures improved their understanding of their credit card terms.”

It will be interesting to see if the CARD Act, now that it’s fully in force, will have any further effect on cardholders’ interactions with their card issuers.

Accept card payments quickly and safely

Accept credit and debit card payments at the lowest processing costs. You will get:

• Free merchant account set-up.
• No fixed monthly fees.
• 24 / 7 customer support.

Credit card companies are having a real difficult time rediscovering the winning formula that enabled them to rake in huge profits before the financial crisis hit and losses started piling up. The record-high default and delinquency rates from last year have subsided, although they are still above historic levels, but consumers are now much more conservative in their spending and debt management. Additionally, now that the CARD Act is fully in force, issuers are restricted in their ability to raise interest rates, while penalty fees are capped and charging over-the-limit fees requires the cardholders’ prior enrollment in an overdraft protection program.

Here are some data from the WSJ:

Card companies are struggling to recover from $1 billion in losses racked up last year as a result of the financial crisis. Auriemma Consulting Group, a New York firm that specializes in the payments industry, estimates that card companies could earn about $4 billion this year. That is less than a quarter of the record $18 billion earned in both 2006 and 2007, according to Auriemma, which doesn’t include financial results from American Express Co. or Discover Financial Services Inc.

It is hard for issuers to make money when cardholders are not using their cards. Again from the WSJ:

The amount of outstanding credit-card loans shrank 10% last year, to $772.19 billion, due to tighter lending standards and a drop in consumer spending, according to the Nilson Report, a Carpinteria, Calif., industry newsletter.

Those loan portfolios are continuing to shrink. Chase, one of the largest issuers, has shaved more than $20 billion from its $127 billion portfolio. Over the past year, the bank has pulled back credit from its riskiest and least profitable customers.

The CARD Act is taking its toll too:

New federal card rules are expected to drain $11 billion a year from the industry over the next five years, said Robert Hammer, who runs a credit-card-consulting firm in Thousand Oaks, Calif. Those losses represent lost fee and interest revenue from charges that the law, enacted this year, bans. The losses also include higher costs of compliance with the law.

The CARD Act ensures that, even if consumers soon relapse into their happy spend-now-pay-for-it-later habit of the pre-crisis days, traditional card products will never be as profitable for credit card companies as they once were. Issuers of course realize that they need to get creative and are hard in search for alternatives.

One such alternative may turn out to be the prepaid card, until now the domain of little known, second-tier issuers. They are largely unregulated by the CARD Act and are typically issued to consumers with sub-prime credit scores. Used as debit cards, prepaid cards draw funds not from the cardholder’s checking account, but from an account with the issuer that is funded by the cardholder. Once the funds are used up, the cardholder has the option of re-loading the account.

Another alternative is the charge card, which is already being pushed hard by some of the largest issuers, including American Express and Chase. The biggest difference between credit and charge cards is that with the latter product, cardholders must pay off their balance at the end of each monthly cycle.

Yet another possible alternative is the private label card. Such cards are issued by credit card companies under the name of a different organization, such as Home Depot credit card offered by Citibank. Recently we learned that Target’s credit card profit rose to $149 million in the second quarter, up from $63 million a year earlier.

It may take them some time, but issuers will surely find a way to boost their profits. Whether they will be able to take them back to the pre-crisis levels remains to be seen, but that will depend not only on their own creativity, but also on the consumers’ willingness to cooperate.

Accept card payments quickly and safely

Accept online payments via credit and debit cards and electronic checks at the lowest processing costs. You will get:

• Free merchant account and Authorize.Net gateway set-up.
• No monthly merchant account or gateway fees.

The settlement of a Discover transaction is the process by which Discover reimburses a merchant for the amount of each card sale that the merchant has submitted. The settlement total is the sum of the following items submitted by the merchant:

• Purchases made in the form of card sales.
• Minus credits issued to Discover cards.
• Plus or minus adjustments made by Discover to reconcile or correct errors in your transaction data. All debit (chargebacks, adjustments, and discount) activity aside from credits is invoiced at the end of the month and is not deducted from the settlement amount.
• Adjustments or discrepancies between the batch total and the actual sales detail are offset against the same or subsequent business day’s settlement total.

Settlement adjustments. Discover makes adjustments on transactions that have been improperly processed. Adjustments may be initiated by Discover or at the merchant’s request. Reasons for adjustments include:

• Sales or returns processed on the incorrect account number.
• The total of card sales and credits submitted with the merchant’s batch did not match the actual total of transactions processed by Discover.
• Card sales or credit slips were illegible, incorrectly completed or incomplete.
• Items other than card sale transactions or credits were submitted.

Discover uses the following adjustment reason codes:

Code	Description
IN	Invalid cardholder account
MA / ML	Amount adjustment
MB	Sale posted as a credit
MG / MP	Duplicate processing
MI / MM	Incorrect merchant
MO	Merchant-only adjustment
MR / MX	Miscellaneous adjustment
MT / MU	Transmission dump
MW	Merchant write-off
MZ	Credit posted as a sale

Merchant statements. Discover provides merchants with monthly activity reports listing the card transactions processed by the merchant during the period covered by the reports, including any sales, the merchant fees and other fees applicable to these sales, any credits, chargebacks and any other transactions. Typically, these reports are included in the processing statements that Visa and MasterCard processors send to their merchants. In fact, most processors now fund their merchants for their Discover transactions, in addition to the Visa and MasterCard ones.

Learn how to lower your card acceptance cost

Learn how to accept credit and debit cards at the lowest processing costs. The Payment Card Acceptance kit contains a video and an e-book:

• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).
• E-Book – Payment Card Acceptance Guide (19 pages).

This past weekend we learned from the WSJ that a loyalty card startup, called CardStar, has attracted the attention of Verizon. The carrier has invested $400,000 in the Boston-based company, which although it isn’t much, provides yet another indication that the major U.S. cell phone operators are becoming increasingly interested in the potential of the mobile payment technology to provide an additional, and potentially major, source of revenue.

Just a couple of weeks ago, another Verizon mobile payment venture made a much bigger splash when it was announced that the carrier was teaming up with rivals AT&T and T-Mobile, payment processor Discover and British bank Barclays to enable consumers to make payments at participating merchants using their cell phones.

The CardStar project is not nearly as ambitious as the other one, but it does offer a look into how retailers may be managing their loyalty programs in the near future. It is not immediately clear how Verizon will utilize the service to generate revenue, but it is a safe bet that they are seeing CardStar as part of a larger mobile payment picture.

CardStar has developed mobile apps for the iPhone, Android, and BlackBerry, which allow users to consolidate their loyalty and membership cards in one place. The idea is that you won’t have to carry all these small pieces of plastic on you anymore. Instead, the merchant can scan the card’s barcode from the screen of the user’s phone.

What makes CardStar attractive to retailers is that they can run promotions and loyalty programs through the startup’s back end. They can load offers, coupons and incentives directly into the application. Offers can be customized using a geotargeting feature.

CardStar claims to have signed up more than 2,000 merchants already, both large and small. “We have about 30 competitors out there, but all 30 put together don’t have the numbers [of users] that we have,” boasts CardStar’s CEO Andy Miller, as quoted by the WSJ.

Miller says that CardStar has 700,000 unique users and that number is sure to grow. On top of the convenience of storing all these loyalty cards in your phone, you won’t have to clip coupons anymore.

CardStar and its competitors offer shoppers convenience and retailers opportunities, but they are also helping us see the future of plastic cards, or the lack of it. Within a few short years, most of us will be using our cell phones to identify ourselves to retailers, communicate with them, find the best prices in our area or online, and pay for our purchases.

Accept card payments quickly and safely

Accept credit and debit card payments at the lowest processing costs. You will get:

• Free merchant account set-up.
• No fixed monthly fees.
• 24 / 7 customer support.

A recurring or installment payment plan exists when a series of charges, either of a fixed or variable amount, are paid over a period of time. With installment plans, the number of payments is fixed, while recurring plans exist indefinitely, until canceled by the consumer. Discover requires merchants that process installment and recurring payments to comply with the following requirements:

• Authorization. Discover requires merchants to obtain a separate, current authorization for each installment charged to a cardholder under a recurring or installment payment plan, before submitting the transaction for settlement. An authorization approval for one installment payment is not a guarantee that any future installment will be authorized.
• Cardholder’s approval. Merchants are required to obtain the cardholder’s written approval to charge their cards over the term of the recurring or installment payment plan. If approval is given over the internet, merchants need to retain some kind of electronic evidence. In any case, the approval must include all of the following information:
  • Cardholder’s name, address and account number.
  • Amount of each installment.
  • Timing or frequency of payments.
  • Length of time over which the cardholder permits you to bill installments to his or her card.
  • The merchant’s merchant number as assigned by Discover.
  • Card expiration date.
  • Dollar amount of the transaction, including tax and tip (dollars and cents).

  
  Merchants are required to retain evidence of the cardholder’s approval of the installment or recurring plan for at least the duration of the installment plan. If the plan is renewed, the merchant needs to obtain a new evidence of the cardholders approval.

• Submission of transaction data. Recurring and installment transactions should be submitted the way one-time transaction data is submitted. If the account is closed for whatever reason, the merchant needs to request an alternative form of payment from its customer.
• Fixed and variable payment plans. Whether a recurring or installment plan features installments of the same amount, or the amount of each installment in a recurring or installment plan varies, merchants are required to submit transaction information to Discover for each recurring or installment payment they accept. If a merchant wants to make any changes to a fixed or variable payment plan, it needs to contact Discover before making these changes.

For the most part, Discover recurring and installment payment plans need to comply with the same requirements as they would have to if the card was a Visa or a MasterCard. We have written in detail on managing the various aspects of such plans in previous posts and encourage you to review them.

Learn how to lower your card acceptance cost

Learn how to accept credit and debit cards at the lowest processing costs. The Payment Card Acceptance kit contains a video and an e-book:

• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).
• E-Book – Payment Card Acceptance Guide (19 pages).

Alabama lead the nation in credit card debt reduction in the second quarter of this year, according to a report by TransUnion, one of the three national credit reporting agencies. The average credit card debt in Alabama was down by 22.4 percent from the same period last year, to an average of $4,753. What makes this figure even more impressive is how far back the second- and third-placed states are. Tennessee residents shed 15.5 percent of credit card debt and Mississippi – 14.2 percent.

Overall, Americans’ credit card debt decreased for the fifth consecutive quarter, down 4.1 percent to $4,951 from the first quarter’s $5,165, and down by 13.4 percent from the second quarter of 2009, when it stood at $5,719. It is the first time the average American’s credit card debt fell below $5,000 since the first quarter of 2002.

Alaskans are by far the most indebted to their credit cards Americans, owing $7,148 on plastic, almost $1,500 ahead Tennessee, whose residents, even after a very good debt-cutting effort, still owed credit card companies $5,654. Hawaiians placed third in this category, at $5,594.

On the other end of the table we find Iowa, whose residents, at $3,792 per person, lead the nation in lowest credit card debt. North Dakota was second best, at $4,097 on average, closely followed by West Virginia at $4,104.

Given the marked reversal in consumer tolerance to debt, it comes as no surprise that the number of new credit card accounts has also decreased, by almost 6.5 percent, as shown by the report. Of course the fact that issuers substantially tightened their underwriting criteria also contributed to the fall in new account originations. This trend was not nationwide, however. There were 12 states that actually saw an increase in newly opened credit card accounts by their residents. The top spot, by a substantial margin, was taken by Maine, whose residents opened up 27.3 percent more new accounts than they did a year ago. Ohio came in second place, with a year-over-year increase of 18.7 percent, followed by Washington – 15.2 percent.

Arizona saw the biggest decrease in the number of new account originations – 15 percent less than last year. Georgia was second with a drop of 14.6 percent, and Michigan came in third – 14 percent.

So what are we to make of these numbers? Well, one trend is clear: consumers are serious about reducing credit card debt, as Federal Reserve data show as well. The new protections afforded by the CARD Act, which is now fully in effect, are helping too, by preventing issuers from charging certain fees (e.g. for not using your card), while limiting others (e.g. capping penalty fees at $25) and making it more difficult to raise interest rates. What is not so clear, however, is whether the trend represents a long term shift in attitude, or once the economy starts to recover, Americans will relapse into the familiar spend-now-pay-for-it-later pattern of the happy pre-crisis days.

Accept card payments quickly and safely

Accept online payments via credit and debit cards and electronic checks at the lowest processing costs. You will get:

• Free merchant account and Authorize.Net gateway set-up.
• No monthly merchant account or gateway fees.

Visa uses Reason Code 60 to designate chargebacks resulting when a copy of a sales receipt, requested by the card issuer, is illegible, incomplete or something other than the requested item. MasterCard does not have a reason code that exactly matches Visa’s 60.

What causes these chargebacks? Chargeback Reason Code 60 may be caused by one of the following issues:

• The terminal’s printer ribbon was worn and the ink was too light.
• The printer’s paper roll was nearing its end, and the colored streak indicating this made some of the payment information illegible.
• The copy was on hard-to-read colored paper.
• The carbonless paper of the original sales receipt was mishandled, causing black blotches and making copies illegible.
• The original sales receipt was copied at a reduced size, resulting in illegible copies.
• The document submitted was not a copy of the sales receipt at issue.

How to manage such chargebacks? The time frame to respond to a chargeback Reason Code 60 is 7 days for U.S. transactions and 120 days for international ones. Your response will depend on the particular transaction circumstances and the actions you have taken (or not) so far:

• Legible or complete copy is available. Resubmit the copy, if possible, and make sure it is legible.
• The sales receipt is incomplete. If you don’t have or cannot produce a legible copy, accept the chargeback. Do not issue a credit at this time, as the chargeback has already performed this function.
• The sales receipt is incomplete and the transaction is fraudulent. In such cases, you have no re-presentment rights, as the cardholder cannot be expected to accept a fraudulent charge. You should accept the chargeback.

How to prevent chargeback Reason Codes 60? Most of these chargebacks can be prevented by implementing the following measures:

• Copying sales receipts. Make sure the copies you make of sales receipts are the same size as the originals. Reduced size can produce images that are hard to read.
• Change the ribbon of your point-of-sale (POS) printer. Regularly changing the printer’s ribbon will eliminate faded, hard-to-read sales receipts.
• Change the paper of your POS Printer. Changing the printer’s paper roll when the colored streak first appears increases the legibility of sales receipt.
• Keep the white copy of the sales receipt. Keeping the white copy of the sales receipt ensures better quality copies in the future. Give the colored copy to the customer.
• Handling carbonless and carbon-back paper used for sales receipts. Handle carbonless paper and carbon-back paper carefully. Carbon-back paper appears black when copied. Any pressure on carbonless and carbon-back paper during handling and storage causes black blotches, making copies illegible. Always keep the top copy.
• Placing company’s logo on sales receipts. Make sure your company’s logo is printed on sales receipts in a way that does not interfere with the transaction information.

As you see, preventing this type of chargebacks largely depends on the way you handle sales receipts. A rule of thumb that can be used here is that if you can read the copies of your sales receipts, issuers will also be able to read them and you will never see a Reason Code 60.

Learn how to minimize chargebacks and fraud

Learn how to minimize chargebacks and reduce your processing costs. The Chargeback Management kit contains a video and an e-book:

• E-Book – Chargeback Manual (40 pages).
• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).

The average interest rate on existing credit cards reached 14.7 percent in the second quarter, up from 13.1 percent a year earlier, according to a study by Synovate, a market research firm owned by the Aegis Group. It is the highest level since 2001. The interest rate increase looks even more dramatic when you measure the spread between the prime rate – the benchmark against which card rates are set – and average credit card rates. Currently, the gap is 11.45 percent, the largest in at least two decades, according to Synovate.

Why are credit card interest rates at record highs at a time when other rates are at record lows? Well, for the WSJ at least, the answer is fairly straightforward:

It was among our safest predictions that reduced credit to consumers would result when the Federal Reserve announced new credit-card rules in 2008, and then Congress followed up with the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009. By limiting the ability of banks to increase rates on delinquent borrowers and to charge fees on unprofitable customers, Washington encouraged card issuers to be more selective in advancing credit and to demand higher rates when they do.

It’s a simple equation. If politicians make it more difficult and expensive for banks to lend, customers will find it more difficult and expensive to borrow.

Well, there is truth in that, but the equation is far from simple. Yes, the CARD Act is costing credit card companies a lot of money by preventing them from charging some fees, while placing caps on others and restricting their ability to increase interest rates. But there is another factor driving up interest rates and it is the economic crisis.

Credit card defaults and late payments were at record highs throughout 2009 and are still above historical averages today. Issuers simply couldn’t afford to offer credit to anyone but the safest borrowers and credit card offers plunged.

The trend is beginning to reverse, however, and the number of new credit card offers in the first quarter was up by 29 percent over the same period in 2009, according to Synovate. This doesn’t mean that interest rates are falling, though. Most credit card offers now come with variable interest rates, which add a certain percentage to the prime rate.

Now, the prime rate can’t go much lower and will eventually start rising as the economy recovers, pushing up interest rates on variable cards along with it. Does that mean that consumers are condemned to high credit card interest rates for the foreseeable future? Well, that would depend largely on the pace of recovery. The bank card industry is a very competitive one and, once it starts to look as if things are getting back to normal, credit card offers will become more attractive and interest rates will go down.

Accept card payments quickly and safely

Accept credit and debit card payments at the lowest processing costs. You will get:

• Free merchant account set-up.
• No fixed monthly fees.
• 24 / 7 customer support.

Both Visa and MasterCard use special Reason Codes to designate chargebacks resulting when a card issuer receives a complaint from a cardholder stating that a merchant did not issue a refund when a purchased product was returned or services canceled, or a refund was issued but for a reduced amount, without proper disclosure. Visa uses Reason Code 85 and its MasterCard’s equivalent is 4860.

What causes these chargebacks? Chargeback Reason Codes 85 and 4860 may be caused because the merchant:

• Did not issue a credit.
• Issued the credit but did not deposit it with its processing bank in time for it to appear on the cardholder’s next statement.
• Did not issue a credit, because it does not accept returns, but did not properly disclose its return policy.

How to manage such chargebacks? The time frame to respond to Reason Codes 85 and 4860 is 120 days. Your response will depend on the particular transaction circumstances and the actions you have taken (or not) so far:

• Returned product or cancellation was not received. If you never received the returned merchandise or the service was not canceled, contact your processor immediately and explain the situation.
• Product was returned contrary to the disclosed policy. If the merchandise was returned not in the manner described in your return policy, provide your processor with documentation proving that the customer did agree with it and signed it. Keep in mind that, if your return policy is located on the back of the sales receipt, you will have to obtain your customer’s initials there, in addition to the signature on the front. When providing supporting evidence, you must send copies of both the front and the back of the receipt.
• Credit was issued. If you did issue a credit for the returned merchandise at issue, contact your processor and provide them with the date and amount of the credit.
• Credit is not yet issued. If you did not issue a credit for product that was returned according to your return policy, there is no remedy and you should accept the chargeback. Do not process the credit now, as the chargeback has already done that for you.

