Credit Card Processing Blog

Over the course of the past few months we have repeatedly cited on this blog various reports showing that the number of new credit card offers is on the rise again. Moreover, the overall quality of these offers is unprecedentedly high.

But what does that mean to you?  After all, the best credit card offers are reserved for those consumers who have the highest credit scores. And if your credit history is less than spotless, you may not be approved for any credit card, even as issuers are hard at work trying to push their customers away from debit cards and toward using their credit cards instead. And anyway, should you even care about credit cards?

OK, let’s take these questions in reverse order.

Can Credit Cards Work for You?

We’ve all heard about, and more than a few of us have been protagonists in, horror stories revolving around an often imperceptible decent into credit card debt, which has then led to all kinds of problems and has often ended in bankruptcies and destroyed lives.

But credit cards have another, much brighter, side that, when fully exploited, can help improve your credit score, make shopping cheaper and lower the interest rates on other forms of credit, such as mortgages and car loans, saving you a bundle in the process.

Now, which one of these two alternative realities you end up inhabiting is largely dependent on your ability to manage credit card use. It takes time to see the positive results, but the good news is that credit management is not rocket science and everyone can learn how to do it reasonably well. Here are five rules you should stick to when making credit decisions.

5 Tips for Choosing and Using Credit Cards

1. Do not actively apply for credit cards. This is important, though not easy to do. What I mean by it is that you should wait for offers to be mailed to you, rather than directly applying for credit cards, because that makes you look needy. Looking needy when it comes to credit cards is just as bad for your prospects as it is in other aspects of life. Just take your time and wait. Use your debit card or cash until you start getting pre-approved offers. Many experts suggest that you opt out of such offers, but that is a bad thing to do if you have not yet established your credit. Later on, when you no longer think you need to apply for new cards, you may do that, although I still would advise against it, because you may miss out on some really good offers.

2. Choose the best offer. Once you begin getting credit card offers in your mail box, don’t jump on the first one you receive. Take your time and compare what different issuers are offering you. If you’ve never had a credit card before, these first offers will not be as good as you would want them, but this is where you start. Still, if you can help it, do not agree to secured credit card arrangements, where you are asked to deposit with your issuer an amount equal to your credit line as a security against a potential default. Unless you’ve already managed to seriously damage your credit, you will eventually get offers on more regular terms.

3. Do not use more than 30 percent of your credit. Stick to this rule even if your credit line is only a few hundred dollars. The ratio of used to available credit, known as credit utilization, is a major component of your credit score and must be kept below thirty percent for both each individual account and for your aggregate credit across all accounts.

4. Pay your balance in full every month. This is critical! Do not carry outstanding balance from month to month, even if you are using a card with a zero percent promotional interest rate. Carrying debt from month to month is the only way to get in trouble with your credit card and the surest one to actually pay for using it, rather than the other way around. For one thing, you only ever pay credit card interest on the balances you carry from month to month. Worse, once you start getting into the habit of doing it, it is very difficult to determine the level of “affordable” debt and even if you set such a limit, it is now much easier to justify exceeding it, because the interest on any additional debt will be the same as the one on the “affordable” debt. What you should do instead is treat any amount that is unpaid at the end of each month as unaffordable and therefor unacceptable debt.

5. Choose the best rewards program. If you follow the above suggestions, your credit will slowly improve and eventually you will start getting the best offers – the ones with rewards programs. Again, as with your first card, do not jump on the first offer. Take your time and wait until you have several to compare, which you will. Now, different programs work best for different lifestyles, so there are no specific rules to be followed here. I’ve found that for me cash-back offers work the best. For you, an airline card might be the better choice. But here is the best part. Some cards nowadays come with bonus cash-back or airline miles that are automatically added to your account after making your first purchase or accruing a pre-determined purchase volume (say, $1,000). You can always cancel the card after you’ve collected the reward, if you don’t like it that much.

The Takeaway

If you stick to the above rules, you will never get in debt, your credit score will improve and the cost of borrowing will decrease correspondingly. I have purposely avoided advising you against things like purchasing things you don’t need or can’t afford, which are staples in most other such lists. I’ve done this for a very simple reason.

If you don’t or can’t understand that spending beyond your means will get you in trouble, no amount of telling you otherwise can possibly have any impact on your behavior. At its core, debt management is all about common sense, which is all you need to keep it in check and make it work in your favor.

Image credit: MyBankTracker.

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).

Once you or your customer has swiped her card through your point-of-sale (POS) terminal, industry rules require you to ensure that she is an authorized user of the account. It is also of course in your own best interest to do so, as any unauthorized transaction will almost certainly end up being charged back to you.

