Credit Card Processing Blog

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).

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).

Visa uses chargeback reason code 57 to designate chargebacks caused by multiple credit card transactions posted by a merchant on a single credit card account within a short period of time. MasterCard does not have an equivalent reason code.

Reason code 57 is issued when the card issuer receives a written claim from a cardholder, acknowledging participation in at least one credit card transaction at the merchant but disputing participation in the remaining transactions. The cardholder also states that the card was in his or her possession at the time of the disputed transactions.

What causes these chargebacks? Reason code 57 chargebacks typically occur when the merchant fails to void multiple transactions or processes transactions fraudulently. Code 57 only applies to card-present transactions and does not apply to e-commerce or MO / TO transactions.

How to manage this type of chargebacks? When you receive a reason code 57 chargeback, your response will depend on your particular circumstances. For example:

• You have already processed a credit for the disputed transaction. A possible solution, if you have already processed the appropriate credit to your customer’s card account, is to send to your processing bank evidence of the credit. Even if you do not have any documentation to prove that credits were issued, give your processor information on the credit transaction’s date and amount. They should be able to locate the transaction within their system’s history.
• The cardholder actually participated in multiple transactions. A possible remedy in cases where your customer actually participated in more than one valid transaction is to provide your processor with supporting evidence, such as:
  • Sales receipts.
  • Shipping invoice or delivery receipts.
  • Description of merchandise or service purchased.
• Credit was not processed on the disputed transaction. If you have not processed the credit, there is nothing you can and you should accept the chargeback. Do not process a credit now as the chargeback has already performed this function.

How to prevent chargeback reason codes 57? There are two major reasons for this type of chargeback – processing errors and fraud – and each should be addressed separately.

Above all, your payment processing system should be designed to recognize and warn you whenever a duplicate transaction is detected. You should review each batch of paper sales receipts prior to deposit to ensure that only bank copies – and not merchant copies – are included. If transactions are sent electronically for processing, make sure that each batch is sent only once and has a separate batch number.

Fraud, however, can be much more challenging to combat. We have discussed various fraud prevention strategies at length in other posts and encourage you to review them. There is no substitute for vigilance and the management should investigate all potentially fraudulent transaction activities, both external and from within your organization. These types of chargebacks can have very serious consequences for your business. Whenever you receive a reason code 57, your goal should be to discover the root cause of the issue so that remedial actions can be applied.

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).