Credit Card Processing Blog

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).

Merchants selling travel-related services (airline tickets, hotel bookings, etc.) need to be even more attentive to their payment acceptance procedures than most other businesses. The reason is that they tend to generate much higher levels of customer complaints and resulting chargebacks than the average merchant. Selling travel-related services has the distinct disadvantage, from a payment processing perspective, of providing the service long after the payment is processed. Consumers typically plan and book their travels weeks, often months in advance. The problem is that during that time their plans can change, for any number of reasons. When this happens, the customer will either want to cancel the booking or to reschedule the travel. Travel agencies must develop procedures for handling such situations, apply them consistently and communicate them clearly to their customers.

For best results, the following best practices should be implemented into travel agencies’ card acceptance procedures:

• Your billing descriptor should be set up to show your travel agency’s name and toll-free telephone number or website’s URL address on the cardholder’s statement, along with the airline’s name. Customer inquiries and disputes can be avoided if your agency’s contact information is displayed on your customers’ statements. Work out the billing descriptor’s content with your airline partners and ask your processing bank to set it up. This will ensure that your customers’ credit card statements allow them to readily recognize their bookings with your agency and offer an easy way to reach you when they have questions. Your staff needs to be sufficient to handle all incoming calls quickly and be well trained on your policies.
• All terms and conditions of the sale should be clearly disclosed on your website. Your customers should know all of the terms and conditions of the booking before they make a decision to buy. You should always disclose the following details:
  • The agency fee will be billed separately from the reservation fee (airline ticket, hotel booking, etc.).
  • The amount of the fee.
  • When the fee will be billed.
  • What name will appear on the cardholder’s statement.
• Your change and cancellation fees should be clear and provide the following information:
  • The amount of an itinerary change / cancellation fee. If your customer needs to change or cancel his or her itinerary, he or she must know what the applicable fees would be before the transaction is completed.
  • How the itinerary change fee will appear on the cardholder’s card statement (in total or billed separately).
  • When the fee will be billed.

  
  These details should also be communicated to the customer with the order confirmation email. The better informed your customer is on the terms of the sale, the less likely he or she is to file a customer dispute later, which can easily deteriorate into a chargeback. For best results you should require that customers accept your terms and conditions by clicking on an “Accept” or “Agree” button under the disclosure statement displayed on your website’s check-out page.

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).

When you fill out your merchant account application, one of the questions you have to answer is when your credit card sales will be deposited. Usually you are asked to among select one of three choices: “At date of order,” “At date of delivery” and “Other.” Our records show that invariably applicants select the first option, regardless of the type of business and the transaction environment (card-present or card-not-present). However, this is not always the right answer and this article will explain why.

In most cases, in a card-present type of sales transaction, when a merchant makes a sale, the customer immediately receives the product or service that he or she paid for. The merchant then deposits the payment with its processor and the sales cycle is complete. The process is different in an e-commerce or a MO / TO transaction where the purchased item, unless it is downloadable software, does not get delivered immediately. The merchandise has to be shipped to the customer who will receive it on a future date. In this case the merchant needs to follow different payment processing rules and handle the depositing of the money differently than a face-to-face type of merchant.

According to Visa and MasterCard rules, payments should not be deposited any earlier than on the transaction date. In a card-present setting, the transaction date is easy to identify. In a card-not-present sale, however, the transaction date is the date on which the item is shipped, not the date on which the order was placed.

You should, however, go a step beyond simply complying with this requirement. Often, shipments can take longer than a week to be delivered, which leaves plenty of time for customers to start worrying about their order. The most important thing that you should do is to clearly communicate to your customer the terms and conditions of the sale and the delivery time frame. Have your customer agree to your terms and conditions by clicking on an “Agree” or “Accept” button, before being taken to the check out. Make the information available and easily accessible to everyone through a link within your website’s header or sidebar.

Additionally, you should email the sale’s terms and conditions to your customer, along with the order confirmation. In the confirmation email, you should clearly indicate that the credit card will be charged on the date of the shipment and provide an estimate of the delivery date. Keep in mind that today credit card transaction activity is updated in almost real time and cardholders can and do check it online. If they see the charge but the item has not arrived, they might try to contact you. Make your customer service phone number available both on your website and in the order confirmation email. You may include other contact information, such as email and live chat, but it is essential that you are accessible by phone and that someone will actually pick it up. A simple answer to your customer’s concern will avoid a potential dispute or a chargeback.