The first step in the verification process is requesting an authorization approval from the card issuer, without which you should not complete the transaction. Obtaining one, however, does not guarantee that the transaction is legitimate. An authorization approval merely confirms that there are sufficient funds available and that the card has not been reported as lost or stolen. At this point you need to confirm that your customer is authorized to use the card. Here is how to do that.

4 Steps to Authenticating Cardholders

Once you’ve obtained an authorization approval, you need to ensure that:

1. The card is genuine and it has not been tampered with. Inspect the card’s security features for any signs that they may have been altered. Make sure that the account number is clear and all digits are uniform in size and spacing and appear on one line. We’ve written detailed, step-by-step articles on validating the cards of each major brand and you can read, for example, the one for MasterCard for guidance.
2. Match the account number on the card to the one on the receipt. Your POS terminal should automatically print out a sales receipt, which will display only the last four digits of the account number. Make sure that they match the last four digits of the number on the card itself.
3. Match the signature on the back of the card to the one on the receipt. Unless the transaction is PIN-based, the sales receipt will feature a signature line that your customer must sign (alternatively, the signature may be made on the terminal’s display). The first initial and spelling of the last name must match, but the name on the card and the signature do not need to be identical. Take a look at our detailed guide on verifying signatures for more information.
4. Do not accept unsigned cards. Unsigned cards are considered invalid and should not be accepted. If your customer presents an unsigned card, the following procedures should be followed:
   • Request an ID. Ask your customer for some form of government-issued identification, e.g. a driver’s license or passport.
   • Obtain a signature. Ask your customer to sign the card and if she refuses, do not proceed with the transaction, but ask for another form of payment.
   • Compare the signature on the card to the one on the ID. Needless to say, they need to match. If they do not, or you have other reasons to believe that your customer is not the authorized user of the card, make a Code 10 call.

   
   Some cardholders have been led to believe that writing “See ID,” “Ask for ID” or something to that effect in the signature panel of their cards, rather than actually signing them, protects them against fraud. The reasoning behind it is that, having not seen the signature, the criminal would not be able to forge it. In reality, criminals rarely practice signatures, but count on the merchant not to look at the back of the card. In any case, such cards are considered invalid, and the above procedures for unsigned cards need to be followed.

The Takeaway

If you go through these verification steps every time you accept a card for payment, you will all but eliminate the possibility of processing unauthorized transactions. There is no excuse for not doing it. It takes seconds to go through the authentication process and you will get faster as you gain experience. The alternative is equivalent to accommodating fraud. And you will be paying for it.

Image credit: Modern Business Therorie.

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).

The acceptance of a card-present payment is a fairly straightforward process. You or your customer swipes her card through your POS terminal, which reads and transmits the payment information to the card issuer who then either approves or declines authorization and you complete the transaction accordingly. This short series of interactions is in fact a more or less precize description of how the vast majority of merchants accept credit cards in a face-to-face setting. However, it is also incomplete.

Sticking to the above card acceptance process does get the job done perfectly well most of the time, but it leaves out a couple of steps, which, if taken, would ensure that you do it well every time. Here is how you should be accepting card-present payments.

5 Steps to Processing Card-Present Transactions

1. Swipe the card. No surprises here. The payment process begins with you or your customer swiping the card through or waving it by (for wireless payments) a POS terminal. Not much can go wrong here, unless the terminal cannot read the card. If that happens, you should:

• Check whether the machine is working properly and make sure that the card is swiped correctly.
• If there is nothing wrong with the terminal, inspect the card’s security features for signs that it may have been altered in some way. If that is the case, make a Code 10 call. Otherwise, take the next step.
• If the card does not appear to have been tampered with and the problem seems to lie with the magnetic stripe, follow your internal procedures. One option would be to key-enter the transaction information or you may request a voice authorization. Alternatively, you may request another payment form from your customer.
• If you choose either the key-entry or voice authorization option and the transaction is successfully authorized, make an imprint of the card on the sales receipt to prove that the card was present at the time of the transaction. This may be needed for re-presentment purposes in case of a chargeback.
• If the terminal cannot read an unembossed card (which has a flat surface, rather than one with raised numbers and letters), do not key-enter the transaction information, but request another form of payment. You cannot take an imprint of such a card, which leaves you unprotected against chargebacks.

2. Inspect the card. While the terminal communicates the transaction information with the issuer and you are waiting for the authorization decision, examine the card’s security features to ensure it has not been tampered with.