How to prevent chargeback Reason Codes 85 and 4860? Many of these chargebacks can be prevented by implementing the following best practices:

• Issue credits promptly and as agreed. If merchandise is returned according to your return policy, make sure to promptly issue a credit and to immediately notify your customer that it has been issued.
• Only issue credit to the card used in the sale transaction. Credit for returned merchandise should only be issued to the same card that was used in the original transaction. Ask your customers to retain the credit receipt until they see the credit posted on their accounts.
• Gift returns. If product was returned by a gift recipient and not by the cardholder, the credit to the gift recipient must be in the form of cash, check or a store credit. Be advised that, if the credit is to be issued to a bank card, it can only be issued to the one used in the transaction.
• Return policy disclosure. Make sure that your return policy is posted on the sales receipt. If not and until you do that, present an additional document (an invoice or contract) to your customer to sign. If the return policy is on the back of the receipt, make sure the customer initials it.
• No-return policy disclosure. If your organization does not accept returns, your policy should be clearly posted on the sales receipt and at checkout, for both virtual and physical stores.
• Obtain customer signature. Customer signature should always be obtained on your return policy; a verbal disclosure is not enough.

While it is not likely that you will ever be able to completely eliminate this type of chargebacks, developing a customer-friendly return policy will go a long way toward minimizing them. Customers expect that, if they are not satisfied with their purchase, a return will be accepted and a full refund issued. Otherwise, they will probably file a dispute with their credit card company. You will want to avoid such disputes, even if you believe you will win them, because customers are likely to broadcast them on the internet and damage your reputation. Customer disputes and resulting chargebacks are also closely monitored by processing banks that will promptly freeze your merchant account, if there is any uptick in such activities.

Learn how to minimize chargebacks and fraud

Learn how to minimize chargebacks and reduce your processing costs. The Chargeback Management kit contains a video and an e-book:

• E-Book – Chargeback Manual (40 pages).
• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).

The third and final batch of credit card rules, passed by Congress last year in the form of the Credit Card Accountability, Responsibility and Disclosure (CARD) Act, went into effect on Sunday. The Act was designed to protect card users from certain “unfair” practices used by credit card companies.

The final provisions ban card issuers from charging more than $25 for late payments, under most circumstances, and from charging cardholders fees for not using their cards. Issuers are now also prevented from charging multiple fees for the same violation and from increasing interest rates without explanation. Additionally, issuers are now required to review interest rate increases imposed after January 1, 2009, and lower rates for consumers in good standing. Gift cards will now be good for no less than five years.

The CARD Act represents a truly comprehensive reform of how credit card companies do business and it really is a big win for consumers. Here is a list of its key features, as summarized by the White House on the day President Obama signed the Act:

• Bans Retroactive Rate Increases: Bans rate increases on existing balances due to “any time, any reason” or “universal default” and severely restricts retroactive rate increases due to late payment.
• First Year Protection: Contract terms must be clearly spelled out and stable for the entirety of the first year. Firms may continue to offer promotional rates with new accounts or during the life of an account, but these rates must be clearly disclosed and last at least 6 months.

…

• Ends Late Fee Traps: Institutions will have to give card holders a reasonable time to pay the monthly bill – at least 21 calendar days from time of mailing. The act also ends late fee traps such as weekend deadlines, due dates that change each month, and deadlines that fall in the middle of the day.
• Enforces Fair Interest Calculation: Credit card companies will be required to apply excess payments to the highest interest balance first, as consumers expect them to do. The act also ends the confusing and unfair practice by which issuers use the balance in a previous month to calculate interest charges on the current month, so called “double-cycle” billing.
• Requires Opt-In to Over-Limit Fees: Consumers will find it easier to avoid over-limit fees because institutions will have to obtain a consumer’s permission to process transactions that would place the account over the limit.
• Restrains Unfair Sub-Prime Fees: Fees on subprime, low-limit credit cards will be substantially restricted.
• Limits Fees on Gift and Stored Value Cards: The act enhances disclosure on fees for gift and stored value cards and restricts inactivity fees unless the card has been inactive for at least 12 months.

…

• Plain Language in Plain Sight: Creditors will give consumers clear disclosures of account terms before consumers open an account, and clear statements of the activity on consumers’ accounts afterwards. For example, pre-opening disclosures will highlight fees consumers may be charged and periodic statements will conspicuously display fees they have paid in the current month and the year to date as well as the reasons for those fees. These disclosures will help consumers make informed choices about using the right financial products and managing their own financial needs. Model disclosures will be updated regularly based on reviews of the market, empirical research, and testing with consumers to ensure that disclosures remain clear, useful, and relevant.
• Real Information about the Financial Consequences of Decisions: Issuers will be required to show the consequences to consumers of their credit decisions.
  • Issuers will need to display on periodic statements how long it would take to pay off the existing balance – and the total interest cost – if the consumer paid only the minimum due.
  • Issuers will also have to display the payment amount and total interest cost to pay off the existing balance in 36 months.

…

• Public posting of credit card contracts: Today credit card contracts are usually available only in hard copy and not in plain language. Now issuers will be required to make contracts available on the Internet in a usable format. Regulators and consumer advocates will be better able to monitor changes in credit card terms and evaluate whether current disclosures and protections are adequate.
• Holds regulators accountable to enforce the law:  Regulators will be required to report annually to the Congress on their enforcement of credit card protections.
• Holds regulators accountable to keep protections current:
  • Regulators will be required to request public input on trends in the credit card market and potential consumer protection issues on a biennial basis to determine what new regulations or disclosures might be needed.
  • Regulators will be required either to update the applicable rules, or to publish findings if they deem further regulation unnecessary.
• Increases penalties: Card issuers that violate these new restrictions will face significantly higher penalties than under current law, which should make violations less likely in the first place.

  
  Cleans Up Credit Card Practices For Young People at Universities. The act contains new protections for college students and young adults, including a requirement that card issuers and universities disclose agreements with respect to the marketing or distribution of credit cards to students.

Learn how to lower your card acceptance cost

Learn how to accept credit and debit cards at the lowest processing costs. The Payment Card Acceptance kit contains a video and an e-book:

• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).
• E-Book – Payment Card Acceptance Guide (19 pages).

Both Visa and MasterCard use special Reason Codes to designate chargebacks resulting when a card issuer receives a written claim from the cardholder, stating that a product or service purchased was not the same as described. For the chargeback to be valid, the cardholder must have made an attempt to either resolve the dispute with the merchant or return the merchandise. Visa uses Reason Code 53 and its MasterCard’s equivalent is 4853.

What causes these chargebacks? Chargeback Reason Codes 53 and 4853 may be issued for one of the following reasons:

• The merchant sent the wrong merchandise to the customer.
• The product or service did not match its description. For example:
  • The cardholder states that the quality of the product is not as described.
  • The cardholder states that the specified color, size, or quantity is not as described.
  • The cardholder states that the merchant did not perform the services as described.
• The merchant did not cancel the services purchased by the cardholder, as requested.
• The merchant did not accept the returned merchandise or accepted it, but did not credit the cardholder’s account.
• When delivered, the products arrived broken or could not be used for the intended purpose. For example, the cardholder received concert tickets after the date of the concert.

How to manage such chargebacks? The time frame to respond to Reason Codes 53 and 4853 is 120 days. Your response will depend on the particular transaction circumstances and the actions you have taken (or not) so far:

• Credit was processed. If merchandise was returned and a credit was processed, provide your processing bank with supporting evidence.
• Returned merchandise was not received or services were not canceled. If neither the merchandise was returned nor the service canceled, contact your processor and explain the situation. Remember that the customer must make a valid attempt to return the product or cancel the service.
• Returned merchandise was received, but credit was not processed. If the customer returned the merchandise or canceled the service, but you did not issue a credit, there is no remedy and you should accept the chargeback. Do not process a credit at this time, as the chargeback has already done it for you.
• Merchandise was as described. If your merchandise was just as described, provide your processor with supporting evidence.
• Service was performed as described. If you performed the service as you described it in your advertisement or sales pitch, provide your processor with specific supporting documentation and address, in detail, your customer’s objections.

How to prevent chargeback Reason Codes 53 and 4853? While there will always be disputes about the quality of your products or services, you can minimize the resulting chargebacks by implementing the following best practices:

• Provide accurate descriptions of merchandise and services. We have written on how to improve a service or product description before and will not go into great detail here. Be as accurate as you can and provide the complete manufacturer product sheet, both in all promotional materials and on the sales receipts.
• Provide product photos and images, if applicable. Use high-quality images and provide shots from various angles of the product.
• Honor returns cancellation requests. If a product was returned or a service canceled in accordance with your return policy, accept your customer’s decision and immediately issue a refund.

The chargeback amount for Reason Code 53 and 4853 chargebacks is limited to the amount of the returned merchandise or canceled service and it may include shipping and handling fees. The card issuer must wait at least 30 calendar days from the date the cardholder returned the merchandise, before charging back the transaction.

Learn how to minimize chargebacks and fraud

Learn how to minimize chargebacks and reduce your processing costs. The Chargeback Management kit contains a video and an e-book:

• E-Book – Chargeback Manual (40 pages).
• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).

The Federal Trade Commission has filed charges in relation to the $10 million credit card scam that we first learned about a month and a half ago, we learn from the New York Times. The NYT article tells us that the charges against the bogus companies set up to facilitate the fraudulent transactions were filed back in March, three months before the FTC announced the scam in a press release.

It was a very elaborate scheme, involving more than 16 dummy corporations the scammers had set up in various Eastern European and Central Asian countries, including Lithuania, Estonia, Latvia, Bulgaria, Cyprus and Kyrgyzstan. The criminals then opened up more than 100 merchant accounts in the U.S. to process the payments. In order to do so, however, they had to convince the processing banks that their business was legitimate. Here is how they did that, according to the NYT:

…false storefronts were set up on the Web, pretending to sell electronics or office supplies, in case a bank investigated.

The perpetrators also rented a street address from a company that provided that service and had their mail forwarded to another company that scanned and forwarded it a second time as e-mail, the suit says.

Once the merchant accounts were operational, the criminals started to charge small amounts to credit and debit card accounts whose information they had stolen. Most of the charges were for $9, although the amounts could be as low as $0.20 and as high as $10, according to Steven M. Wernikoff from FTC’s Midwest Region Office.

The criminals succeeded in stealing so much money mostly because the small individual charges either went unnoticed by many of their victims or they simply didn’t bother to dispute them.

Yet, with so many fraudulent transactions, complaints were bound to pile up and eventually the FTC received more than 1,000 of them. Interestingly, there “were more complaints about the 20-cent charges because they looked really odd,” according to Wernikoff.

The FTC’s investigation lasted for nine months, however the identities of the individuals who masterminded the scam are still unknown. No one is defending the companies in this law suit either. Less than $100,000 has been recovered so far from the U.S. assets of the false companies. The FTC hopes to recover some of the money transferred abroad, but it is unlikely that it will meet with much success there.

Apart from its sheer scale, the most striking thing about this scam is the discipline and patience with which it was executed. The criminals had detailed understanding of how the credit card processing system operated, had identified its vulnerabilities and knew how to exploit them. It must have taken them months just to lay down the groundwork of setting up U.S. corporations and opening up e-commerce websites and merchant accounts for them. They must have known that eventually the whole thing would be found out, but that it would take months for it to happen. In the mean time they managed to steal money from 1.3 million people. This must be some kind of a record, but I’m also wondering if we have learned the full extent of the scam. Take a look at your January statement. Maybe you’ll see a $0.20 transaction from Link Services or Site Management.

Accept card payments quickly and safely

Accept online payments via credit and debit cards and electronic checks at the lowest processing costs. You will get:

• Free merchant account and Authorize.Net gateway set-up.
• No monthly merchant account or gateway fees.

Another huge bank is teaming up with a giant credit card company to test a contactless payment system. This time it is the turn of Bank of America, the largest U.S. consumer bank, and Visa, the largest card payment network in the world, to unveil a program that would make it possible for customers to pay by waving their phones by a specially equipped point-of-sale (POS) terminal.

The test will begin in September in the New York area and will last through the end of the year. Visa also plans a similar test program with U.S. Bancorp, beginning in October.

Visa will supply participants in the test with small chips that would be attached to their cell phones and transmit transaction data to the merchant’s terminal. Although technical details were not released, it is likely that the chips will use near-field communication (NFC) frequency to communicate with the merchant’s POS device. The NFC frequency allows data transmission within a range of less than 20 cm (8 in), which limits the risk exposure to threats from hackers.

Once a user waves his chip-equipped phone by a participating merchant’s POS device, his account information will be transmitted first to Visa and from there to Bank of America for authorization. Then the transaction will be processed just as any other card payment. Upon approval, a receipt will be printed out for the cardholder to complete the transaction.

Contactless cell phone payments have been in use in Japan and South Korea for years, but they never made any headway in the U.S. This is certain to change, however, with most mobile phone carriers and major banks developing their systems.

Only a couple of weeks ago three major carriers – Verizon, AT&T and T-Mobile – announced they were teaming up with fourth-biggest U.S. card payment processor Discover and British Barclays Bank to develop their own contactless payment service, using NFC technology.

Earlier this year, Starbucks expanded its own iPhone mobile payment service, also using NFC technology, from 16 West Coast stores to more than 1,000 locations nationwide.

So it is clear that the U.S. is finally on its way to joining Japan and Korea in adopting the mobile payments technology and at the rate smart phones are evolving, we are likely to see much more innovations in a fairly short order. The day when most cardholders will have their credit card information stored in their phones, rather than in a piece of plastic, is probably just a few years away.

Yet, for all their convenience, mobile payments will not transform the credit card industry. Cell phones will simply become another tool for facilitating credit card payments, cooler than POS terminals, but performing the same functions. More importantly, transaction fees, paid by merchants for each card payment they accept, will either remain the same or increase. NFC-transmitted payments will initially be classified as “card-present” transactions, giving them the lowest processing rates, because cardholders will be signing physical receipts. That puts them on par with POS terminal-processed payments. However, if it turns out that mobile payments are more prone to fraud or chargebacks, Visa, MasterCard and the credit card companies are sure to revise this classification.

Accept card payments quickly and safely

Accept credit and debit card payments at the lowest processing costs. You will get:

• Free merchant account set-up.
• No fixed monthly fees.
• 24 / 7 customer support.

Swipely, a social shopping network, is the latest entrant in the increasingly crowded field of social networks who offer users the ability to share their credit card purchases with friends, we learn today from ReadWriteWeb’s Adrianne Jeffries. After several months of private beta testing, today Swipely opened its doors for everyone.

Given the track record of similar services in the recent past, Swipely has its work cut out for them. To say that its competitors have had a hard time both convincing a skeptical public and protecting users’ personal information would be a huge understatement.

You may remember, for example, what happened with Facebook’s ill-fated Beacon project. It was supposed to “help people share information with their friends about things they do on the web,” according to Facebook’s founder Mark Zuckerberg. A month after Beacon’s release, Zuckerberg was already apologizing for making “a lot of mistakes building this feature” and simply doing “a bad job with this release.” Eventually, Beacon was shut down and Facebook had to pay $9.5 million to settle a lawsuit alleging privacy violations.

Earlier this year, Blippy, another start-up that offers users a platform to share credit card purchases with others, accidentally revealed the credit card details of some of its users on Google. As announced on Blippy’s blog:

In early February, due to a technical oversight on our part, some raw transaction data appeared within the HTML code on some Blippy pages for about half a day. Raw transaction data is the messy one-line sentence that appears on a bank or credit card statement.

Half a day of course was all the time needed to cause the trouble:

Google had crawled and indexed a portion of Blippy’s pages. Even though the sensitive information was hidden in the HTML and not visible in plain view, the Google crawler observed it and recorded the information to put into its search index. Google effectively took a snapshot of Blippy during that half day period.

Undaunted, Swipely is going ahead with its own service and says it has learned from others’ mistakes. Here is how it works, as explained by Jeffries:

Swipely collects purchase information from more than 4,000 banks and credit card companies, using the Localeze database to match transaction codes to physical locations. Users can also forward email receipts to Swipely or install a Gmail plugin that pulls receipt data automatically.

You can broadcast all your purchases, all your purchases from a specific store, or pick individual purchases to show on Swipely, Twitter and Facebook.

…

The data is used to target users for ads and discounts. Users can also search for all the comments for a store or item, similar to user reviews on a site like Yelp or Amazon.

Swipely founder Angus Davis acknowledges the obvious – that convincing people to trust them with their personal information will be hugely challenging. His major selling point seems to be Swipely’s potential to save users money. Whether people will buy into it remains to be seen.

Accept card payments quickly and safely

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The store-branded credit card industry is surging ahead, as Americans are beginning to get a firmer grip on their finances and delinquency and charge-off levels are falling, we learn today from the WSJ. This is of course good news for card issuers, but it is even better news for retailers. The WSJ tells us that:

On Wednesday, Target reported second-quarter profit of $149 million for its credit-card segment, up from $63 million a year earlier, as souring loans receded. Accounts at least 60 days behind on credit card payments fell to 5% from 5.8% a year earlier.

Private label cards, also known as store-branded cards, are issued by credit card issuers under the name of a different organization, such as Home Depot credit card offered by Citibank. Typically, they can only be used at the retailer whose name they bear. Cards that display the logo of a credit card company (e.g. Discover or American Express) or association (Visa or MasterCard), can be used anywhere cards are accepted. An example would be a United Airlines card offered by Chase.

Consumers rank store-branded cards lower in their payment priorities than general purpose cards, the WSJ tells us. This is borne out by the data:

Balances on store cards totaled $94 billion in 2009, down 8% from 2008, according to the Nilson Report, a newsletter that tracks the payments industry. General-purpose credit-card balances declined 13% to $1.89 trillion.

To counter this trend, issuers typically charge higher interest rates on their private label offerings. Yet, it turns out that private label cards are still not as lucrative for issuers as general purpose cards:

Issuers of retail credit cards make $16 to $18 of interest and fee income on every $100 loaned out, before subtracting expenses, according to Mr. [Robert] Hammer [head of a credit card consulting firm]. Earnings on general purpose cards typically are $14 to $15 per $100 loaned.

At the peak of the financial crisis some issuers scaled down their private label offerings, while others put up their portfolios for sale. GE, the nation’s biggest store card underwriter, unsuccessfully tried to do just that. Now, however, GE’s portfolio is “performing very well and has proven to be very resilient,” according to Stephen White, a GE spokesman. “It’s no longer up for sale.” Capital One is also expanding its private label offerings, taking over retailer Kohl’s 20 million credit card account portfolio from Chase.

Consumers should welcome these developments, as higher profits and increased competition in the industry should preserve the level of benefits they get from their store cards.