If a delivery is running late, inform your customer and provide an estimate of the new delivery date. Keep these emails short and to the point. At this time, you should already have communicated all information that is relevant to the sale and repeating it may just annoy your customer.

It is understandable that you may want to deposit a sale just as soon as an order is placed. You should, however, resist the temptation and follow the rules explained in the above paragraphs. It will benefit you in the long run by minimizing disputes and keeping chargeback levels low and your customers happy.

What is Merchant Direct Access Service. The Merchant Direct Access Service (MDAS) provides Address Verification Service (AVS) authorization services to smaller merchants operating in a card-not-present environment, mainly to small mail order and telephone order (MO / TO) businesses. MDAS connects merchants to the AVS service by telephone. If your credit card processing volume is small or infrequent and if electronic access to AVS is not otherwise available, or if you want to access AVS for transactions that are key-entered when the card’s magnetic stripe cannot be read, MDAS may be the right option for you. MDAS provides AVS service on a per-transaction basis.

How to use MDAS. To use the Merchant Direct Access Service, all you need is a telephone and a Merchant Access Code (MAC) which you will get from your payment processing provider. To request an AVS authorization, you will dial a toll-free number and follow the instructions that the automated system will give you. You will need to provide your customer’s billing address and account number and the system will give you the verification results.

MDAS responses. The responses MDAS provides are very similar to the ones AVS provides but do not include response codes. You will receive one of the following MDAS responses:

MDAS provides a way to use AVS on a selective basis. Merchants who choose to implement it will be able to cut costs by minimizing address verification requests, while still verifying the validity of these credit card transactions that are most likely to be fraudulent. If you choose to enroll in MDAS, you need to contact your processing bank.

Hotels, motels, travel agents and other businesses that participate in the Advance Resort Deposit service for credit and debit cards must implement the following procedures:

1. When a cardholder contacts a participating hotel or travel agent and wants to make an advance deposit with a payment card, the merchant must explain the terms and conditions of the reservation, cancellation, and refund policy procedure to the cardholder.
2. The merchant must then take the cardholder’s account number, card expiration date, name, and address and confirm the room rate and location.
3. The merchant is required to then confirm the status of the card. The authorization procedure is determined by the hotel’s location:
   1. If the hotel is located within the United States, the merchant is required to follow the standard authorization procedures to obtain approval for the transaction. If authorization is not obtained, the merchant in effect accepts responsibility for the transaction.
   2. For all regions outside of the U.S., the merchant is required to check the Warning Notice. (This may be done subsequent to the phone call.) If the account number is listed in the Warning Notice, the merchant should follow the usual procedures provided by its processing bank.

   
   The merchant is required to request authorization if the amount of the advance deposit exceeds $50. If the result of the authorization call is denial, the merchant must inform the cardholder and request an alternative form of payment.

4. The merchant must complete a sales ticket that includes the cardholder’s name, card account number, expiration date, reservation confirmation number. The merchant must write on the sales ticket the words “advance deposit” in place of the cardholder’s signature. If there are any special terms and conditions regarding the applicable refund policy, the merchant should note that on the sales ticket.
5. The merchant is required to mail a letter of confirmation, a copy of the sales ticket, including the reservation confirmation number, and information concerning its cancellation and refund policy to the cardholder at the address previously provided by the consumer.
6. The merchant should then deposit the sales ticket for the advance deposit in the usual manner. There are no special deposit requirements imposed on the merchant.
7. If the cardholder cancels the reservation, in accordance with the agreed upon procedures, the merchant is obligated to cancel the reservation and issue a credit to the cardholder. The following procedures should be followed:
   1. The merchant should prepare a credit slip in the usual manner for the amount of the previously submitted advance deposit, writing the words “deposit cancellation” in place of the cardholder’s signature on the credit slip.
   2. The merchant should prepare a notice of cancellation issuing a cancellation number to the cardholder.
   3. The merchant should mail a copy of the credit slip and notice of cancellation to the cardholder.
   4. The merchant should record the cancellation number on the slip and deposit the credit slip in the usual manner. There are no special deposit requirements imposed on the merchant.
8. If a transaction where the merchant has followed the above procedures results in a dispute, and if the account number used to make the deposit is unidentifiable as to a specific card issuer or was fictitious, the merchant’s processing bank will bear the liability. The processor will also be bearing the liability when the transaction is identifiable to a specific issuer but is not identifiable to a specific account number within that institution.