3. Obtain an authorization approval. You should never process a card transaction, unless the issuer approves your authorization request. If you receive a decline, do not key-enter the transaction or make another request, but ask for another payment form.

4. Obtain your customer’s signature. If the card looks OK and the issuer approves the transaction, ask your customer to sign the receipt printed by your terminal.

5. Compare the information on the receipt to the one on the card. The last stage of the payment acceptance process is comparing the name, account number and cardholder signature on the card to the corresponding information on the receipt and making sure they match.

If at any stage of the process you become suspicious either of the authenticity of the cardholder or the validity of the card, you will need to make a Code 10 call to your processor. You will end up speaking with a representative of the card issuer who will decide on how to proceed with the transaction and instruct you on what to do.

The Takeaway

If you go through each of these five payment processing stages every time a card is swiped through your POS device, you will no longer have to worry about fraud. Yes, it is possible that a fraudulent transaction may yet sneak its way through your defenses, but that would be a rare exception to the rule and one you could easily live with.

Image credit: WinonaDailyNews.com.

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).

At UniBul Merchant Services we work mostly with e-commerce and MO / TO (mail order and telephone order) businesses and the topic of recurring payments naturally keeps popping up in our conversations with existing and prospective clients. We have of course written on the subject multiple times before, but it is worth revisiting it every few months and share anything new that we may have learned in the interim.

Recurring payment plans present merchants with many challenges they don’t get to deal with when processing one-time transactions. Such arrangements can last for years, during which time many things can and do happen that prevent a monthly payment from being processed, even though dozens may have previously gone through without a hitch. You need to know what can cause such issues and how to minimize the chance of it happening. Here are twelve tips to help you do just that.

12 Tips for Processing Recurring Payments

The following guidelines will help you set up a recurring plan correctly and manage each successive payment effectively:

1. Allow your customers to choose the billing date. Doing so will help ensure that funds are available in the cardholder’s account.

2. Inform your customers of how the transaction will appear on their card statements. The way your business name and phone number are displayed on your customer’s statements and in their transaction activity logs is managed through your merchant account’s billing descriptor. Contact your processor and make sure that your billing descriptor is set up to correctly show your “Doing Business As” name and customer service phone number.

3. Clearly disclose your cancellation policy. To minimize chargebacks and comply with industry regulations, provide a concise, straightforward disclosure of your policy on both the service agreement and your website.

4. Provide details about the billing arrangements. Clearly disclose all charges related to the delivery of products and services.

5. Discontinue billing immediately upon cancellation. Provide customers with a cancellation confirmation that informs when the last payment will be processed, if one is still due, or, if applicable, when credit will be issued.

6. Inform customers of any delay in the delivery of products or services. Provide a new delivery date.

7. Provide a customer service phone number. There is no better way to resolve most issues than a phone conversation, so make sure your customers know how to contact you.

8. Inform customers of their right to terminate a recurring transaction. Recurring transactions can be cancelled and your customers need to know that.

9. Make sure that all payments receive an authorization approval. Even though you have your customer’s consent to process each payment of a recurring plan and have received an authorization approval for the first one, you still need to authorize each successive transaction before submitting it for clearing.

10. Include the Recurring Payment Indicator with all transactions. Contact your processor for assistance, if needed.

11. Ask for an alternative payment method if an authorization request is declined. Over time, payment information changes, even for active credit card accounts. At the very least, bank cards are renewed every few years and new expiration dates are issued, which alone may lead to an authorization decline. When that happens, request another form of payment and ask your customer to update her billing details.

12. Send a pre-billing notification 14 days before processing a payment. Do it regularly and you will see fewer customer disputes. Here is a sample of how such a notification should look:

To: customer name@account.com From: merchant name@account.com

Subject: Recurring transaction notification Date: 28 December 2011 04:26:13 -0500

Dear Customer Name,

This email confirms your authorization of the transaction listed below, entered on 12/28/2009 at 2:03:38 PM has been processed and will be debited from your account.

Transaction Origination Date: 12/28/2011

Name on Account: Cardholder Name

Amount: $14.95

Description: Approved recurring charges on 2011-11-28

You have authorized Merchant Name Services, Inc. and you financial institution to initiate the transaction detailed below. You have acknowledged that the origination of debit or credit transactions to your account must comply with the provisions of local laws. This authorization is to remain in full force and effect until Merchant Name Services, Inc. has received written notification from you of its termination in such time and manner as to afford Merchant Name Services, Inc. and your financial institution a reasonable opportunity to act on it.