Learn how to lower your card acceptance cost

Learn how to accept credit and debit cards at the lowest processing costs. The Payment Card Acceptance kit contains a video and an e-book:

• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).
• E-Book – Payment Card Acceptance Guide (19 pages).

Both Visa and MasterCard use special Reason Codes to designate chargebacks resulting in connection with recurring payment plans. The triggering point is usually when a card issuer receives a claim by a cardholder that the merchant processed a transaction after the cardholder requested cancellation or when the transaction amount is higher than the pre-authorized one. This Reason Code may also be issued if the merchant fails to notify the cardholder prior to processing a transaction, after agreeing to do so before each recurring payment. Visa uses Reason Code 41 and its MasterCard’s equivalent is 4841.

What causes these chargebacks? Chargeback Reason Codes 41 and 4841 may be caused by one of the following actions:

• The cardholder:
  • Did not authorize the charge.
  • Canceled the recurring plan.
  • Canceled the card account.
• The card issuer:
  • Has previously processed a chargeback on a transaction from the recurring plan at issue and the cardholder did not expressly renew the plan.
  • Canceled the card account.
• The merchant:
  • Was notified prior to processing the transaction that the customer’s card account was closed.
  • Exceeded the pre-authorized amount without notifying the cardholder in writing within 10 days of processing the transaction or did notify the customer but the customer requested that the account not be charged.

How to manage such chargebacks? The time frame to respond to Reason Codes 41 and 4841 is 120 days. Your response will depend on the particular transaction circumstances and the actions you have taken (or not) so far:

• The transaction was canceled and credit was issued. If you issued a credit after your customer canceled a transaction, contact your processing bank and give them the details, including when the credit was processed.
• The transaction was canceled, but credit is not yet processed. If a customer canceled a payment but you failed to process the credit, there is no remedy and you should accept the chargeback. Do not process a credit at this time, as the chargeback has already done it for you.
• The transaction was not canceled. If you have no record that cancellation was requested you should still accept the chargeback, as the customer does not have to prove that he or she requested a transaction to be canceled.
• The transaction was canceled, but the services were used. If the customer claims that he or she was billed after requesting cancellation, but the bill was for services used between the date of the last billing statement and the cancellation date, provide to your processor some kind of supporting evidence.
• Final billing. If a cancellation request was received, but there is still a final payment to be made, contact your customer directly and request a payment.

How to prevent chargeback Reason Codes 41 and 4841? Many of these chargebacks can be prevented by implementing the following best practices:

• Customer cancellation requests. You should regularly check for cancellation requests and respond promptly. Inform the customer when his or her account was closed and request another form of payment if there is an outstanding balance.
• Credit cardholder account. Make sure that credits are processed promptly and notify customers immediately.
• The transaction exceeds the pre-authorized amount ranges. Always notify customers within 10 days of processing if the transaction amount will exceed the pre-authorized one. If there is a dispute, send a copy of the notification to your processor.
• Customer complaints. Always check and immediately address customer complaints. If unaddressed, complaints can easily deteriorate into chargebacks.

The only cause for a Reason Code 41 or 4841 chargeback that you cannot address is when a customer claims that he or she canceled their recurring plan, but you have no record of such a request. Visa and MasterCard have chosen to side with the cardholders in such cases and do not require any proof from them.

Learn how to minimize chargebacks and fraud

Learn how to minimize chargebacks and reduce your processing costs. The Chargeback Management kit contains a video and an e-book:

• E-Book – Chargeback Manual (40 pages).
• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).

This past Sunday a new rule went into effect, banning banks from processing over-the-limit debit card and ATM transactions, and charging overdraft fees for the service, unless consumers sign up for it. The rule was hailed as a big win for consumers and it is. In 2008 alone, banks and credit unions collected $23.7 billion in overdraft fees, an increase of 35 percent from 2006, according to a study by the Center for Responsible Lending. From the Washington Post we learn that in 2009 the figure was $37.1 billion, as estimated by Moebs Services, a research firm for the financial industry.

So it comes as no surprise that many banks are unhappy with these developments and are looking for ways to make up for the losses. While Bank of America already dropped its overdraft program for debit card transactions and Citibank has never had one, smaller banks are seeing an opportunity, the WaPo article tells us. According to the Moebs report, “about 7 percent of banks have begun offering overdraft programs, compared with about 6 percent that eliminated them” and there is more to it:

[A] research by the Center for Responsible Lending, a consumer advocacy group, found that some industry consultants are encouraging these banks to target the most frequent overdraft offenders. The Federal Deposit Insurance Corp. found in 2008 that multiple offenders held only 9 percent of the accounts at banks that it oversees but generated 84 percent of the fee revenue.

In response, the FDIC has decided to make the rules even tougher:

The FDIC last week proposed more stringent overdraft guidelines for the roughly 5,000 community banks in its jurisdiction. They would strictly prohibit banks from encouraging frequent offenders to enroll in overdraft programs without clearly informing them of alternatives. Banks also could be required to contact customers with six or more overdrafts in a year and offer them other options.

The guidelines would mandate that banks place an “appropriate” limit on overdraft fees, such as limiting the dollar amount or the number of times the fee is assessed, a provision that has long been sought by consumer groups but was not included in the Federal Reserve’s regulations that took effect this week. Finally, the guidelines call for a review of the order in which banks process checks to limit overdraft fees. The deadline for public comment on the proposed rules is Sept. 27.

When passed, these new rules will certainly convince many other banks to follow Bank of America’s example and phase out their overdraft programs. It is now clear that they will have to look for other sources to make up for the lost revenues and there are signs that this is already happening.

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Accept online payments via credit and debit cards and electronic checks at the lowest processing costs. You will get:

• Free merchant account and Authorize.Net gateway set-up.
• No monthly merchant account or gateway fees.

Visa uses chargeback Reason Code 86 to designate chargebacks resulting when the card issuer receives a written complaint from the cardholder stating that the payment for the transaction at issue was made by other means, not with the credit card that was charged. MasterCard does not have a reason code that exactly matches Visa’s 86.

What causes these chargebacks? Reason Code 86 chargebacks typically occur when the cardholder initially submits a card to pay for the transaction, but then decides to use another payment method. The merchant then fails to void the card transaction and deposits the sales receipt, in addition to the actual one.

How to manage such chargebacks? The time frame to respond to a chargeback Reason Code 86 is 120 days for both U.S. and international transactions. Your response will depend on the particular transaction circumstances and the actions you have taken (or not) so far:

• The card was the only form of payment presented by the customer. If the card was in fact the only form of payment that was processed, provide your processing bank with the sales records and any other supporting evidence that you may have.
• Another form of payment was presented by the customer, in addition to the card. If you deposited a card sales receipt after another form of payment was used, there is no remedy and you should accept the chargeback. Do not issue a credit at this time, as the chargeback has already performed this function. If you have issued a credit, contact your processor and explain what happened. Provide a copy of the credit transaction, if required.

How to prevent chargeback Reason Codes 86? As these chargebacks are caused solely by a failure to void card transactions where payments were made by other means, preventing them is entirely within your control. Consider implementing the following preventive measures:

• Develop procedures for voiding card transactions, after payments are made in other ways. If, after swiping her card, your customer changes her mind and decides to pay in cash, by check, or even using another card, you must void the original card transaction. This is all you need to do to prevent a chargeback.
• Train your point-of sale staff. Your sales staff should be trained on both when and how to void a card transaction. A good policy would be to place a step-by-step guide on voiding transactions near the register to help newer members of your sales staff.

If you follow the suggestions above, you will greatly minimize or may even completely eliminate Reason Code 86 chargebacks. If you still can’t get the desired results, however, you should start reviewing each batch of transaction receipts prior to deposit to ensure that no single order was paid multiple times.

Learn how to minimize chargebacks and fraud

Learn how to minimize chargebacks and reduce your processing costs. The Chargeback Management kit contains a video and an e-book:

• E-Book – Chargeback Manual (40 pages).
• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).

Federal Reserve data tell a story of a huge shift in consumer attitude toward debt that started when the financial crisis first hit a couple of years ago. Since September 2008, when Lehman Brothers collapsed, outstanding balances on consumer credit cards have fallen by $144.9 billion, or 14.85 percent, according to the Federal Reserve. The average U.S. household eliminated $2,683 of credit card debt during this period, although a substantial portion of it was charged-off by issuers as uncollectable, rather than paid off by cardholders.

The WSJ now tells us that cardholders “paid back 19.02% of their balances on average in June, up from 17.1% a year earlier, according to a Fitch Ratings index, which tracks about $231 billion of credit card loans.”

Now, it is great that consumers are making a sustained effort to reduce their credit card debt and it does look like it is not going to be just a blip on the radar screen, as it has been going on for almost two years now. But what about the credit card companies, how is this new trend affecting them? More importantly, what will be the implications for consumers?

According to the WSJ:

Lower card loan balances took a bite out of income for issuers in the second quarter. At Capital One, revenue fell 9% in the second quarter from the first quarter to $3.9 billion as average loan balances declined 4.5%.

…

For J.P. Morgan, revenue at its credit card unit fell 13% in the second quarter from a year ago to $4.2 billion. Its card balances fell 16% to $146.3 billion during the same period.

However, not all issuers are struggling. Again from the WSJ we learn that:

For American Express, consumers paying off their card balances more quickly may prove to have a silver lining as the company issues charge cards, which must be paid off each month, as well as credit cards that allow customers to carry a balance. AmEx’s revenue rose 13% to $6.86 billion in the second quarter, aided in part by higher cardholder spending. That was offset by lower card balances, which fell 9% to $57.3 billion during the period.

So what should we expect from issuers in response to this new trend? After all, it is not very likely that they will just sit idly by, while their revenues shrink.

It is unlikely that issuers will be able to offset the drop in revenues with higher fees or interest rates, partly because cardholders are becoming more disciplined in making payments on time and are generally more conscious of penalty fees, but mostly because the recently passed CARD Act restricts the issuers’ ability to raise interest rates, while preventing them from charging certain fees. For example, credit card companies are no longer allowed to charge overdraft fees, unless cardholders explicitly opt in for overdraft protection. Moreover, beginning this coming Sunday, late payment fees will be reduced from $35 to $25, while inactivity fees will be banned altogether.

Credit card companies seem to have realized that reliance on traditional card products will no longer be enough and have started to get creative. As the above American Express example shows, charge cards were the first sign of their creativity, and they are now also offered by Chase and other issuers. Requiring cardholders to pay in full each month is a sure way to boost revenues. More innovations are certain to be unveiled in the coming months and it will be very interesting to see what form they will take.

Learn how to lower your card acceptance cost

Learn how to accept credit and debit cards at the lowest processing costs. The Payment Card Acceptance kit contains a video and an e-book:

• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).
• E-Book – Payment Card Acceptance Guide (19 pages).

Both Visa and MasterCard use special Reason Codes to designate chargebacks resulting when a merchant deposits the same credit card transaction with an issuer more than once. Visa uses Reason Code 82 and its MasterCard’s equivalent is 4834.

What causes these chargebacks? Chargeback Reason Codes 82 and 4834 may be caused by one of the following merchant actions:

• Entering the transaction information into the terminal more than once.
• Submitting the same batch to the processing bank more than once.
• Depositing with the processor both the merchant copy and the bank copy of the sales receipt.
• Depositing sales receipts for the same transaction with more than one processor.
• Creating two or more sales receipts for the same transaction.

How to manage such chargebacks? The time frame to respond to Reason Codes 82 and 4834 is 120 days. Your response will depend on the particular transaction circumstances and the actions you have taken (or not) so far:

• The sales receipts are not duplicates. If you did not submit duplicate sales receipts but receipts for separate transactions, provide your processor with copies of the receipts at issue. If you have any other supporting evidence that the transactions were indeed separate, send it along as well.
• The sales receipts are duplicates. If the sales receipts are in fact duplicates, there is no remedy and you should accept the chargeback. Do not process a credit at this time, as the chargeback has already performed this function. If you have identified the duplicate and processed a credit before receiving the chargeback, contact your processor and explain what happened. They will tell you what needs to be done and you should follow their instructions. Issuers typically do not issue chargebacks if their systems have detected that a credit has already been issued.

How to prevent chargeback Reason Codes 82 and 4834? These chargebacks are typically caused by errors in the entering or depositing transaction information and can be prevented by implementing the following best practices:

• Enter transaction information once. Make sure that you only enter the transaction information once.
• Void erroneous sales receipts. If, despite your best efforts, a transaction is entered twice, make sure to void the duplicate.
• Review sales receipts before depositing. The best preventive measure against chargeback Reason Codes 82 and 4834 is to review the transaction receipts before depositing them with your processor and make sure that no copies are included.
• Train your sales staff. Each member of your sales staff should understand the importance of avoiding entering the same transaction information multiple times and, when that happens, make sure the duplicates are voided.

Any time you receive a chargeback Reason Code 82 or 4834, you should follow up with the staff member who processed the transaction information and provide the necessary training to ensure that it does not happen again.

Learn how to minimize chargebacks and fraud

Learn how to minimize chargebacks and reduce your processing costs. The Chargeback Management kit contains a video and an e-book:

• E-Book – Chargeback Manual (40 pages).
• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).

Dealing with credit card debt is difficult enough on its own, but it can get even more complicated when marital considerations are entered into the equation. Typically, both parties are equally responsible for all debt accumulated during the marriage. But things get much fuzzier when debts accumulated prior to or after the marriage are added to the picture. Helping people find their bearings in this gray zone has been keeping financial experts busy for a long time.

Last week, for example, a CreditCards.com’s reader sought advice on protecting herself from her fiancé’s $150,000 debt mountain (which he claimed was all his ex-wife’s fault). She is right to be worried, because even though she will not be in any way responsible for paying any portion of her future husband’s debt, his credit has already taken a hit, which can directly or indirectly affect her in at least two major ways:

• Joint credit applications. Any time the couple applies jointly for any form of credit – e.g. credit cards, auto loans or mortgages – the husband’s poor credit score can lead to a higher interest rate or an outright rejection.
• Debt servicing. Paying down such a huge amount is sure to affect the husband’s ability to pull his weight in keeping up with the couple’s current bills, putting additional pressure on his wife, whose credit may suffer as a result.

It goes without saying that, for the average person, dealing with such an issue will not be a simple matter. On the one hand, you wouldn’t want your spouse’s past financial troubles to affect your future happiness. On the other, if you are not careful, such a huge debt can quickly turn into a major headache. Ideally, if you have the means as a couple, you should pay off the debt just as quickly as you can. If you don’t, you should be very careful to keep all of your financial accounts separate.

Now, this may sound as an extreme case, and it probably is, but it is far from isolated. Again from CreditCards.com we learn of another conjugal debt story, involving a divorcing couple. This time the husband is concerned that, once they get divorced, his unemployed wife will run up their joint credit cards’ balances, damaging his credit in the process.

The only way to guarantee that his wife’s spending habits will not have any effect on his personal finances after they get divorced, is to close down all joint accounts, even if that means paying off the existing balances. Otherwise, he is inviting trouble.

For most of us money doesn’t matter when we fall in love. Unfortunately, financial considerations come into play much more often when things don’t work out the way we hoped and a divorce becomes the only way out. How we resolve financial issues at this stage will depend on the concrete circumstances, but one thing is certain: it will be a messy affair and you will have to make compromises. Just as you did during your marriage.

Learn how to lower your card acceptance cost

Learn how to accept credit and debit cards at the lowest processing costs. The Payment Card Acceptance kit contains a video and an e-book:

• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).
• E-Book – Payment Card Acceptance Guide (19 pages).

Visa uses chargeback Reason Code 80 to designate chargebacks resulting from processing transactions where either the account number or the transaction amount posted with the card issuer does not match the one shown on the sales receipt. MasterCard does not have a reason code that exactly matches Visa’s 80.

What causes these chargebacks? Reason Code 80 chargebacks are typically associated with key-entered transactions and are usually triggered by an incorrect data entry by the merchant.

How to manage such chargebacks? The time frame to respond to a chargeback Reason Code 80 is 120 days for both U.S. and international transactions. Your response to Reason Code 80 chargebacks will depend on the particular transaction circumstances and the actions you have taken (or not) so far.

• The transaction amount and account number is the same on the sales receipt and payment documents. If the transaction information was entered correctly, you will need to provide a copy of the sales receipt to your processing bank to be used in the re-presentment as supporting evidence.
• Either the transaction amount or account number differs. If the transaction data was entered incorrectly, there is no remedy and you should accept the chargeback. In a case of an incorrect account number, process a new transaction but do not issue a credit, as the chargeback has done that already. In a case of an incorrect amount, no action is needed, as the charged-back amount is the difference between the transaction amount and the correct one.

How to prevent chargeback Reason Codes 80? Preventing this type of chargebacks is entirely within your control and you should implement the following best practices:

• Card-present transactions. Reason Code 80 is typically issued for transactions processed in a card-present environment, where the card’s magnetic stripe has not been read, either because the point-of-sale (POS) terminal was not operational or the card was unreadable. Best card acceptance practices require you to take a manual imprint of the card on the front of the sales receipt. Your sales staff needs to be trained on when and how to do that and a manual imprinter needs to be readily available. Staff should also be trained to verify that the keyed and imprinted numbers are the same.
• MO / TO transactions. Reason Code 80 can also be issued for mail order or telephone order (MO / TO) transactions, where information is also key-entered, typically through virtual terminals. To minimize errors when orders are accepted over the telephone, sales staff should read the provided information back to the cardholder to ensure it is accurate.

Adequate training on best card acceptance practices is your best tool for preventing Reason Code 80 chargebacks. These are very simple procedures and there is absolutely no reason why they should not be followed. You can use our “Payment Card Acceptance Guide” as a training manual.

Learn how to minimize chargebacks and fraud

Learn how to minimize chargebacks and reduce your processing costs. The Chargeback Management kit contains a video and an e-book:

• E-Book – Chargeback Manual (40 pages).
• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).

New Yorkers have the most credit cards in the nation – 3.77 per resident, on average, according to a new study by Experian, one of the three largest U.S. credit reporting agencies. However, the number of open credit cards is not related to the total outstanding debt, the data show. For example, New Yorkers owe on credit cards $1,040 less than the residents of the most indebted metropolitan U.S. region – Atlanta. The average monthly balance of New Yorkers is $5,713, compared to $6,753 for Atlanta residents, who are ranked 15^th on the number-of-open-cards list.

The data reveal some substantial regional differences in Americans’ credit card debt distribution. Residents of San Francisco and Houston owe the least, with outstanding credit card balances of $5,323 and $5,328, respectively. By comparison, the average Atlantan owes more than 25 percent more than that.

