Credit Card Processing Blog

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).

Authorization is the process through which issuers approve or decline a card transaction. It is as an indication that funds are available in the account and the card has not been reported as lost or stolen. Typically, an authorization request is processed electronically and the merchant receives the issuer’s decision in seconds. The request can also be made over the phone, if the issuer’s authorization system is down for some reason, but this should be avoided, because such requests are expensive and a voice approval cannot be used in a chargeback re-presentment, if it comes to that.

Authorizations are required for all card-not-present transactions, regardless of the amount. An e-commerce or MO / TO transaction that has been processed without an authorization approval is subject to an automatic chargeback, with no recourse for the merchant. However, the rules for card-present authorizations are different and I have five tips for you on how to manage them.

5 Tips for Authorizing Card-Present Transactions

1. Authorize all transactions that are above your floor limit. Your floor limit is set by your payment processor and states the amount above which all of your credit card transactions must be authorized before being processed. There are no exceptions. Listed in the table below are the possible responses to your authorizations requests and their meanings:

2. For transactions that are below your floor limit, you can either:

• Not request an authorization, but compare the card number to the Card Recovery Bulletin (CRB), which would be done electronically or
• Request an authorization anyway.

3. If the card is listed in the CRB, you are required to:

• Not complete the transaction.
• Pick up the card, but only if it is safe to do so.
• Call your processor’s voice authorization center, state that the card number is listed in the CRB and ask for instructions.

4. Regardless of the amount, authorization approvals are required for:

• Expired cards.
• Manual cash.
• Unattended terminal transactions.

If you receive an approval, complete the transaction. Otherwise, request an alternative payment form.

5. Learn how to process partial authorizations and split-tender transactions.

• Partial authorizations enable issuers to approve amounts that are lower than the transaction amount when the available card balance is not sufficient to cover the full transaction amount, providing an alternative to a declined transaction. The benefit for the cardholder is that she is able to use up the remaining available balance on her card and then use another payment form, such as cash, check or another bank card for the remaining balance. All major credit card associations and companies support partial authorizations. Contact your point-of-sale (POS) vendor for information on how to do it.
• A split-tender transaction is the consequence of a partial authorization approval, occurring when a part of the sale’s amount is paid with a card and the other part – with some other form of payment (or tender). Typically, split-tender transactions are used to allow users of prepaid cards to spend the remaining balance of their card, even when it is lower than the full transaction amount. It is each merchant’s individual decision whether or not to accept split-tender transactions.

The above tips apply to magnetic-stripe card transactions. The rules for EMV (chip-and-PIN) authorizations are different, but U.S. merchants are not yet equipped to accept chip cards, so I have left them out.

The Takeaway

Authorizing card-present transactions is a fairly straightforward process. If your request is approved, your POS terminal will automatically print out a sales receipt for your customer to sign and complete the transaction. If a negative message or an alert is received, the terminal will display the response, no sales receipt will be printed and you will be prompted to take the appropriate action. Whatever the authorization response, however, you should treat your customer with courtesy and respect throughout the transaction.

Image credit: BenefitU.

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).

Merchants accepting credit cards in a face-to-face setting do not need to obtain a customer signature for all of their transactions. Sales under certain amounts are exempted from the signature requirement under the Visa Easy Payment Service (VEPS) and MasterCard’s Quick Payment Service. The two programs are very similar, but in this post I will focus exclusively on the VEPS program.

What Is VEPS

The VEPS program provides merchants operating in face-to-face environment with the ability to accept payment cards without the need to obtain a signature or personal identification number (PIN) from the cardholder and to not print out a sales receipt unless requested by the customer (which is why the Starbucks barista always asks you whether or not you want a receipt when you pay your coffee by credit card).

VEPS Qualifications

To qualify for VEPS, transactions need to meet the following criteria:

• Purchase transactions.
• Processed in a card-present setting (transactions of $25 and under) or in unattended environment ($15 and under).
• Authorization approval is obtained.
• Processed by a merchant with an approved Merchant Category Code (MCC), which according to Visa represent 98 percent of the total count. About half of the non-qualifying MCCs designate various direct marketing codes.
• All card types can qualify, including magnetic-stripe, EMV chip and proximity payments.
• The point-of-sale (POS) terminal must read and transmit unaltered magnetic stripe, chip data, or contactless card data.

Not-Qualified Transactions

Not qualifying for the VEPS program are transactions involving:

• Fallback procedures (that is, transactions processed when the terminal cannot connect to the processor’s system).
• Account funding.
• Cash-back.
• Manual cash disbursement.
• Quasi-cash.
• Prepaid card loading.
• Dynamic Currency Conversion (DCC).