Processed for: Merchant Name Services, Inc.

Phone #: 800-111-1111

Email: merchant name@isp.com

If you process higher volumes of recurring payments, you may want to consider enrolling into Visa’s and MasterCard’s card account updater services, which help keep information current by updating it every time there is a change in the account number, expiration date or some other item.

The Takeaway

If you stick to these best practices and make them part of your payment processing routine, you will have fewer customer disputes and chargebacks to deal with. As you gain experience, you should add your own items to this list and I hope you’ll share them with the rest of us.

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).

U.S. merchants are required to comply with a set of basic payment acceptance rules governing all bank card transactions. These requirements may vary in their details from one card brand to another, but in their essence they are broadly the same. Sticking to these rules will help keep your merchant account in good standing, but it is also a proven way to improve customer satisfaction, which then leads to fewer disputes and chargebacks.

14 Credit Card Acceptance Rules You Should Stick To

1. Accept all types of cards whose brand you have a contract with. So, if you have agreed to accept MasterCard products, accept all of them: credit, debit, prepaid, etc. Do not discriminate against the cards that are more expensive for you to accept, for example rewards or business-to-business cards. Doing so, even if it were allowed, would create unnecessary confusion and discontent among your customers.

2. Include any applicable tax in the total transaction amount. Do not collect taxes separately from the sale’s amount.

3. Do not set a minimum purchase amount above $10. U.S. merchants are now allowed to set a minimum sale’s amount on credit card transactions, but it should not exceed $10. Additionally, the minimum should be the same for all card issuers and brands, and it must not apply to debit card transactions.

4. Comply with any applicable maximum sale’s amounts. Some federal agencies or institutions of higher education have set maximum purchase amounts on transactions made with their credit cards. These maximums are again universal for all brands and do not apply to debit transactions.

5. Do not impose surcharges on card transactions. This requirement can be somewhat confusing, because there is an allowance for convenience fees (see below). Still, surcharges are not allowed, although you can offer discounts for using other payment methods.

6. You can add a convenience fee to the transaction amount. You can do so if you offer alternative payment channels to your customers, such as mail, telephone, or e-commerce. We will publish a more detailed post on convenience fees in the coming weeks.

7. Do not use credit cards to refinance existing debts or for payment for uncollectible debts. Bounced checks fall in the latter category.

8. Do not process credit card payments for other businesses. Doing so is known as laundering and is strictly prohibited. It is a form of fraud and committing it will lead to the termination of your merchant account and possibly to criminal prosecution.

9. Always authorize only for the known amount, not including any estimated tip. This requirement applies to restaurants, taxis, limousines, bars, taverns, beauty shops, health spas and all other merchant types that routinely accept tips. It is known as the “zero-percent tip” rule. Authorization requests from these merchants are automatically approved for a 20 percent additional amount to cover the expected tip. However, if the exact amount of the tip is known, then it should be included in the authorization amount. This is typical for chip-and-PIN transactions.

10. Do not issue cash refunds for credit or debit card transactions. Any refunds for returned merchandise or adjustments must be processed on the same card used in the sales transaction. Doing so protects cardholders from criminals who may fraudulently use their cards to make a purchase and then return the merchandise for cash. Exceptions are allowed for prepaid cards, which may have been discarded prior to the return.

11. Deposit your transactions within three business days of the transaction date. Ideally, you should do it on the day following the transaction. In a card-not-present setting, the transaction date is the shipping date, not the order date.

12. Ensure that only the last four digits of the card number are shown on the sales receipt. The preceding digits should be replaced with special characters. The expiration date should not be displayed at all on the transaction receipt. All new point-of-sale (POS) terminals should comply with these requirements.

13. Obtain two authorizations for each delayed delivery. Delayed deliveries are typically associated with custom-made merchandise, where a deposit is made at the time of purchase and the balance is paid upon delivery. The first authorization would be requested for the deposit amount and the other – for the balance.

14. Maintain compliance with the PCI DSS. The Payment Card Industry Data Security Standard (PCI DSS) is a set of security requirements that are mandatory for all U.S. merchants. Your processor is responsible for ensuring your compliance and will have contracted with a certified PCI DSS vendor who will contact you and guide you through the validation process.

The Takeaway

Some of the above rules may not be applicable to your particular circumstances and there may be others that are specifically designed to regulate your type of business (for example, e-commerce websites have their own requirements to comply with). Still, these are the most basic rules governing the payment card industry and you should make them the foundation of your card processing procedures.

Image credit: DRB Systems.

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).