Overall, Americans are now opening 26 percent fewer credit cards than they were three years ago, before the financial crisis hit, according to the study. There is no regional breakdown available for this data segment, but it is well known that, in the aftermath of the financial meltdown, issuers tightened their credit standards across the nation. Credit card offers mailed in 2009 plunged 66 percent from their 2008 level, according to data from Mintel Comperemedia, which specializes in tracking direct mail and print advertising in the U.S. and Canada. Moreover, the available offers were much less attractive. For example, more than a third of credit card offers sent in 2009 (36 percent) featured an annual fee, compared to just one in five (20 percent) in 2008, according to the Mintel study. Moreover, new offers were only available to consumers with excellent credit history. Even when offers began to increase in number in the first quarter of 2010, their quality did not improve. Almost two-thirds (65 percent) of the total mailed offers for the first quarter of 2010 carried an introductory purchase APR versus 58 percent in Q4 2009, according to data from Synovate, a market research company.

The worsening quality of credit card offers and the decreased number of their recipients coincided with a steady consumer drive to cut back on debt. Since September 2008, U.S. consumers have reduced their outstanding credit card balances by $144.9 billion, or 14.85 percent, according to data from the Federal Reserve. The drop in the overall U.S. credit card debt since September 2008 translates into eliminating $2,683 of the average household’s outstanding credit card balance during that period, either through paying down the debt or charging it off as uncollectible by the lender.

Unfortunately, the Fed’s report doesn’t provide regional data, so we don’t know which metro area is the debt-cutting leader. Still, it is good news that Americans are making a conscious effort to pay down their debt. Hopefully, the trend doesn’t reverse itself, once the economy starts improving and the unemployment goes down.

Learn how to lower your card acceptance cost

Learn how to accept credit and debit cards at the lowest processing costs. The Payment Card Acceptance kit contains a video and an e-book:

• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).
• E-Book – Payment Card Acceptance Guide (19 pages).

Both Visa and MasterCard use special Reason Codes to designate chargebacks resulting from a late deposit of credit card transactions. Visa uses Reason Code 74 and its MasterCard’s equivalent is 4842.

Reason Codes 74 and 4842 are issued when an account number is blocked or closed and:

• The card issuer receives a transaction after the 30-day time frame, within which a transaction needs to be deposited or
• The card issuer receives a transaction more than seven calendar days after the transaction date and the transaction was completed with electronically recorded card information (whether card-read or key-entered).*

  
  * MasterCard transactions only.

Time frames exist to ensure that transactions are deposited in a way that will allow for timely payment processing and billing to the cardholders’ accounts. It is easy to imagine how a transaction, deposited a month after it was generated, will not be remembered by the cardholder, prompting him or her to file a dispute with the issuer. There are no remedies for chargebacks on payments deposited more than 181 days after the transaction date.

What causes these chargebacks? By far the biggest cause for Reason Code 74 and 4842 chargebacks is that the merchant does not deposit the transaction with its processor within the time frame specified in its merchant processing agreement.

How to manage such chargebacks? The time frame to respond to Reason Codes 74 and 4842 is 120 days. Your response will depend on the particular transaction circumstances and the actions you have taken (or not) so far:

• The transaction was deposited on time. If the payment was deposited within the required time frame, provide your processor with a copy of the sales receipt to be re-presented to the card issuer.
• The transaction was deposited late and the account was closed. If the transaction was not deposited within the specified time frame and the cardholder’s account was closed, there is no remedy and you should accept the chargeback. Do not issue a credit at this time, as the chargeback has already done that for you.
• The transaction was older than 181 days. If the transaction was deposited more than 181 days after the transaction date, even if the card account is not closed, there is no remedy and you should accept the chargeback.

How to prevent chargeback Reason Codes 74 and 4842? Preventing this type of chargebacks is entirely within your control and you should implement the following best practices:

• Deposit timing guidelines. Transactions should be deposited as soon as possible, preferably on the date of the transaction and not past the time frame, specified in your merchant processing agreement. Remember that for card-not-present transactions the transaction date is the date on which the product or service was shipped or provided and you are not allowed to deposit before that.
• Manual deposits of paper transaction receipts. If your business deposits paper receipts, which take more time to handle, make sure that they are deposited within the time frame specified in your merchant processing agreement.
• Transaction data capture terminals. Transaction data capture systems can be set up to automatically deposit your daily transaction batches at the end of the day, saving you time and substantially reducing, possibly eliminating, the probability of chargeback Reason Codes 74 and 4842.

The Associations require that card transactions are presented for clearing within one business day of the authorization date, which gives you yet another incentive to deposit transactions on time.

Learn how to minimize chargebacks and fraud

Learn how to minimize chargebacks and reduce your processing costs. The Chargeback Management kit contains a video and an e-book:

• E-Book – Chargeback Manual (40 pages).
• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).

A recent report from the Federal Reserve Bank of Boston concluded that America’s lower-income consumers are in fact subsidizing the cost of credit card rewards programs, while the benefits are largely reaped by those who need them the least. Here is the gist of the report:

Merchant fees and reward programs generate an implicit monetary transfer to credit card users from non-card (or “cash”) users because merchants generally do not set differential prices for card users to recoup the costs of fees and rewards. On average, each cash-using household pays $151 to card-using households and each card-using household receives $1,482 from cash users every year [a total transfer of $1,633 from the average cash payer to the average card payer]. Because credit card spending and rewards are positively correlated with household income, the payment instrument transfer also induces a regressive transfer from low-income to high-income households in general.

…

On average, and after accounting for rewards paid to households by banks, when all households are divided into two income groups, each low-income household pays $9 to high-income households and each high-income household receives $434 from low-income households every year. The magnitude of this transfer is even greater when household income is divided into seven categories: on average, the lowest-income household (< $20,000 annually) pays a transfer of $23 and the highest-income household (> $150,000 annually) receives a subsidy of $756 every year. The transfers among income groups are smaller than those between cash and card users because some low-income households use credit cards and many high-income households use cash. Finally, about 83 percent of banks’ revenue from credit card merchant fees is obtained from cash payers, and disproportionately from low-income cash payers.

Now, in order to make sense of these numbers, we need to understand how processing fees are assessed. Every time a bank card is used for payment, the merchant is charged a processing fee, which can range anywhere from less than one percent to as high as 3.5 percent or higher, depending on how the payment is accepted (swiped, key-entered, submitted online, etc.) and the type of credit card used. Generally, debit cards are cheaper to accept than credit cards, and regular credit cards are, in turn, cheaper than rewards credit cards.

So the report points to the fact that, for credit card sales, merchants only get paid 97 percent – 99 percent of the sale’s amount, while they get 100 percent of the cash sales. Moreover, accepting rewards card costs about 0.10 percent – 1.50 percent more than accepting regular credit cards, depending on the pricing model.

The authors then make the assertion that, because merchants are not allowed to surcharge card transactions, prices are higher for everyone. The upshot is that everyone pays 1 percent – 3 percent higher prices, but those paying with rewards cards are getting some of it (or more than that) back.

Earlier this year, the big retailers used this very argument to convince Congress that the high processing fees card issuers charge are paid indirectly by consumers through higher retail prices. They succeeded and the result is that the Federal Reserve is now charged with regulating the interchange fees on debit card transactions. Interchange fees make up the bulk of the total processing fees.

Now, if you take the merchants’ argument a step further, you would have to conclude that, once interchange fees go down, retail prices would have to fall accordingly. Unfortunately, it is far more likely that the banks’ lobbyists would be justified in their skepticism and any fee reduction would be mirrored by an equal rise in the merchants’ revenues. Not only are prices unlikely to fall but, if merchants have their way and win the right to add a surcharge to card transactions, prices will rise for cardholders. If that is the case, lower-income cash users will pay just as much as they do now, however using cards will become costlier. Moreover, the “monetary transfer” from the poor to the rich will be reduced, but it will not be eliminated.

Learn how to lower your card acceptance cost

Learn how to accept credit and debit cards at the lowest processing costs. The Payment Card Acceptance kit contains a video and an e-book:

• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).
• E-Book – Payment Card Acceptance Guide (19 pages).

We have learned a lot about overdraft fees lately, mostly because the CARD Act of 2009 banned banks from providing overdraft protection, unless the cardholder signs up for it. The latest news came yesterday when we learned that a federal judge in California ordered Wells Fargo to pay over $200 million dollars back to customers for employing “unfair and deceptive business practices” related to overdraft fees.

Overdraft fees are charged when a cardholder completes a card transaction which puts his or her account’s balance beyond its credit limit. So if your checking account’s balance is $49 and you use the associated debit card to complete a $50 transaction, you will go over your account’s limit and be subject to an overdraft fee.

How will this affect banks? Let’s take a look at the numbers for a moment. In 2008, banks and credit unions collected $23.7 billion in overdraft fees, an increase of 35 percent from 2006, according to a study by the Center for Responsible Lending. The average overdraft fee’s amount in 2008 was $34 and as many as 51 million Americans overdrew their accounts at least once annually. Moreover, 27 million accountholders incurring five or more overdraft or non-sufficient funds (NSF) fees, according to the report.

Now, these numbers are certain to change dramatically as a result of the enactment of the CARD Act. The biggest change is that banks can no longer provide overdraft protection, and charge for the service, unless the cardholder explicitly signs up for it. Additionally, you cannot be assessed multiple charges for a single offense. There is no cap on how much banks can charge for overdraft, but the average is $35 – $40.

After the new rules were enacted, some banks, including Bank of America, decided to drop the service altogether. If you have an account with BofA or another bank that took the same decision, every time you attempt to spend more on your debit card than you have in your account, the transaction will be automatically declined. BofA will continue to charge $35 overdraft fees for ATM transactions, however, provided you explicitly agree to it.

It is not yet clear if any other big issuers will follow Bank of America’s lead, but the bigger question is whether or not cardholders should sign up for overdraft protection to begin with. The biggest argument in support of enrolling for the service is that if you didn’t and a transaction was rejected in a restaurant or another public place, you might be embarrassed in front of relatives, friends or business associates. But is this really the case? Cards can and do get rejected for a number of reasons anyway, and all you have to do is present another card. That’s all. How embarrassing can this be? On the other hand, going over your limit by $5 can cost you $35 or more. Moreover, having a limit on how much we can spend is a sure way to teach us a budgetary lesson or two.

Learn how to lower your card acceptance cost

Learn how to accept credit and debit cards at the lowest processing costs. The Payment Card Acceptance kit contains a video and an e-book:

• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).
• E-Book – Payment Card Acceptance Guide (19 pages).

We recently reviewed the requirements for accepting card-present Discover transactions. In this post we will go over the requirements for processing mail and telephone order (MO / TO) sales.

Just as is the case with Visa and MasterCard, the floor limit for card-not-present Discover transactions is zero. This means that merchants accepting Discover card payments over the telephone or in the mail are required to obtain an authorization approval for each transaction. Listed below are the payment acceptance procedures that need to be followed for MO / TO transactions:

1. Cardholder verification. Although it is not a mandatory requirement, MO / TO merchants should verify the cardholder’s billing address and confirm the delivery address by using the Address Verification Service (AVS). AVS confirms an address provided by the cardholder by comparing it with the one on file with Discover. It is a strong tool for protection against fraud, although it does not eliminate the possibility of chargebacks.
2. Documentation of card sales. Merchants are required to include all merchandise and / or services purchased at one time on one sales receipt. Additionally, the following information must be provided for each mail or telephone order card sale:
   • Cardholder name.
   • Card account number.
   • Card expiration date.
   • Merchant’s name.
   • Shipping address.
   • Description of the merchandise or service purchased.
   • Total amount of the transaction (including sales tax and / or tip).
   • Transaction date.

   
   Merchants should retain the transaction information, along with the shipping date, for at least six months and provide it per request in case of a chargeback or a customer dispute.

3. Transmission of transaction information. Merchants are required to transmit their Discover card transaction data daily. For all MO / TO transactions, the sales data should not be transmitted until the merchandise or services have been shipped, delivered or provided. MO / TO merchants are allowed, however, to accept deposits on their sales and can send to Discover transaction data related to such deposits before the shipping or delivery date.
4. Delivery requirements. MO / TO merchants are required to provide the cardholder, at the time of delivery of the products or services, with an invoice or other documentation that includes the information listed in section 2 above. Merchants should consider using shipping services that allow them to obtain the cardholder’s signature as proof of delivery, which can later be used in case of a customer dispute or a chargeback. If a cardholder comes to the merchant’s location to pick up a product ordered by mail or telephone, the merchant is required to obtain an imprint of the card and the cardholder’s signature.

Most MO / TO merchants now use virtual terminals for processing their card transactions. Virtual terminals are typically set up to automatically provide Discover, as well as the other card networks and companies, with the information they require, in the manner they have prescribed. You should not take this for granted, however, and double check with your processor. Additionally, and this is entirely within your own control, you need to ensure that, for all MO / TO sales, transaction data are not transmitted to your processing bank until the merchandise or service have been shipped or provided.

Learn how to lower your card acceptance cost

Learn how to accept credit and debit cards at the lowest processing costs. The Payment Card Acceptance kit contains a video and an e-book:

• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).
• E-Book – Payment Card Acceptance Guide (19 pages).

This week we learned that 10 health care providers in New York, mostly dental offices, have been marketing credit cards to their patients. Actually, it seems that marketing is not exactly the right way to describe what they’ve been up to and now NY Attorney General Andrew Cuomo wants to get to the bottom of it.

Cuomo initially subpoenaed GE Money, the issuer of CareCredit, which is the card under scrutiny, as well as 10 health care providers who were pressuring patients into accepting it, using “fast-talking sales pitches and deceit,” as the AG office alleges.

Now we learn from Bloomberg that the investigation has expanded and subpoenas have been sent to units of JPMorgan Chase and Citigroup. Cuomo’s allegation is that:

People are being tricked by misleading offers that have them paying for services they never received as well as interest charges they never knew about, and they are ignored and given the runaround when they try to get their money back.

The CareCredit cards are offered as a way to cover out-of-pocket costs. They come with introductory zero-percent interest rates, however Cuomo alleges that they often carry retroactive interest of over 25 percent if the balance is not paid in full during the promotional period.

GE Money charged health care providers a fee for the right to offer CareCredit cards, and then paid them rebates, based on how much patients were charged, according to Cuomo. He alleges that these rebates amount to “kickbacks.”

So what are we to make of this story? Obviously, we don’t know how it will play out and it may well turn out that none of the parties under investigation will be found guilty of anything, but regardless of the outcome, one key point stands out. It is that health care providers are allowed to offer financial services on their premises.

This is wrong!

When I go to my dentist, I expect to get a cleaning or a filling, but not a credit card sales pitch. It is easy to imagine how people could get concerned that, if they refused the offer, they might get a different treatment. And their concern may well be justified, because in effect the CareCredit turns some patients into a more profitable group of customers. Now, hospitals and doctors’ offices already see patients as customers and that is the bigger problem.

Hopefully Cuomo will be able to shut down CareCredit’s credit card program or at least get the health care providers out of it, but we need a more permanent solution than that.

Learn how to lower your card acceptance cost

Learn how to accept credit and debit cards at the lowest processing costs. The Payment Card Acceptance kit contains a video and an e-book:

• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).
• E-Book – Payment Card Acceptance Guide (19 pages).

Visa uses chargeback Reason Code 77 to designate chargebacks resulting from processing transactions where the account number on the card presented by the cardholder does not match the one on file with the card issuer. MasterCard does not have a reason code that exactly matches Visa’s 77.

What causes these chargebacks? By far the most common cause for a chargeback Reason Code 77 is that the merchant incorrectly key-enters or records a card account number.

How to manage such chargebacks? Your response to Reason Code 77 chargebacks will depend on the particular transaction circumstances and the actions you have taken (or not) so far.

• The account number matches. If the card account number on the sales receipt does match the one on the chargeback and you received an authorization approval from the issuer, contact your processing bank and request that they include their authorization log when they re-present the chargeback. Most processors handle this type of chargebacks automatically and you will never see them.
• The account number doesn’t match. If the card account number on the sales receipt does not match the one on the chargeback, there is no remedy and you should accept the chargeback. Process a new transaction and make sure that the account number is correct. However, do not process a credit at this time, as the chargeback has already performed this function.

How to prevent chargeback Reason Code 77? The following card acceptance best practices will help prevent this type of chargebacks:

• The terminal can’t read the card’s magnetic stripe. For card-present transactions, if the magnetic stripe cannot be read, request authorization by key-entering the account number. Then take a manual imprint from the face of the card onto the sales receipt and have it signed by the cardholder.
• The terminal is not working. If your point-of-sale (POS) terminal is not working, call your processor’s voice authorization center. If you get an authorization approval, be sure to write the response code on the sales receipt. Then take a manual imprint from the face of the card onto the sales receipt and have it signed by the cardholder.
• The embossed account number doesn’t match. If the account number on the terminal or on the sales receipt does not match the one on the front of the card, request a Code 10 call. If you are asked to retain the card, comply only if it is safe to do so.
• Taking orders over the phone. For telephone orders, you should read the account number back to the cardholder to verify it.
• Obtaining authorization. Authorization should always be requested for transactions where the sale’s amount is above the merchant’s floor limit. Floor limits are typically stated in the merchant’s processing agreement. Remember that for all card-not-present transactions the floor limit is zero, which means that they always require authorization.
• Recurring payments. With recurring payments it is possible that, over time, the account number on file can be changed or the account can be closed altogether. If authorization is declined, contact the customer and update the card details. To avoid declined authorizations due to changed account numbers altogether, consider signing up for Visa’s and MasterCard’s automatic card updater services, which enable merchants to update account information on file, as such changes occur.

Your point-of-sale staff should be well trained on employing these best practices, but specifically on comparing account numbers printed on sales receipts to account numbers embossed on the cards. Everyone should understand that, when the numbers differ, the card should not be accepted and a Code 10 call should be made. The phone numbers for voice authorizations should be clearly posted, so that when the terminal is down or the card’s magnetic stripe cannot be read, a voice authorization can be quickly requested. Staff should also be instructed that authorizations are always required for card-not-present transactions.

Learn how to minimize chargebacks and fraud

Learn how to minimize chargebacks and reduce your processing costs. The Chargeback Management kit contains a video and an e-book:

• E-Book – Chargeback Manual (40 pages).
• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).

The WSJ reports that the prepaid card business is booming and is expected to reach $200 billion in revenue by 2013. The biggest prepaid card company, Green Dot Corp., raised $160 million in its IPO last month and has seen its stock rise by 30 percent since then. The second-biggest company in the industry, NetSpend Holdings Inc., hopes to raise $200 million in its own coming IPO. This is good news.

Prepaid cards are used as debit cards, with the difference that they are not linked to a checking account, but are drawing funds from an account with the issuing bank. Yet, they are not credit cards either, because the issuer is not extending a credit line to the cardholder, who is actually purchasing his or her card’s spending limit. Once the balance is used up, the card can be re-loaded.

Prepaid cards limit the cardholder’s spending to the amount that is pre-loaded on the card. Unlike with bank cards, prepaid card issuers do not offer overdraft protection, which, if activated, enables cardholders to go over their limit, for a charge.