Processing VEPS Transactions

Merchants are under no registration requirements. Eligible VEPS transactions are processed following standard transaction procedures, except that no PIN entry and customer signature are required and a customer sales receipt is optional.

No additional fees apply for participating in the VEPS program. Visa’s CPS / Small Ticket interchange rate is available for many bank card transactions, provided the following criteria are met:

• The transaction involves a Visa Consumer Card (Visa Signature Preferred are excluded).
• The amount is $15 or less.
• An authorization approval is obtained.
• Entered into interchange through VisaNet (Visa’s payment system).
• The POS terminal reads and transmits unaltered card data.

Of course all standard factors are reflected into the interchange rate determination as well.

The Takeaway

The biggest advantage the VEPS program offers to qualifying merchants is convenience. Not having to collect signatures and PINs from cardholders or to print out sales receipts, unless explicitly requested by the customers, speeds up the checkout process, while fraud and chargeback protections remain in place. Moreover, consumers equally appreciate being checked out speedily.

So if you qualify for the program but have not implemented it yet, you should contact your acquirer and request them to guide you through the process.

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).

Restaurants that accept credit cards, like gas stations and super markets, enjoy some benefits that are unavailable to most other merchants. For example, no signatures are required on transactions under $25, which speeds up the checkout process at quick service restaurants. Even more importantly, restaurants get special interchange rates, which are often lower than what other card-present merchants have.

There is a peculiar feature of restaurant transactions, however, that differentiates them from the rest of the field. It has to do with the tip that is added to the check amount. Restaurant owners and managers need to know how to authorize and process card transactions, so that credit card rules are complied with, customers are kept satisfied and chargebacks are prevented. In this post I will explain how to do that.

0% Tip Transaction Authorizations

You should always request authorizations for the check amount, excluding any tip amount! It is critical that you understand and comply with this rule. There are at least a couple of reasons why you should leave the tip out of the authorization request, as illustrated by the following hypothetical scenarios:

• The check amount is $50 and you request an authorization approval for $60 ($50 + 20%). You get your approval and the cardholder is charged $60, however he decides to leave $8 in tip, which brings the total to $58.
• The check amount is $50 and you obtain an authorization approval for $60. The customer’s card again is charged for $60, however he decides to leave a tip in cash, so the total is $50.

In both of these scenarios, the restaurant overcharges the customer, which will inevitably lead to a dispute. If you are lucky, your customer will call you first, so you can issue a refund and the whole thing will only end up costing you the time for handling the refund (which can add up). If you are not so lucky, the customer will call his issuer and initiate a customer dispute. Either way, your customer may feel cheated by you and decide to not come back to your restaurant again.

What you need to know is that restaurant authorizations are valid for the check amount plus 20 percent, so that there is no need for you to add an estimated tip amount to the authorization request. Only if your customer leaves a tip that is greater than 20 percent of the check amount you will need to request an additional authorization for the difference (the amount above the sum of the check and tip amounts).

How to Handle Restaurant Transactions

So with the above information in mind, let’s review some of the unique restaurant credit card acceptance best practices. All regular transaction processing procedures apply, so there is no need to go over them.

• Return the right card to its cardholder. During your busiest hours, you may end up collecting quite a few cards, so it’s important to match the card to the sales receipt, before returning them to your customer. I know it can get a bit hectic in rush hours, but you should make the few seconds needed to compare this information.
• Don’t charge a penalty fee for a reservation cancellation or “no show” without proper disclosure. You must clearly disclose your cancellation or no show policy at the time the reservation is made.
• Match the account number on the receipt to the one on the card. Needless to say, these two numbers must be identical. Otherwise, you may be dealing with a counterfeit card and will have to make a Code 10 call.

To reiterate, all regular credit card processing procedures must be followed, including requesting and obtaining an authorization approval and verifying the validity of the card and the cardholder.

The Takeaway

Restaurant credit card transactions are considered very low risk by Visa and MasterCard, which is why they get lower interchange rates. Of course, every now and then we hear about a skimming scam somewhere, but overall a restaurant is as safe an environment to make a card payment as there is.

It’s up to you to keep it that way and it doesn’t take much to do so. Just follow the above suggestions and you’ll be fine. As far as skimming is concerned, you need to be careful with whom you hire. You may also want to consider instituting a policy for completing card payments that would cover the whole process from taking the card from the customer to swiping it to returning it back. Ideally, you would want to have someone supervising the entire process, so that to make it difficult for a crooked employee to hide somewhere and swipe the card through a skimming device.

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