So paying with prepaid cards is much like paying with cash. They offer the convenience of bank cards, while eliminating the possibility of running up debt. Moreover, most fees associated with prepaid cards are fairly predictable, such as activation or reloading fees.

Prepaid cards’ biggest drawback is that they don’t help consumers build credit history. The reason is fairly obvious: with prepaid cards you are spending your own money, not someone else’s. Some issuers now offer prepaid cards with credit building features, but these are expensive and offer uncertain results. Additionally, some cards come with fees that may surprise you. For example, you can see a $2.50 ATM fee, or a fee to reload money into the account, or a fee for using a PIN, rather than a signature at the checkout, etc.

Now, some prepaid cards promise credit lines, according to Consumers Union, the non-profit publisher of Consumer Reports, and these are the ones you should stay away from. These credit lines are similar to payday loans, with very high interest rates and must be paid within a short period of time. The Consumers Union report offers as an example the AccountNow Prepaid card:

The loan operates like a payday loan. The loans are small and provide short term credit with a flat fee ($25 per $200); require that borrowing consumers have recurring direct deposits such as of paychecks or government benefits and lead to frequent rollovers and triple digit Annual Percentage Interest Rates (APRs). The disclosed APR is 150%, but this assumes that the loan is outstanding for 30 days. This is highly unlikely, as the loans are most likely taken out at the end of the pay cycle. The APR is 650% if the loan is taken out a week before payday, and even higher if the loan is taken out only for a few days.

Yet, on balance, prepaid cards are probably the least costly card you can have and the best evidence to support that claim is the fact that the big banks are staying away from them. After all, Green Dot and NetSpend are not exactly household names. J.P. Morgan Chase, Bank of America Corp and Citigroup don’t sell prepaid debit cards directly to consumers, according to the WSJ’s report.

Learn how to lower your card acceptance cost

Learn how to accept credit and debit cards at the lowest processing costs. The Payment Card Acceptance kit contains a video and an e-book:

• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).
• E-Book – Payment Card Acceptance Guide (19 pages).

Accepting Discover card payments is broadly similar to accepting Visa, MasterCard or American Express payments, with a few differences. This post will review the process merchants must follow for each card-present Discover sale they accept.

When a Discover card is presented for payment at the checkout, the merchant is required to perform the following actions:

1. Card expiration date. The first thing you should do is check the card’s expiration date. The card is valid through the last day of the month embossed on it. Merchants are not allowed to accept expired cards and are required to call Discover’s authorization center at 1-800-347-1111.
2. Card signature. Verify that there is a signature on the back of the card and that it matches the name embossed on the front of the card. If the card is not signed, request two pieces of identification, one of which is a picture identification. When you have confirmed that your customer is the cardholder, have him or her sign the back of the card.
3. Obtain authorization. If you are using a point-of-sale (POS) terminal, you are required to transmit the full magnetic stripe data, obtained when the card is swiped through the terminal, with the authorization request. If the magnetic stripe is unreadable and you have to key the transaction information in, you must take a manual imprint, to validate that the card is present. If you fail to take a manual imprint for any key-entered transaction, you will be liable for any resulting chargebacks.

   
   If your POS terminal is unable to connect to Discover’s electronic authorization system, you should call Discover’s authorization center for a voice authorization. Be advised that the floor limit for all Discover transactions is zero, which means that they all must be authorized. Transactions processed without first obtaining an authorization approval may be immediately charged back to you.

   
   For transactions where the merchandise is shipped or the service provided more than thirty days after the order is made, you need to obtain an authorization at the time the order is placed and again immediately before shipping the product or providing the services to the cardholder.

4. Sales receipt. All products and / or services purchased at one time and at one POS terminal must be included on one sales receipt. Split sales, where a merchant uses two or more sales receipts for a single transaction, are not allowed, except for partial payments. The customer must receive a copy of the sales receipt at the time the transaction is completed.
5. Required transaction information. For swipe transactions that are processed electronically using a POS terminal, required information is automatically transmitted to Discover and you are generally not required to obtain a card imprint on the sales receipt. However, if your terminal is not able to read the card’s magnetic stripe, you must obtain a card imprint and include all of the following information on the cardholder’s copy of the sales receipt:
   • The card account number.
   • The cardholder’s name.
   • The card expiration date.
   • The merchant’s name.
   • A description of the purchased merchandise or service.
   • The total amount of the card transaction (including sales tax and / or tip).
   • The transaction date.

   
   For electronically processed transactions, you should compare the account number printed on the transaction receipt to the one on the front of the card. If the two numbers do not match, you should not accept the card.

6. Refunds and returns. If a cardholder returns products or services purchased with a Discover card and in accordance with your return policy, you are required to issue a refund. Your return policy should be clearly displayed and communicated to the cardholder at the time of the sale.

As you see, there is nothing in Discover’s card acceptance requirements that is all that different from Visa’s or MasterCard’s. In general, if you follow the requirements of any of the major credit card companies or associations and apply them to all of your card transactions, you will be in compliance with all of them.

Learn how to lower your card acceptance cost

Learn how to accept credit and debit cards at the lowest processing costs. The Payment Card Acceptance kit contains a video and an e-book:

• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).
• E-Book – Payment Card Acceptance Guide (19 pages).

Americans shed $1.3 billion of debt in June, according to the latest Federal Reserve Statistical Release, a drop of 0.7 percent at an annual rate. The fall was even bigger in the revolving debt category, mostly comprised of credit card debt, dropping $4.5 billion, or 6.5 percent, to $826.48 billion. The June fall in revolving debt marked the 21^st straight month of decline, which began in October 2008. In September 2008, the last month it rose, revolving debt stood at $975.7 billion. Since then U.S. consumers have reduced their outstanding credit card balances by $149.2 billion, or 15.29 percent.

The WSJ tells us, however, that student loan debt is going the other way and has now surpassed credit card debt by volume. Here are some data from the WSJ:

Student loans outstanding today – both federal and private – total some $829.785 billion, according to Mark Kantrowitz, publisher of FinAid.org and FastWeb.com.

…

By his math, there is $605.6 billion in federal student loans outstanding and $167.8 billion in private student loans outstanding. He estimates that $300 billion in federal student loan debts have been incurred in the last four years.

So what do we learn from these numbers? Well, not much that we don’t already know. Since the Great Recession began a couple of years ago, scared consumers have been cutting back on their spending and paying down debt, while nervously watching the jobless rate rise inexorably. Credit card companies provided an additional incentive for reducing outstanding credit card balances, in the form of rising credit card interest rates. Many issuers also increased minimum monthly payment requirements.

The reason why consumers prefer paying down credit card debt, rather than student loans is fairly obvious: credit card interest rates tend to be higher. Moreover, the cost of college tuition is also rising, driving student debt volumes further up. The cost of tuition at a public four-year university was $7,020 in 2009 (up 6.2 percent from 2008, when it was $6,585), according to CollegeBoard.com, while the cost of a four-year private school in 2009 went up 4.3 percent from 2008 – to $26,273 from $25,143.

The gap between student and credit card debt will probably keep growing bigger until consumer confidence starts improving. This is not necessarily a bad thing, considering the interest rate differential. The average interest rates on new credit card offers last week was 14.37 percent, according to a report by CreditCards.com. On the other hand, the interest rate on the Stafford Loan for new student loans first disbursed on or after July 1, 2006 is a fixed rate of 6.8 percent, according to FinAid.org.

Learn how to minimize chargebacks and fraud

Learn how to minimize chargebacks and reduce your processing costs. The Chargeback Management kit contains a video and an e-book:

• E-Book – Chargeback Manual (40 pages).
• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).

Just as with Visa and MasterCard transactions, merchants are required to obtain an authorization before completing any Discover card transaction. Discover authorizations are valid for 90 days and can be obtained electronically or over the telephone. Upon approval, Discover issues an authorization code, which must be written on the sales receipt, unless the authorization was obtained electronically. In a card-present environment, an electronic authorization request consists of the complete contents of the magnetic stripe on the card presented by the customer, read by the point-of-sale (POS) terminal. In card-not-present transactions, an authorization requests consists of the data, submitted by the merchant (in MO / TO transactions) or the cardholder (in e-commerce transactions).

If a merchant accepts a card payment without receiving an authorization, Discover is not required to pay for the sale. If a payment has already been received, Discover may charge back the transaction. As with Visa and MasterCard, an authorized Discover transaction can still be charged back for other reasons.

Discover authorization procedures:

• Electronic authorization procedures. If you use a POS terminal for accepting card payments, just follow the procedures given to you by your terminal provider for the use of that terminal. If your authorization request returns a “call center” referral code, call Discover’s Authorization Center at 1-800-347-1111 for further instructions (see below). This is also referred to a voice authorization. Additionally, you are required to contact the Authorization Center if your POS terminal is not working.
• Voice authorization procedures. Whenever you have to request a voice authorization, call Discover at 1-800-347-1111 and provide the following information:
  • Card account number (16 digits).
  • Your Merchant ID number (15 digits).
  • Card expiration date (4 digits – MM / YY).
  • The dollar amount of the transaction including tax and tip (dollars and cents).

If your request is approved, you will be given an authorization code, which you must write in the appropriate place on the sales receipt. If you received an authorization code by telephone, complete the transaction (force enter the sale). If a card is invalid, you will receive a message declining the transaction. You should never force transactions where authorization was declined and ask your customer for an alternative payment method instead.

Authorizing installment sales transactions. If you process installment payments, Discover requires that you receive a separate, current authorization for each installment before submitting it. You should do this anyway, as card account information (e.g. expiration date, card security code or even account number) can and does change over time.

Cancellation or change of authorization. If a previously authorized sale is canceled or its amount changes, you have to call Discover and request a cancellation of the authorization. An authorization can be canceled within 8 days of receiving it. You will have to provide the following information when canceling an authorization:

• Card account number (16 digits).
• Your Merchant ID number (15 digits).
• Card expiration date (4 digits).
• The dollar amount of the transaction including tax and tip (dollars and cents).
• Original authorization code given to you by your authorization provider for card transactions.
• The new sale’s amount, if different from the original one.

Authorization floor limit. Discover’s floor limit is zero, which means that you have to request authorizations for all card transactions. If you accept a sale without first obtaining an authorization, Discover may immediately charge it back to you.

Downtime authorization procedures. If Discover’s authorization system is unavailable, the floor limit for the duration of the system down-time is $150.00, but only for sales involving purchases of merchandise for which a cardholder takes immediate possession. For sales requiring delayed delivery, merchants should instead wait and obtain an authorization when the system is available.

Learn how to lower your card acceptance cost

Learn how to accept credit and debit cards at the lowest processing costs. The Payment Card Acceptance kit contains a video and an e-book:

• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).
• E-Book – Payment Card Acceptance Guide (19 pages).

Reports of new gadgets and services with the potential to replace credit cards are being released at an ever increasing rate. The latest one cites a new venture, teaming up three mobile phone carriers, a credit card processing company and a large bank. The participants – Verizon, AT&T, T-Mobile, Discover and Barclays – are planning to use near field communication (NFC) technology to enable consumers to make payments at participating merchants using their NFC-enabled cell phones. In essence, users will be making payments by waving a cell phone by a wireless device, which would “read” the user’s account information stores on the phone, much as a point-of-sale (POS) terminal does when you swipe your card through it. The only difference would be that you would be using not a credit card but a phone.

Does that mean that cell phones are on the verge of replacing credit cards? No, it does not! What the carriers, with help from Discover and Barclays, are doing is nothing more than developing one more, although potentially novel, mechanism for processing credit card payments, to do just what a POS terminal or a payment gateway does.

Let’s take a look at how the service will work. When a participating consumer waves her phone to make a payment at a NFC-enabled checkout, payment information will be sent from the phone to the merchant. Such information would include the customer’s name, address, account number, payment amount, date and time. The merchant will then transmit the information to Discover and request transaction authorization. Upon approval, a sales receipt will be printed out, the customer will sign it and the transaction will be complete.

If we leave the technical details aside, this is exactly the way a credit card transaction is processed. I should say “any other credit card transaction,” because that’s exactly what it is.

The key point is that Discover will be processing the payments, which leads to two obvious conclusions:

• Users will have to have Discover accounts. In addition to her account with the mobile carrier, our user will have to have one with Discover, so that the credit card company can:
  • Recognize the customer.
  • Verify the validity of the provided information.
  • Check for fraud.
  • Debit the correct account.
• Discover will be charging processing fees for the service. These fees are paid by the merchants, not by their customers.

So how should we call an account with a credit card company that we can tap into at any time to pay for products and services in transactions that cost the merchant a percentage of the sale’s amount?

The relationship between a credit card company and a non-financial organization is nothing new, either. Discover, as well as its rivals, has a long track record of issuing branded credit cards, under the name of retailers, airlines, various service providers, etc. This particular venture may offer a new feature or two but it will not introduce anything revolutionary.

Learn how to lower your card acceptance cost

Learn how to accept credit and debit cards at the lowest processing costs. The Payment Card Acceptance kit contains a video and an e-book:

• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).
• E-Book – Payment Card Acceptance Guide (19 pages).

Both Visa and MasterCard use special Reason Codes to designate chargebacks that result when a credit transaction is posted on a cardholder’s account as a debit (purchase). Visa uses Reason Code 76 and its MasterCard’s equivalent in 4850.

What causes these chargebacks? Card issuers use Reason Codes 76 and 4850 when one of the following two conditions are met:

• A debit (charge) has been inaccurately posted on a cardholder’s account, instead of a credit (refund), as a result of an incorrect transaction code or keying error. For example, the merchant posted a credit as a retail sale.
• The chargeback amount is twice the original transaction amount to offset the original error. The issuer should then correctly credit the cardholder’s account.

However, an issuer cannot use these Reason Codes when a retail sale is processed as a cash disbursement.

The time frame to respond to Reason Codes 76 and 4850 is 120 days.

How to manage such chargebacks? Your response to chargeback Reason Codes 76 and 4850 will depend on the particular transaction circumstances and the actions you have taken (or not) so far:

• The correct transaction code was posted. If the transaction was posted correctly as a credit, provide your processing bank with supporting evidence to show that the transaction was posted correctly as a credit to the cardholder’s account.
• The credit was posted as a debit. If the transaction was posted mistakenly as a debit, there is no remedy and you should accept the chargeback. Do not issue a credit at this time, as the chargeback has already done that for you.
• The chargeback is invalid. If the original transaction was processed correctly as a sale, a copy of the sales receipt may be required as proof of the retail sale, instead of a credit.

How to prevent chargeback Reason Codes 76 and 4850? Preventing this type of chargebacks is entirely within your control and has more to do with your internal card processing procedures than with anything else. In particular, you should:

• Pay attention and use the correct transaction code. Predictably, the best preventive measure against this type of chargebacks is for the point-of-sale staff to make sure that a credit transaction is posted just as such, using the right code.
• Provide training. It is up to the senior management of your organization to make sure that the point-of-sale staff is adequately trained on the correct use of transaction codes to ensure proper credit and debit processing.

It is perhaps inevitable that you will see a chargeback Reason Code 76 or 4850, even if you apply the above preventive measures. However, this should be an exception and you should follow up immediately with the responsible employee and make sure that they understand what took place and how to prevent it from reoccurring.

Learn how to minimize chargebacks and fraud

Learn how to minimize chargebacks and reduce your processing costs. The Chargeback Management kit contains a video and an e-book:

• E-Book – Chargeback Manual (40 pages).
• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).

Visa and MasterCard can initiate an audit of a merchant’s credit card processing account, whenever they have reasons to believe that the merchant may be a high-risk one or is processing invalid transactions. In particular, the following two reasons can be sufficient to trigger an audit:

• The processing bank may have reason to believe that the merchant is engaging in collusive or otherwise fraudulent or illegal activity.
• The processor determines that the merchant’s chargeback ratio or credits-to-sales ratio exceeds the standards set by Visa and MasterCard or its own standards, or both. We have discussed the Associations’ rules on excessive chargebacks in previous posts and encourage you to revisit them.

Processors will typically act quickly when they notice an activity that is outside of the established merchant pattern, because they are responsible for fraud-related chargebacks. For example, if a merchant submits a transaction at an amount substantially higher than the average transaction amount approved for the account, the processor will probably contact the merchant and want to find out why the amount is so high. Similar attention is paid to sales volumes. As completely legitimate merchants have learned to their surprise and annoyance, a rapid rise in their monthly sales invariably attracts their processor’s attention.

Moreover, even when fraud is absent or nor suspected, processing banks can have good reasons to be alert. The Associations assess processors penalty fees for merchants with high levels of chargebacks. For example, processors are required to report every merchant whose chargeback-to-transaction ratio (CTR) exceeds 50 basis points (0.50 percent) and pay a reporting fee of $50 for each report submitted. The fee rises steeply when the CTR exceeds 100 basis points (1 percent). To avoid paying these fees, processors will initiate a review long before the merchant comes even close to reaching either of these thresholds.

Whenever an audit is initiated by one of the Associations, it will contact the processor to explain the reasons why it believes the merchant may be in violation of the rules against processing invalid transactions and request information. Processors have 30 calendar days to return the requested information to the Association. Requested information typically includes the following items:

• A statement explaining whether, when, and how the processor became aware of fraudulent activity or chargeback or customer service issues, the steps it took to control the occurrence of fraud, and the circumstances surrounding the merchant’s termination.
• All internal documents about the opening and signing of the merchant including its application, merchant processing agreement, credit report, and certified site inspection report.
• All internal documents regarding the due diligence procedures followed before signing the merchant, including background checks of the company and its principals, as well as trade and bank references that the processor verified during the due diligence procedure.
• If an Independent Sales Organization (ISO) or a Member Service Provider (MSP) of the processing bank has facilitated the signing of the merchant, the ISO / MSP must include the due diligence documents. (In such cases the processor must distinguish between the due diligence conducted by its employees and its ISO’s / MSP’s employees.)
• Additionally, if an ISO / MSP assisted in the signing of the merchant, the processing bank must provide all due diligence documents regarding the representative that signed the merchant.
• Reports confirming an inquiry by the processor into the Member Alert to Control High-Risk Merchants (MATCH) system before signing the merchant and, if applicable, input of the merchant to the MATCH system database within five business days after its decision to close the merchant.
• Additionally, during the review period, the processor will be required to provide the following documentation:
  • Authorization logs for the merchant.
  • A monthly breakdown of chargeback and credits by count, amount, and issuer bank identification number (BIN) for the violation period.
  • A complete record of the merchant sales volume, including the number of transactions at the location, for the period for which the authorization logs are requested.

As you see, there is a lot of documentation that will be looked at and, if something is not done according to the applicable rules, it will most likely be found and the account will be terminated (if it has not been already) and the merchant will be added to the MATCH file. Moreover, during an audit, the merchant may be listed on the MATCH system under MATCH reason code 00 (Questionable Merchant).

Learn how to lower your card acceptance cost

Learn how to accept credit and debit cards at the lowest processing costs. The Payment Card Acceptance kit contains a video and an e-book:

• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).
• E-Book – Payment Card Acceptance Guide (19 pages).

Visa’s chargeback Reason Code 73 and its MasterCard equivalent Reason Code 4835 are used by card issuers to designate chargebacks resulting from processing credit and debit card transactions where both of the following two conditions are present:

1. The payment was made with an expired card and
2. The transaction was not authorized.

It should be noted that, if a merchant processes a card-not-present transaction using a card that expired before the transaction date, but the issuer approved the authorization request, the issuer is responsible for the transaction.

A critical point in determining the validity of such chargebacks is establishing the transaction date. For the purposes of Reason Codes 73 and 4835, the transaction date is the date on which the cardholder first presented the card to the merchant. However, for hotel, cruise line, airline or car rental transactions, the applicable transaction date is the date on which the cardholder first checked into the hotel, boarded the cruise liner or aircraft or rented the car, not the date on which the booking was made.

What causes these chargebacks? As the above description implies, Reason Codes 73 and 4835 occur when a merchant does not follow best card acceptance practices and accepts a payment from a card that is past its expiration date and did not obtain an authorization approval from the issuer.

How to manage such chargebacks? Your response to Reason Code 73 and 4835 chargebacks will depend on the particular transaction circumstances and the actions you have taken (or not) so far.

• The card was not expired in a key-entered transaction. In such cases you should send a copy of the sales receipt to your processor. The chargeback is invalid regardless of whether authorization was obtained. For key-entered transactions, the expiration date should be on the manually imprinted copy of the front of the card, which should also be sent to your processing bank, along with the sales receipt.
• The card was expired, the magnetic stripe was read and an authorization was obtained. If you had processed an expired card, for which both the magnetic stripe was read and an authorization was obtained, inform your credit card processing bank. As indicated above, the issuer is responsible for such chargebacks.
• The card was expired, the magnetic stripe was not read and an authorization was obtained. If you had processed an expired card for which the magnetic stripe was not read but an authorization was obtained, send a copy of the sales receipt to your processor with the manual imprint of the front of the card, and ask them to include the authorization log in the re-presentment.
• The card was expired and no authorization was obtained. If you had processed an expired card for which no authorization was obtained, there is no remedy and you should accept the chargeback.  Do not process a credit at this time, as the chargeback has already performed this function.

How to prevent chargeback Reason Codes 73 and 4835? Prevention of these chargebacks is entirely within your control and once again adequate training of your sales staff is the most effective tool at your disposal. A simple but very effective preventive measure is to check the expiration date of the card, presented by the customer, and to not accept payments if the card has expired. You should ask for an alternative payment method instead.

Learn how to minimize chargebacks and fraud

Learn how to minimize chargebacks and reduce your processing costs. The Chargeback Management kit contains a video and an e-book:

• E-Book – Chargeback Manual (40 pages).
• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).

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:

1. Increases in merchant deposit volume.
2. Increase in a merchant’s average ticket size and number of transactions per deposit.
3. Change in frequency of deposits.
4. Frequency of transactions on the same cardholder account, including credit transactions.
5. Unusual number of credits, or credit dollar volume, exceeding a level of sales dollar volume appropriate to the merchant category.
6. Large credit transaction amounts, significantly greater than the average ticket size for the merchant’s sales.
7. Credits issued subsequent to the receipt of a chargeback with the same account number and followed by a second presentment.
8. 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.

Learn how to lower your card acceptance cost

Learn how to accept credit and debit cards at the lowest processing costs. The Payment Card Acceptance kit contains a video and an e-book:

• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).
• E-Book – Payment Card Acceptance Guide (19 pages).

Visa uses chargeback Reason Code 72 to designate chargebacks resulting from processing transactions, which were above the merchant’s floor limit, but authorization was not obtained. MasterCard does not have a reason code that exactly matches Visa’s 72. MasterCard Reason Code 4837 comes close to it but is regarded as fraud-related, which puts it in a different category.

An example of a Reason Code 72 chargeback would be a card-present transaction for the amount of $30 processed by a merchant whose floor limit is $25, for which the merchant did not request an authorization. Floor limit is the amount above which all card transactions must be authorized and is zero for all card-not-present transactions.

What causes these chargebacks? A chargeback Reason Code 72 is typically issued when a merchant did not obtain an authorization for a transaction that exceeded its floor limit or did obtain it but after the transaction date. The floor limit is usually specified in the merchant processing agreement and if in doubt, you should contact your processing bank and ask about it.

How to manage such chargebacks? Your response to Reason Code 72 chargebacks will depend on the particular transaction circumstances and the actions you have taken (or not) so far.

• Transaction was authorized. If you did obtain an authorization approval, inform your processor of the transaction date and amount.
• Transaction was not authorized. If you did not obtain authorization, there is no remedy and you should accept the chargeback.  Do not process a credit at this time, as the chargeback has already performed this function.

How to prevent chargeback Reason Code 72? The following card acceptance best practices will help prevent this type of chargebacks:

• Always request an authorization for transactions above your floor limit. Today’s point-of-sale (POS) terminals send authorization requests automatically when a card is swiped, so this shouldn’t be a problem. Upon receiving an authorization code, the terminal will either print out a receipt, if the transaction was approved, or it will not, if the transaction was declined. In the latter case, you should ask for an alternative payment method.
• Card reader is down or card’s magnetic stripe is damaged. Whenever a card cannot be read, either because of a problem with the POS terminal or with the card itself, you have two available courses of action:
  • Ask your customer for an alternative payment method.
  • Call your processor’s authorization center and make a voice authorization request. If the payment is approved, write the authorization code on the sales receipt and also make an imprint of the card on the sales receipt itself. If authorization is declined, ask for an alternative payment method.

Most credit card processing companies today will verify whether or not an authorization was obtained and, if that is the case, the chargeback will be rejected as invalid and you will never see it.

As with all other authorization-related chargeback types, training is the key to preventing Reason Code 72. Senior management is responsible for ensuring that every member of the sales staff understands your organization’s authorization policies and is adequately trained on implementing them. Card imprinters should be made available at every register for copying the front of the card, in case a card’s magnetic stripe cannot be read.

Learn how to minimize chargebacks and fraud

Learn how to minimize chargebacks and reduce your processing costs. The Chargeback Management kit contains a video and an e-book:

• E-Book – Chargeback Manual (40 pages).
• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).

MasterCard’s Site Data Protection (SDP) Program is designed to ensure that payment processors, merchants and third party service providers take adequate measures to protect against account data compromises. It is the responsibility of processing banks to ensure that their merchants implement the SDP program. Implementation is achieved through compliance with the Payment Card Industry Data Security Standard (PCI DSS).

Merchants and service providers must validate their compliance with PCI DSS by using the following tools:

• On-site reviews. On-site reviews are an annual requirement for Level 1 merchants and for Level 1* and 2* Service Providers. Merchants can use an internal auditor or independent assessor recognized by MasterCard as acceptable. Service providers must use an acceptable third-party assessor. Both Visa and MasterCard have published lists with authorized third-party assessors.
• The Payment Card Industry (PCI) Self-Assessment Questionnaire. The PCI Self-Assessment Questionnaire is available on PCI Security Standards Council’s website. To be compliant, each Level 2*, 3*, and 4* merchant, and each Level 3* service provider must generate acceptable ratings on an annual basis.
• Network security scan. The network security scan evaluates the security measures in place at a website. To fulfill the network scanning requirement, all Level 1* to 3* merchants and all service providers must conduct scans on a quarterly basis using an authorized vendor.

  * Merchant level definitions for PCI certification.
  
  

  Merchant Level	Definition
  Level 1	Level 1 are merchants processing over 6million Visa or MasterCard transactions per year.
  Level 2	Level 2 are merchants processing from 150,000 to 6 million Visa or MasterCard transactions per year.
  Level 3	Level 2 are merchants processing from 150,000 to 6 million Visa or MasterCard transactions per year.
  Level 4	Level 4 are all merchants not included in Levels 1, 2 or 3.

As part of the SDP Program, processing banks send quarterly reports for each Level 1, Level 2, and Level 3 merchant to MasterCard, which include the following information:

• The name and primary address of the merchant.
• The name and phone number of the primary contact for the merchant.
• The merchant’s identification number with the processor.
• The name of each service provider that stores card account data on the merchant’s behalf.
• The number of transactions that the processing bank processed for the merchant during the previous 12-month period.
• The merchant’s level under the implementation schedule.
• The names of any assessor, auditor, or vendor engaged to conduct an on-site review or network security scan, and the expected completion dates of any reviews or security scans.
• The date on which the merchant most recently completed the PCI Self-Assessment Questionnaire.
• The date on which the processor most recently registered the merchant as SDP compliant.

Processors are required to communicate all SDP Program requirements to each Level 1, Level 2, and Level 3 merchant.

Beginning July 1, 2012, a new Payment Application Data Security Standard (PA DSS) Program will take effect to specifically address common vulnerabilities that have been identified as main causes in credit card data breaches. PA DSS updates the standards for vendors of third party payment applications and the Credit Card Associations will enforce compliance, so make sure your service providers have passed the tests.

Learn how to lower your card acceptance cost

Learn how to accept credit and debit cards at the lowest processing costs. The Payment Card Acceptance kit contains a video and an e-book:

• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).
• E-Book – Payment Card Acceptance Guide (19 pages).

Yesterday’s post reviewed how the Member Alert to Control High-Risk Merchants (MATCH) works and how it affects merchants and processors. This article will elaborate on the possible results from searches in the MATCH database. Firstly, though, it should be pointed out that all positive responses to a MATCH search are considered “possible matches” because the search system cannot guarantee an exact match with absolute certainty. This is the reason why you will see an oxymoronic-sounding “exact possible match” item in the list below.

A MATCH search can return one of the following types of possible matches:

• Retroactive possible matches. If the information in the original inquiry finds new possible matches of a merchant or inquiry record in the MATCH database added since the original inquiry was submitted and this information has not been previously been reported to the processing bank at least once within the past 120 days, the system returns a retroactive possible match response.
• Exact possible matches. An exact possible match exists when data in an inquiry matches data in any of the following data fields on the MATCH system letter-for-letter, number-for-number, or both.
  
  

  Field	+	Field	+	Field	=	Match
  Business Phone Number					=	√
  Business National Tax ID	+	Country			=	√
  Business State Tax ID	+	State			=	√
  Business Street Address	+	City	+	State	=	√
  Business Street Address	+	City	+	Country	=	√
  Principal Owner’s (PO) First Initial	+	Last Name			=	√
  PO First Name	+	Last Name			=	√
  PO Phone					=	√
  PO Social Security Number (if the country is USA)					=	√
  PO National ID (if the country is not USA)					=	√
  PO Street Address (lines 1 and 2)	+	PO City	+	PO State	=	√
  PO Street Address (lines 1 and 2)	+	PO City	+	PO Country	=	√
  PO Driver’s License (DL) Number	+	DL State			=	√
  PO Driver’s License Number	+	DL Country			=	√

  
  MATCH uses Street, City, and State if the merchant’s country is USA. Otherwise, Street, City, and Country are used.

• Phonetic possible matches. The MATCH system converts certain alphabetic data, such as Business Name and Principal Owner Last Name into a phonetic code, which generates matches on words that sound alike, such as “Easy” and “EZ.” The phonetic feature of the system also matches names that are not necessarily a phonetic match but might differ because of a typographical error, such as “Rogers” and “Rokers,” or a spelling variation, such as “Lee,” “Li,” and “Leigh.” MATCH evaluates the following data to determine a phonetic possible match:
  
  

  Field	+	Field	+	Field	=	Match
  Business Name					=	√
  Doing Business As (DBA) Name					=	√
  Business Street Address	+	City	+	State	=	√√
  Business Street Address	+	City	+	Country	=	√√
  Principal Owner’s (PO) First Initial	+	Last Name			=	√
  PO Street Address (lines 1 and 2)	+	PO City	+	PO State	=	√√
  PO Street Address (lines 1 and 2)	+	PO City	+	PO Country	=	√√

  
  MATCH uses Street, City, and State if the merchant’s country is USA. Otherwise, Street, City, and Country are used.

Learn how to lower your card acceptance cost

Learn how to accept credit and debit cards at the lowest processing costs. The Payment Card Acceptance kit contains a video and an e-book:

• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).
• E-Book – Payment Card Acceptance Guide (19 pages).

Member Alert to Control High-Risk Merchants (MATCH) is a mandatory system for U.S. acquiring (processing) banks. It is a database that includes information reported by processing banks about merchants and their owners whose merchant accounts have been terminated for cause. The MATCH system is sometimes referred to as the Terminated Merchant File (TMF).

MATCH requirements for processors. All processing banks are required to use MATCH. In particular, processors are required to:

• Add information about a merchant that is terminated for cause. If either the processor or the merchant acts to terminate a merchant account (by giving notice of termination), then the processor must add the required information to MATCH within five calendar days of the earlier of:
  • The effective termination date or
  • The date it received the termination notice by the merchant.
• Inquire against the MATCH database. When a processor considers signing an agreement with a merchant, it must first check MATCH for information on whether the merchant was terminated by another processor.

MATCH system features. MATCH offers processing banks the following fraud detection features and options for assessing risk:

• Processors can add and search for information about up to five principal and associate business owners per merchant.
• Processors can designate regions and countries for database searches.
• MATCH uses multiple fields to determine possible matches.
• MATCH edits all data and notifies inquiring processors of errors as records are processed.
• MATCH supports retroactive alert processing of data residing on the database for up to 120 days.
• Processors determine whether they want to receive inquiry matches, and if so, the type of information the system returns.
• MATCH processes data submitted by processors once per day and provides daily detail response files.
• Processors can access MATCH data online in real time.

An inquiring processor can contact the listing processing bank directly to determine whether the merchant that is being reviewed is the same merchant previously reported to MATCH, terminated, or inquired about within the past 120 days.

MATCH database searches. MATCH searches the database for possible matches between the information provided in the inquiry and the following:

• Information reported and stored during the past five years.
• Other inquiries during the past 120 days.

MATCH searches for both possible exact matches and possible phonetic matches. All positive MATCH responses are considered “possible matches” because the search mechanisms cannot guarantee a true and exact match with absolute certainty. There are two types of possible matches, including a data match (for example, name to name, address to address) and a phonetic (sound-alike) match made using special software. It is up to the inquiring processor to determine whether a possible match is trustworthy.

MATCH searches return the first 100 responses, including all terminated merchant MATCH responses, regardless of the number of possible matches.

Merchant records remain on the MATCH system for five years. Each month, MATCH automatically purges any merchant information that has been in the database for five years.

Learn how to lower your card acceptance cost

Learn how to accept credit and debit cards at the lowest processing costs. The Payment Card Acceptance kit contains a video and an e-book:

• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).
• E-Book – Payment Card Acceptance Guide (19 pages).

Yesterday we reviewed MasterCard’s Chargeback Reason Codes and today we will do the same for Visa’s. Reason Codes are two-digit (for Visa) or four-digit (for MasterCard) numbers that the two credit card networks use to identify the reason an issuer is disputing the validity of a particular transaction.

Visa’s chargeback reasons are organized into six general groups:

1. Non-receipt of information.
2. Fraud.
3. Authorization error.
4. Processing error.
5. Canceled / returned merchandise.
6. Non-receipt of goods or services.

The following tables list Visa’s Reason Codes and time limits for processing a chargeback.

1. Non-receipt of information chargeback reasons.
   
   

   Non-Receipt of Information Chargeback Reasons	Reason Code	Time Limit (Calendar Days)
   Requested Copy Illegible or Invalid	60	7
   Cardholder Does Not Recognize Transaction	75	120
   Requested Transaction Information Not Received	79	7

   
   Except for Reason Code 75, the time limit is calculated from one of the following:

   • The date the issuer received the illegible transaction receipt or invalid fulfillment.
   • The date the issuer received an applicable non-fulfillment message.
   • The date following the 30-calendar-day waiting period.
2. Fraud chargeback reasons.
   
   

   Fraud Chargeback Reasons	Reason Code	Time Limit (Calendar Days)
   Fraudulent Multiple Transactions	57	120
   Counterfeit Transaction	62	120
   Fraudulent Transaction – Card Present Environment	81	120
   Fraudulent Transaction – Card-Absent Environment	83	120




3. Authorization error chargeback reasons.
   
   

   Authorization Error Chargeback Reasons	Reason Code	Time Limit (Calendar Days)
   Declined Authorization	71	75
   No Authorization	72	75
   Expired Card	73	75
   Non-Matching Account Number	77	75




4. Processing error chargeback reasons.
   
   

   Processing Error Chargeback Reasons	Reason Code	Time Limit (Calendar Days)
   Late Presentment	74	120
   Incorrect Transaction Code	76	120
   Incorrect Transaction Amount or Account Number	80	120
   Duplicate Processing	82	120
   Paid by Other Means	86	120
   Transaction Exceeds Limited Amount	96	75




5. Canceled / returned chargeback reasons.
   
   

   Canceled / Returned Chargeback Reasons	Reason Code	Time Limit (Calendar Days)
   Canceled Recurring Transaction	41	120
   Not as Described or Defective Merchandise	53	120
   Credit Not Processed	85	120




6. Non-receipt of goods or services chargeback reasons.
   
   

   Non-Receipt of Goods or Services Chargeback Reasons	Reason Code	Time Limit (Calendar Days)
   Services Not Provided or Merchandise Not Received	30	120
   Services Not Rendered – ATM or Visa TravelMoney Program Transactions	90	120

Each Reason Code identifies a chargeback caused by a specific issue that needs to be remedied individually. We have already reviewed in previous posts some of the Reason Codes mentioned above and have suggested ways to prevent or minimize them. We will do the same for the rest in the coming weeks.

Learn how to minimize chargebacks and fraud

Learn how to minimize chargebacks and reduce your processing costs. The Chargeback Management kit contains a video and an e-book:

• E-Book – Chargeback Manual (40 pages).
• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).

Each chargeback is identified by a code that specifies the reason why an issuer is disputing a transaction’s validity. Visa and MasterCard use different Reason Codes and often a code used by one of the Associations does not have an exact equivalent with the other. Visa’s Reason Codes are two-digit numbers, while MasterCard uses four-digit numbers. This article will review MasterCard’s Reason Codes.

The following codes are used by MasterCard issuers to identify the first chargeback and specify the portion of the transaction amount that is being disputed:

MTI	First Chargeback / 1442
Function Code 450	Full Amount
Function Code 453	Partial Amount

An issuer can process a First Chargeback / 1442 message if it determines that a transaction can be charged back to the processing bank for one of the valid chargeback reasons specified in the table below.

Code	Chargeback Reason
4801	Requested Transaction Data Not Received
4802	Requested / Required Information Illegible or Missing
4807	Warning Bulletin File
4808	Requested / Required Authorization Not Obtained
4812	Account Number Not on File
4831	Transaction Amount Differs
4834	Duplicate Processing
4835	Card Not Valid or Expired
4837	No Cardholder Authorization
4840	Fraudulent Processing of Transaction
4841	Canceled Recurring Transaction
4842	Late Presentment
4846	Correct Transaction Currency Code Not Provided
4847	Requested / Required Authorization Not Obtained and Fraudulent Transaction
4849	Questionable Merchant Activity
4850	Credit Posted as Purchase
4853	Cardholder Dispute – Defective / Not As Described
4854	Cardholder Dispute – Not Elsewhere Classified (U.S. Region Only)
4855	Nonreceipt of Merchandise
4857	Card-Activated Telephone Transaction
4859	Services Not Rendered
4860	Credit Not Processed
4862	Counterfeit Transaction Magnetic Stripe POS Fraud
4863	Cardholder Does Not Recognize – Potential Fraud
4870	Chip Liability Shift
4871	Chip / PIN Liability Shift

An issuer can only process one first chargeback per presented transaction within the time frame applicable for the chosen chargeback reason code (typically 180 days). To generate a chargeback, the issuer must submit the First Chargeback / 1442 message with the applicable message reason.

MasterCard’s Corporate Purchasing Department Account Program does not have chargeback rights for the following message reason codes:

• 4835 – Card Not Valid or Expired.
• 4837 – No Cardholder Authorization.
• 4840 – Fraudulent Processing of Transactions.
• 4847 – Requested / Required Authorization Not Obtained and Fraudulent Transaction.
• 4862 – Counterfeit Transaction Magnetic Stripe POS Fraud.
• 4863 – Cardholder Does Not Recognize – Potential Fraud.

We have reviewed in detail the causes for chargebacks designated with some of the Reason Codes mentioned in this post and have suggested preventive measures in separate articles and will do so for the others in the near future.

Learn how to minimize chargebacks and fraud

Learn how to minimize chargebacks and reduce your processing costs. The Chargeback Management kit contains a video and an e-book:

• E-Book – Chargeback Manual (40 pages).
• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).

Visa and MasterCard process chargebacks in a similar way, with the biggest difference being the codes used by the two payment networks. This article will review the stages in MasterCard’s chargeback cycle.

The chargeback cycle begins with the presentment for clearing and settlement of a transaction from the processing bank to the issuer. If, for a specific reason, the issuer determines that the transaction may be invalid, the issuer may return it to the processor as a chargeback. When an issuer has billed a transaction to its cardholder’s account for payment and then initiates a chargeback, the issuer credits the cardholder’s account for the amount of the chargeback, so that, if the chargebacks is accepted by the processor, the issuer does not get reimbursed twice for the same transaction.

Each individual charged-back transaction is processed in the following fashion:

• First Presentment / 1240.
• First Chargeback / 1442.
• Second Presentment / 1240.
• Arbitration Chargeback / 1442.
• Arbitration Case Filing.

Additionally, if an issuer needs a copy of the sales receipt, the retrieval process has two steps – Retrieval Request and Retrieval Fulfillment. The retrieval process also may include Image Review.

The following table lists the stages of a transaction when the issuer initiates a chargeback.

Stage	Description	MTI-Function Code(s)
First Presentment	The processor submits the transaction to the issuer.	1240-200
Cardholder or issuer disputes the first presentment.
Retrieval Request	The issuer may request a copy of the sales ticket to support or identify a potential chargeback. Note: Most chargebacks do not require a retrieval request.	1644-603
First Presentment	The processor submits the transaction to the issuer.	1240-200
Chargeback	Issuer initiates a chargeback within the time frame applicable to the specific message reason. Note: If an issuer receives a legible copy of the sales receipt through a second presentment for message reason code 4802 – Requested / Required Information Illegible or Missing, and after viewing the item for the first time determines that it has another right of chargeback for a different message reason code, the issuer must start the process again with a new chargeback.	1442-450 (full amount) 1442-453 (partial amount)
Second Presentment	When applicable, the processor may process a second presentment within 45 calendar days of the business date of the chargeback.	1240-205 (full amount) 1240-282 (partial amount)
Arbitration Chargeback	When applicable, the issuer may initiate an arbitration chargeback within 45 calendar days of the business date of the second presentment.	1442-451 (full amount) 1442-454 (partial amount)
Arbitration Case Filing	The processor may file an arbitration case to MasterCard, for a decision on the dispute, within 45 calendar days of the business date of the arbitration chargeback.	n / a

Learn how to minimize chargebacks and fraud

Learn how to minimize chargebacks and reduce your processing costs. The Chargeback Management kit contains a video and an e-book:

• E-Book – Chargeback Manual (40 pages).
• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).

MasterCard clears credit card transactions through the Global Clearing Management System (GCMS). Clearing is a process through which a card issuing bank exchanges transaction information with a processing bank and occurs simultaneously with the settlement, which is the actual exchange of funds between a processor and an issuer. The GCMS replaced the INET system a decade ago and uses messages in the Integrated Product Messages (IPM) format. This format is an International Organization of Standardization (ISO)-based flexible format, consisting of bitmapped messages that don’t require fixed-fields where data are placed. This post will review what these messages are composed of and help you read them.

IPM message structure. All IPM messages contain four main components:

• Message Type Identifier (MTI). MTI is the first element of every IPM message.
  The MTI is always located in positions 1-4 of the message. The MTI describes the message class. For example, MTI 1442 indicates a chargeback message.
• Bitmaps. Bitmaps are the second and third elements of every IPM message. The bitmaps indicate the presence or absence of ISO data elements (DE 1 through DE 128) in each message. There are two bitmaps in every message:
  • Primary – Positions 5-12; indicates the presence of data elements 1-64.
  • Secondary – Positions 13-20; indicates the presence of data elements 65-128. Each bit contains a value of zero if the corresponding data element is not present in the message or a value of one if it is present.
  • Data elements. Data elements represent different, pre-identified pieces of information and follow the bitmaps in order by number (known as data element number). For example, function codes are stored in DE 24 (Function Code) and indicate the specific purpose of a message in a message class. Examples of function codes are 450 (first chargeback – full amount) and 453 (first chargeback – partial amount).
  • Message reason codes. Message reason codes for first chargebacks, second presentments, and arbitration chargebacks are stored in DE 25 (Message Reason Code).

For example, a first chargeback for a full amount for message reason code 4837 – No Cardholder Authorization would have the following values.

MTI	1442	Indicates that the message is a chargeback.
DE 24 (Function Code)	450	Indicates that the message is a first chargeback for the full amount.
DE 25 (Message Reason Code)	4837	Indicates the reason for the chargeback.

Chargeback processing cycles. The following table summarizes the IPM messages used in each chargeback processing cycle.

MTI	Description	Function Code	Description	Initiated by
1240	First Presentment	200	First presentment	Acquirer
1442	First Chargeback	450	Full amount	Issuer
		453	Partial amount	Issuer
1240	Second Presentment	205	Full amount	Acquirer
		282	Partial amount	Acquirer
1442	Arbitration Chargeback	451	Full amount	Issuer
		454	Partial amount	Issuer

The following MTI and Function Code combinations may also be used in chargeback processing:

• Retrieval Request / 1644-603.
• Fee Collection (Member bank-generated) / 1740-700, -780, -781, or -782.
• Fee Collection (Clearing System-generated) / 1740-783

Additionally, IPM Second Presentment / 1240 and Arbitration Chargeback / 1442 messages indicate the reason for the second presentment or arbitration chargeback.

Learn how to lower your card acceptance cost

Learn how to accept credit and debit cards at the lowest processing costs. The Payment Card Acceptance kit contains a video and an e-book:

• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).
• E-Book – Payment Card Acceptance Guide (19 pages).

Both Visa and MasterCard use special reason codes to designate chargebacks that result from processing credit card transactions for which authorization was declined. Visa uses Reason Code 71, while MasterCard can designate such chargebacks with Reason Code 4808 or 4847. MasterCard’s Codes can point to slightly different chargeback reasons and we will review them in a separate article. Visa’s Reason Code 71 can be confused with Reason Code 83, as in both a chargeback results from a failure to obtain an authorization approval. The difference is that, while a Code 83 designates a chargeback where an authorization request was not submitted, a Code 71 results from processing a transaction for which authorization was declined.

What causes these chargebacks? Card issuers use code 71 when merchants ignore a declined authorization and attempt one of the following actions:

• Forced posting. After an authorization request was declined, the merchant key-enters (forces) the transaction through without making another authorization request.
• Multiple authorization attempts. After an authorization was declined, the merchant swipes the card over and over until the transaction is authorized. Such authorizations might occur if the card issuer’s authorization system times out or becomes unavailable.
• Split transaction. A merchant may try to circumvent the system by splitting the amount when a transaction for a certain amount is declined. Then the merchant submits each transaction separately.
• Alternative authorization methods. Alternative authorization methods include making a voice authorization request and receiving an approval.

How to manage such chargebacks? Your response to Reason Code 71 chargebacks will depend on the particular transaction circumstances and the actions you have taken (or not) so far:

• Transaction was authorized. If you have obtained an authorization approval code, inform your processing bank of the transaction date and amount.
• First authorization attempt was declined. If your first authorization attempt was declined, there is no remedy and you should accept the chargeback. Multiple authorization attempts may not be accepted as a proof that authorization was obtained. Do not process a credit at this time, as the chargeback has already performed this function.

Most processors have the capabilities to verify whether or not an authorization request was approved and, if this is the case, these chargebacks will be rejected as invalid and merchants will never see them.

How to prevent chargeback Reason Code 71? The following card acceptance practices will help prevent this type of chargebacks:

• Always obtain authorization. You should always obtain authorization for transactions that exceed your floor limit and technology has made this easier. Today authorization requests are sent out automatically by most POS terminals and, if approved, a sales receipt is printed out. If authorization is declined, a sales receipt is not printed. Floor limits are typically specified in merchant processing agreements.
• Card reader is down or the card’s magnetic stripe is damaged. In cases where the magnetic stripe cannot be read, either because of an issue with the terminal or with the card itself, you should call your processor’s voice authorization center. If an approval is obtained, write the approval code on the sales receipt and make an imprint of the card on the receipt as well.
• Never accept a declined transaction. If authorization is declined, do not accept the transaction and ask the cardholder for an alternative payment method. If you try to circumvent the authorization system, you will probably lose your re-presentment rights.

Most importantly, your entire sales staff should be trained to immediately stop a transaction, if authorization is declined. Instead of pushing this particular card payment through, they should ask for another card or other form of payment.

Learn how to minimize chargebacks and fraud

Learn how to minimize chargebacks and reduce your processing costs. The Chargeback Management kit contains a video and an e-book:

• E-Book – Chargeback Manual (40 pages).
• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).

Clearing and settlement are the final two stages of the credit card transaction process, following an approval by the card issuer of a merchant’s authorization request. They occur simultaneously and perform interrelated but distinct functions:

• Clearing is a process through which a card issuer exchanges transaction information with a processing bank.
• Settlement is a process through which a card issuer exchanges funds with a processing bank to complete a cleared transaction.

The diagram below represents the three stages of the credit card transaction process: authorization, clearing and settlement.

Both issuers and processors have certain rights and obligations when clearing and settling transactions. Merchants should understand what each bank does during the final stages of the transaction process, as it directly affects the funding of their accounts.

Processor responsibilities. All processors are responsible for the following:

• Ensuring that presented transaction information is accurate, complete, and in compliance with applicable industry rules.
• Editing, monitoring, and reconciling messages sent and received on their internal system reports, consisting of data generated by other issuers and processors, as well as of data generated by Visa and MasterCard.
• Receiving all first chargeback messages that card issuers submit and either:
  • Accepting responsibility for the transactions received or
  • Applying a remedy for the charged-back transactions in accordance with the rules and procedures specified by Visa and MasterCard.

In separate posts we have been reviewing chargebacks by Reason Codes and recommending actions that merchants should take, depending on what has been done prior to the chargeback. These actions can often be performed by the processing bank, which often has all relevant information readily available. If, after receiving a chargeback, the processor can provide the information necessary to resolve the dispute, the transaction must not be entered into interchange as a new first presentment unless the applicable chargeback rule states that is the proper procedure. Typically, the processor will have to submit the transaction as a second presentment.

Issuer responsibilities. All card issuers are responsible for the following:

• Receiving all first presentment messages as presented by the processing bank.
• Ensuring that all necessary data is passed to the cardholder, or is readily accessible for transaction research and monitoring purposes.
• Editing, monitoring, and reconciling messages sent and received on their internal system reports, consisting of incoming data received by, and outgoing data sent to, Visa or MasterCard. This requirement ensures that issuers and processors reconcile all rejected and accepted messages.

The issuer must ensure that its cardholder’s dispute is substantiated and request that it provides documents in support of his or her claim, including a sales receipt, a written complaint, as well as any other piece of documentation that may be appropriate to support a particular chargeback, second presentment (re-presentment), or arbitration chargeback. A failure to do so may result in Visa’s or MasterCard’s system rejecting the chargeback as invalid.

In summary, clearing is the movement of data from the processor to Visa or MasterCard, and from there to the issuer. Settlement is the process used to exchange funds between processors and issuers for the net value of the transactions cleared for a given processing day. The electronic infrastructure that processes the exchange of transaction information and money between issuing and processing banks is called interchange.

Learn how to lower your card acceptance cost

Learn how to accept credit and debit cards at the lowest processing costs. The Payment Card Acceptance kit contains a video and an e-book:

• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).
• E-Book – Payment Card Acceptance Guide (19 pages).

Visa uses chargeback Reason Code 70 to designate chargebacks resulting from processing transactions where two conditions are present:

• A card issuer receives a transaction that is below the merchant’s floor limit and
• The card account number is listed on Visa’s exception file.

MasterCard does not have an equivalent reason code.

Floor limit is the amount above which credit card transactions must be authorized before being processed. Floor limits are typically specified in merchant processing agreements. While merchants must request authorization for all transactions that are above their floor limit, they don’t have to do that for the ones below it. The floor limit is zero for all card-not-present transactions which means that they must always be authorized, regardless of the dollar amount. For example, if a brick-and-mortar store’s floor limit is $25.00, every purchase of $24.99 or less would not have to be authorized, while transactions of $25.00 or more would require authorization.

Visa defines its exception file as “A worldwide database of Visa lost / stolen cards and other accounts that issuing Members [Visa card issuers] have blocked and / or designated for special handling (e.g. pick-up, referral, automatic approval, etc. This service is part of Visa STIP [Visa's online authorization processing system that responds to merchants' requests for transaction authorization when issuers are unable to respond or when they have chosen to let VISA process certain transactions on their behalf]. All authorization requests routed to STIP are checked against the VISA Exception File.” The exception file is part of every payment processor’s transaction processing system and it should be automatically be checked when a card is swiped.

What causes these chargebacks? A chargeback Reason Code 70 is typically issued when a merchant has processed a transaction that falls below its floor limit and either did not check the exception file or received a negative response.

How to manage chargebacks with Reason Code 70? Your response will depend on the transaction details and on the actions you have taken already.

• The exception file was checked. If you did check the exception file, inform your payment processor who should be able to check its transaction log to verify your claim.
• The transaction authorization was declined or not verified. If you did process a transaction, for which the issuer declined authorization or could not verify, there is no remedy and you should accept the chargeback. Do not process a credit at this time, as the chargeback has already performed this function.

How to prevent chargeback Reason Code 70? The following best practices will help you minimize such chargebacks:

• Check the exception file. You should always check the exception file before completing transactions that are below your floor limit. Most POS terminals and payment gateways check the exception file automatically when the card is swiped. If the transaction is not approved, you will get a “Call Center” response and you should do a voice authorization.
• The card reader is down or the card’s magnetic stripe is damaged. In such cases you should make a voice authorization request. If your request is approved, write the approval code on the sales receipt and make an imprint of the card on the sales receipt as well.

If unsure, confirm with your processing bank that their transaction processing system automatically checks the exception file for all transactions that are below your floor limit.

Learn how to minimize chargebacks and fraud

Learn how to minimize chargebacks and reduce your processing costs. The Chargeback Management kit contains a video and an e-book:

• E-Book – Chargeback Manual (40 pages).
• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).

A lot has been written in this blog about what chargebacks are and how to prevent them. Unfortunately, no chargeback prevention system can eliminate them completely. The best we can do is to minimize chargebacks to a manageable level. Sooner or later every merchant receives a chargeback and, when it happens to you, you will have to be prepared to act quickly. This article will outline the chargeback cycle and time frames for MasterCard transactions.

Following the first presentment of a card transaction, MasterCard’s chargeback life cycle includes the first chargeback and, if necessary, a second presentment (or re-presentment) of the transaction, arbitration chargeback, and arbitration case filing. The time frames associated with the generation of a first chargeback depend on the message reason code.

• Global Clearing Management System (GCMS) support of time frames. MasterCard clears transactions through the Global Clearing Management System (GCMS). GCMS edits the First Chargeback / 1442, Second Presentment / 1240, and Arbitration Chargeback / 1442 messages to validate chargeback processing and time frame requirements.
• Time frame for first presentment. Your processor has 30 calendar days to process your transaction to the card issuer. This time frame is defined as the time between the transaction date and the business date. An issuer is required to accept a transaction submitted beyond the 30-day time frame if the account is in good standing or the transaction can be honored. When calculating the number of days, do not count the transaction date as day one, but count the business date as day one instead.
• Time frame for first chargeback. The time frames for the first chargeback are 45, 60, 120, and 540 calendar days after the business date, depending on the individual reason for the chargeback. GCMS measures this time limit from the business date of the presentment, except for certain chargeback reasons. When delayed delivery of merchandise or performance of services by a merchant results in a customer dispute about the condition of the goods or the quality of the services, MasterCard calculates the period of 120 days using the delivery or service performance date. If the cardholder claims that either the merchandise was never received or the services were not provided, MasterCard calculates the period of 120 days from the latest anticipated date of delivery or performance of services. In cases that involve interrupted services, the period of 120 days will begin on the date that the services cease. The issuer must prorate the chargeback amount to reflect the services that were received. In no case, however, can the first chargeback exceed 540 days (approximately 18 months) from the business date of the first presentment.
• Time frame for second presentment (re-presentment). The time frame for a second presentment is 45 calendar days. GCMS measures this period as the time between the business date that your processor received the chargeback, and the date the transaction is subsequently processed as a second presentment. Any re-presentment submitted more than 45 calendar days after the chargeback was received will be rejected.
• Time frame for arbitration chargeback. The time frame for an arbitration chargeback is 45 calendar days. The above rules apply.
• Time frame for arbitration case filing. If the dispute is not resolved after the first presentment was completed, the chargeback, the second presentment, and arbitration chargeback cycles, your processor can request arbitration within 45 calendar days of the business date of the arbitration chargeback.

It should not be that difficult for you to gather the necessary transaction information in a case of a chargeback and send it to your processor to use it in the re-presentment. Moreover, there is no reason to delay your response, as the sooner you get the case resolved, the sooner you will have the transaction amount back into your checking account.

Learn how to lower your card acceptance cost

Learn how to accept credit and debit cards at the lowest processing costs. The Payment Card Acceptance kit contains a video and an e-book:

• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).
• E-Book – Payment Card Acceptance Guide (19 pages).

Both Visa and MasterCard use special reason codes to designate chargebacks that result from processing credit card transactions for which authorization approval was not obtained or the cardholder claims that he or she did not authorize or participate in the transaction. Visa uses Reason Code 83, while MasterCard uses three separate Reason Codes: 4808, 4837 and 4847. As MasterCard’s Codes can point to slightly different chargebacks reasons, we will review them in a separate article.

What causes these chargebacks? Card issuers use code 83 when they receive a card-not-present transaction for which one of the following conditions applies:

• The merchant has processed a fraudulent card transaction or has not submitted an authorization request.
• The cardholder either does not recognize the merchant’s name on his or her statement or has given his or her card number to a telemarketer for purposes other than payment (for example to confirm a price).

How to manage such chargebacks? Your response to Reason Code 83 chargebacks will depend on the particular transaction circumstances and the actions you have taken (or not) so far:

• Authorization was obtained and AVS or CVV2 was used. If the chargeback resulted from a MO / TO or e-commerce transaction and you obtained an authorization approval and verified AVS or CVV2, inform your processing bank. If you received an authorization approval and an exact match to the AVS query, and have proof that the merchandise was delivered to the AVS-verified address, send a copy of the transaction invoice, proof of delivery and any other information relevant to the transaction to your processor who can use it in the re-presentment process.
• Authorization was obtained, but neither AVS nor CVV2 was used. If you did not use AVS and the item was charged back to you, send a copy of the transaction invoice, proof of delivery and any other relevant information you may have to your provider to use it in the re-presentment.
• The transaction at issue was card-present. If the card was present during the transaction, the chargeback is invalid. As a possible remedy you should provide to your processor either a copy of the sales receipt bearing the card imprint and signature of the customer or an authorization record proving the magnetic stripe was read.
• Recurring payment. Because recurring payment transactions occur on a regular basis over time, it is possible that a cardholder’s account gets closed and the account number or the card’s expiration date changed. If authorization is declined after previous payments had gone through successfully, you should contact the cardholder and obtain updated information or use the automatic account updater services (see below).

How to prevent chargeback Reason Code 83? The following card acceptance practices will help prevent this type of chargebacks:

• Obtain authorization for all card-not present transactions. Remember that all card-not-present transactions must be authorized. No exceptions!
• Verify the account number with your customer. For telephone transactions, always read back the account number to your customer to avoid errors.
• Identify the transactions as card-not-present. All card-not-present transactions should be identified by the appropriate code for mail order, telephone order, or internet during both the authorization and settlement process. This is typically done by your payment processing system. If not, you should write the appropriate code on the sales receipt: “MO” for mail order; “TO” for telephone order; and “ECI” for internet.
• Use risk management tools. If most of your payments are processed in a face-to-face environment and you are not familiar with the specific requirements for card-not-present transactions, ask your processor for assistance. At the very least, you should implement the following risk management tools:
  • Address Verification Service (AVS). AVS enables merchants that accept card-not-present transactions to compare the billing address (the address to which the card issuer sends its monthly statement for that account) provided by a customer with the billing address on the card issuer’s file before processing a transaction.
  • Card security codes. These are the 3-digit numbers on the back of all valid Visa (CVV2), MasterCard (CVC 2) and Discover (CID) cards and the 4-digit number on the front of American Express cards. Because merchants are not allowed to store card security codes, which makes them harder to obtain fraudulently, they are used to verify that the customer is in a physical possession of the card during the transaction.
  • Account updaters. Both Visa and MasterCard offer merchants processing recurring and installment payments a way to automatically update the account information they have on file for their customers. Account information can change due to several events, such as a card number replacement, a card expiration date change, etc. MasterCard Automatic Billing Updater and Visa Account Updater update such data automatically.
• Set up you billing descriptor correctly. The way your organization’s name appears on your customers’ monthly statements is managed through your merchant account’s billing descriptor and is the single most important factor in the cardholder recognition of transactions. Issues typically arise when a merchant’s legal name differs from the DBA name. Contact your processor and make sure that the billing descriptor is set up to show the latter, as it is the one your customers are familiar with.

Obtaining authorization approval for each card-not-present transaction is key to minimizing such chargebacks. You should always request it and, if you receive a decline, ask for an alternative payment method.

Learn how to minimize chargebacks and fraud

Learn how to minimize chargebacks and reduce your processing costs. The Chargeback Management kit contains a video and an e-book:

• E-Book – Chargeback Manual (40 pages).
• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).

The checkout process on e-commerce websites is in many ways different and more complicated than it is in traditional brick-and-mortar stores. While in a face-to-face setting, the customer simply swipes a card through a terminal, which “reads” the account’s information from the magnetic stripe and prints out a receipt, at an e-commerce checkout the card’s information is manually entered into a payment form. This opens the possibility not only for a typo to creep in, but also for the customer to unwittingly make a wrong selection in a drop-down menu. For consumers, such errors can lead to frustration and for merchants – to declined authorization requests and possibly to lost sales.

So what can a merchant do to minimize such errors? Well, it turns out that there are a few simple procedures that can be adopted at the e-commerce checkout to help you limit such issues. While merchants don’t have control over the information their customers enter at the checkout, nor can they prevent typos, they can limit confusion by providing guidance and correct errors before requesting authorization.

Credit and debit cards bear several identification features that make them unique and are designed to help merchants and cardholders prevent fraud. These features are used during the transaction authorization process as well and some of them can also be used to detect errors and alert cardholders when wrong information is entered. In particular:

• Card account number. The card’s account number is not only unique, but it also contains information that allows you to check its validity. Request that customers provide both the account number and the card type and ensure that they match. Consider adopting the following procedures:
  • Request that customers select their card’s type (Visa, American Express, MasterCard, Discover, etc.) before they enter the card’s account number.
  • Verify the validity of the provided information by comparing the selected card type and the first digit of the provided card number. The credit card companies use different account numbering systems. The first digit of every payment card identifies its type. Listed in the table below are the first digits that the major American card brands place in their account numbers.
    
    

    Card Type	First Digit of Account Number
    American Express	3
    Visa	4
    MasterCard	5
    Discover	6

  
  

  • Display an error message if there is a mismatch between the selected card type and the provided account number and request that the customer re-enters the data.
  • Use the Mod 10 algorithm (also known as Luhn algorithm). Used to validate various identification numbers, the Luhn algorithm can be used specifically to validate credit card numbers, where it detects all single-digit errors, as well as almost all transpositions of adjacent digits. The first six digits of credit card numbers are known as the Issuer Identification Number (IIN). The rest are allocated by the card issuer.
  • Allow customers to enter card account numbers with or without hyphens, with or without spaces between digits, or clearly identify your preferred format.
  • Account updaters. Merchants processing recurring and installment payments can protect themselves from errors resulting from routine changes in account information over time, such as a card number replacement or a card expiration date change. Typically in a recurring payment plan, the customer provides his or her account information at the time the plan is set up and the merchant processes the first payment as it would process any other card-not-present payment. The cardholder’s account information is then stored and all subsequent payments are processed using the stored data. MasterCard Automatic Billing Updater and Visa Account Updater are services designed to verify that on-file information, including account number and expiration date, is correct, ensuring uninterrupted payments.
• Card expiration date. Always request that customers provide their card’s expiration date. You can either provide a blank field to be filled in by the customer or a drop-down menu from which the customer to make a selection. If you choose the latter option, make sure that you do not provide a default month and year of the expiration date to prevent it from being erroneously selected. The default date will most likely be different from the actual one and the transaction will be declined.

Make sure that all lines of communications are open when a customer is checking out of your store, so that if he or she needs help, they can contact you right away. Otherwise you risk losing the sale altogether!

Learn how to lower your card acceptance cost

Learn how to accept credit and debit cards at the lowest processing costs. The Payment Card Acceptance kit contains a video and an e-book:

• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).
• E-Book – Payment Card Acceptance Guide (19 pages).

Visa uses chargeback Reason Code 81 to designate chargebacks resulting from processing transactions in a card-present environment where required account information is missing, which is seen as an indicator of a potentially fraudulent transaction. MasterCard does not have an equivalent reason code.

An example would be a case where a card issuer receives a sales receipt that has no imprint of the card’s embossed account information or magnetic-stripe information or the cardholder’s signature, and either: the cardholder states that he or she neither authorized nor participated in the transaction or the card issuer certifies that no valid card with that account number existed on the transaction date.

What causes these chargebacks? Code 81 chargebacks are most likely to occur when the merchant:

• Did not swipe the card through a point-of-sale terminal.
• Did not make a manual imprint of the card information on the sales receipt if the transaction data was key-entered.
• Did not obtain the cardholder’s signature on the sales receipt.
• Completed a card-not-present transaction but did not identify the transaction as a MO/TO or internet purchase.

How to manage chargebacks resulting from processing transactions with missing card information? Your response will depend on the transaction details and on the actions you have taken already.

• Card imprint of the magnetic stripe was obtained. If the account information from the card’s magnetic stripe was obtained, a possible remedy is to request that your processor sends a copy of the authorization record to the card issuer as proof that the card’s magnetic stripe was read. You should also provide a copy of the sales receipt proving that the cardholder’s signature was obtained.
• Card imprint was manually obtained. If the account number was manually imprinted on the sales receipt, send a copy of the sales receipt to your processor as documentation. In order to reverse the chargeback, the copy of the sales receipt must also contain the cardholder’s signature.
• Card imprint was not obtained. If a card imprint was not taken and the account number was not obtained, there is no remedy and you should accept the chargeback. Do not process a credit at this time, as the chargeback has already performed this function.
• Signature was obtained. If the cardholder’s signature was obtained on the sales receipt, send a copy of the transaction receipt to your processor. If available, send the authorization record too, to prove that the magnetic stripe was read.
• Signature was not obtained. There is no remedy if the cardholder did not sign the receipt and you should accept the chargeback. Again, do not process a credit at this time, as the chargeback has already performed this function.

How to prevent chargeback Reason Code 81? As with most other chargebacks resulting from card-present transactions, key to minimizing Reason Code 81 chargebacks is developing and following sound card acceptance practices.

• Swipe all cards or use a manual imprinter. As a preventive measure against Code 81 chargebacks, you should always obtain the card’s account number and expiration date, either by swiping or, if the terminal cannot read the card’s information, by using a manual imprinter. The imprint proves that the card was present during the transaction and protects you from a potential chargeback in case of a fraudulent transaction. You can make the imprint either on the sales receipt, generated by the terminal, or on a separate manual sales receipt, signed by the customer.
• Obtain cardholder signature. You should always obtain the cardholder’s signature for all card-present transactions. Then compare the provided signature with the one on the back of the card and make sure they match.
• Train staff on how and when to obtain an electronic or manual imprint. The entire point-of-sale staff should be trained to always swipe the card in all card-present transactions or take its imprint manually if the terminal is down or the magnetic stripe cannot be read for a different reason.
• Manual imprinter or portable electronic terminal. If you accept payments through a wireless terminal, you should always carry a manual imprinter. Wireless credit card terminals are unusable when out of range and you will need an imprinter to capture your customer’s card information. Make the imprint on a separate manual sales receipt and have it signed by your customer.
• Investigate high volume of chargebacks. A high volume of Code 81 chargebacks may be an indication of internal fraud and you should investigate. Examine the sales receipts and check which terminals and staff were involved in these sales.

A card-present payment processing environment provides merchants with plenty of tools to verify the validity of both the card and the cardholder. If you use them properly, you will not have a chargeback issue, even though it is unlikely that you will completely eliminate them.

Learn how to minimize chargebacks and fraud

Learn how to minimize chargebacks and reduce your processing costs. The Chargeback Management kit contains a video and an e-book:

• E-Book – Chargeback Manual (40 pages).
• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).

Customers who attempt to fraudulently use a credit card at the checkout are often betrayed by specific signs of suspicious behavior. Such signs may have a perfectly reasonable explanation that has nothing to do with an unauthorized credit card use, however statistical data show that they are associated with a higher rate of fraud. You should be able to identify such signs and act according to your organization’s established fraud prevention procedures. We have written at length in previous posts about the way these procedures should be designed and recommend that you review our suggestions. Following is a list of five suspicious signs at the point of sale that you should look out for:

• Purchasing large quantities of merchandise without much attention to details. This is a very strong fraud indicator! If a customer is purchasing a sizable amount of merchandise, without much care for size, color, or even price, he or she is probably interested much more in its resale value than its utility.
• Rushing the cashier into a quicker processing of the payment. Although your customer may really be in a hurry, such behavior may also be intended to force you to circumvent standard fraud prevention procedures. While you would not want to delay a legitimate customer any longer than necessary, you should never forgo regular card acceptance procedures, as this is exactly what the criminal’s goal would be. Explain to your customer that you appreciate the fact that they are short on time, but you are responsible for ensuring that all payments are legitimate and cardholders’ interests are protected.
• Making multiple purchases within a short period of time. If a customer completes a purchase, leaves the store and then comes right back in, he or she may be doing it because they believe that making multiple fraudulent transactions for smaller amounts is less suspicious than making a single large-amount purchase.
• Shopping either right after the store opens or before it closes. A fraudster may be shopping early in the morning or late in the evening, in the hope that the merchant will not be as attentive as during other stretches of the day.
• Ignoring free delivery options (where applicable). If your customer asks no questions or completely ignores a free delivery option, in favor of a quicker but paid one, this could be a warning sign.

Now, it should be reiterated that, although suspicious, a certain behavior might be perfectly well justified and explained in another, completely legitimate way. By themselves, none of the above characteristics constitutes a proof of a fraudulent activity. You should always use your observations of customer behavior in the context of the particular setting. Different businesses attract different types of customers and what is considered a normal customer behavior at one place might be interpreted as completely irregular at another.

Once you have accumulated enough evidence to conclude that a fraudulent activity may be taking place, you should contact your processor’s voice authorization center and make a Code 10 call. You should keep the card in your possession during the call and follow the instructions you are given. If the instruction is to retain the card, you should only do it if it is safe to do so and then ask your customer for an alternative form of payment. If you feel threatened or uncomfortable, complete the transaction and make the call right after the customer leaves.

Learn how to lower your card acceptance cost

Learn how to accept credit and debit cards at the lowest processing costs. The Payment Card Acceptance kit contains a video and an e-book:

• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).
• E-Book – Payment Card Acceptance Guide (19 pages).

Both Visa and MasterCard use special reason codes to designate chargebacks that result from processing counterfeit credit card transactions. Visa uses Reason Code 62 and its MasterCard equivalent is Reason Code 4862.

What causes these chargebacks? Chargeback Reason Codes 62 and 4862 are issued when a merchant fails to compare the first four digits of the embossed account number on the card with the preprinted digits below the embossed number for a card-present transaction or receives an authorization without the transmission of the entire magnetic stripe. In particular, one of the following events occurs:

• The card issuer receives a written complaint from the cardholder stating that he or she was in possession of the card on the date of the transaction and that he or she did not authorize or participate in the transaction.
• The transaction is subsequently determined to be the result of counterfeit magnetic stripe fraud, and the entire unaltered contents of the magnetic stripe was not transmitted and not approved by the issuer.

How to handle chargebacks resulting from counterfeit transactions? Issuers can charge back transactions using Reason Codes 62 and 4862 within 120 days of the sales date. Your response will depend on the particular transaction circumstances and the actions you have taken (or not) so far:

• If both the card and the transaction were valid, a possible remedy would be to provide your processor a copy of the printed sales receipt.
• If the charged back transaction was counterfeit, there is no remedy and you should accept the chargeback. Do not process a credit at this time, as the chargeback has already performed this function.
• If you have issued a credit for the transaction at issue, provide your processor with evidence of the credit. At the very least, inform your processor when the credit was issued and for what amount, so that they can locate the transaction in their system.

How to prevent chargeback Reason Codes 62 and 4862? You can significantly minimize these chargebacks, and perhaps eliminate them completely, by following a set of card acceptance best practices at the point of sale:

• Check the card security features. A possible remedy for Codes 62 and 4862 chargebacks is to check all card security features before completing the transaction (something you should be doing anyway). In particular, the first four digits of the embossed account number on the card should match the printed four-digit number below the embossed number. If there is no match, you should make a Code 10 call (see below). There may be other signs of tampering with the card, such as embossed numbers that are blurry or uneven, or ghost images underneath the embossed numbers, indicating they have been changed.
• Key-entered transactions. There is a possible remedy for key-entered transactions at the point of sale too. If the magnetic stripe cannot be read, get an imprint of the front of the card on the sales receipt and have the cardholder sign it.
• Code 10 calls. If either the card or cardholder looks suspicious to you, make a Code 10 call. Code 10 is a form of a voice authorization request that alerts the card issuer to a suspicious activity – without alerting the customer. The card issuer’s representative asks the merchant a series of “yes” and “no” questions to determine whether or not the transaction at issue is fraudulent and gives instructions on how to proceed. All of your point-of-sale personnel should be well trained on how to make a Code 10 call and how to communicate to the customer a decision to recover the card, if that is the instruction of the card issuer’s representative. Remember that a card should only be retained if it is safe to do so and you should never confront or try to apprehend your customer.

As with most chargebacks occurring in a card-present setting, the key to preventing Reason Codes 62 and 4862 is developing sound card acceptance procedures and training your point-of-sale staff on implementing them on a consistent basis. There is certainly no shortage of industry guides and manuals to help you develop these best practices and we have discussed them at great length in this blog as well.

If there is something that you would like to add, share your ideas or experience in the comments.

Learn how to minimize chargebacks and fraud

Learn how to minimize chargebacks and reduce your processing costs. The Chargeback Management kit contains a video and an e-book:

• E-Book – Chargeback Manual (40 pages).
• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).

All e-commerce merchants need to develop a process for managing credit card transactions after an authorization response is received from the issuer. We have discussed the e-commerce transaction authorization process at length in separate posts, so we will not go over it again here. Once the issuer compares the information it receives in the authorization request to what it has on file for its cardholder, it will either approve or decline authorization. The merchant typically receives the response within a few seconds of submitting the request.

Whatever the authorization response, the merchant will need to have an established set of procedures in place and handle it quickly. An approval will typically be sufficient to warrant a settlement of the transaction, although it is not a guarantee against fraud and you should still examine the transaction for fraudulent characteristics. Remember that an authorization approval will not protect you against