Credit Card Processing Blog

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).

Store-front merchants are often faced with situations where their point-of-sale (POS) terminal cannot read the customer’s card stripe or they cannot obtain an authorization for the transaction. The merchant needs to develop a process for handling such incidents and train the staff adequately, so that whenever they occur, the person operating the terminal knows exactly what needs to be done and can resolve the issue quickly. Remember that your customer is waiting while you are trying to work out the problem and will appreciate a prompt solution. Typically, POS terminals cannot read credit card magnetic stripes for one of three reasons:

• The terminal’s magnetic stripe reader is damaged, causing it to not function properly.
• The card is not swiped through the reader correctly.
• The card’s magnetic stripe is damaged or demagnetized. Keep in mind that damage to the card may happen by accident, but it may also be a sign that the card is counterfeit or has been tampered with.

Whatever the cause, when the terminal is not reading the card’s information, the merchant should do one of the following:

• Check the terminal to make sure that it is in a working order and that the cardholder is swiping the card correctly. Most terminals show the correct way of swiping a card through the reader, yet some customers may not be paying attention, so you would need to provide some guidance.
• If the terminal is operational, examine the card to make sure that it has not been altered in any way and it is valid. Check the card’s security features, paying close attention to the account number and the card security codes, as well as the hologram. If any of these features looks as if it has been altered, you would probably be well advised to make a Code 10 call. The magnetic stripe may have been damaged while the other features were being tampered with.
• If the card cannot be read because of an issue with the magnetic stripe, you should follow your store’s established procedures. Most often, the decision is to override the swiping procedure and to key-enter the payment data. Alternatively, a call to your payment processor’s authorization center may do the job.
• Whether the transaction is key-entered or voice authorized, you should take a manual imprint of the front of the card to prove that the card was present during the transaction. The imprint should be made on the sales receipt or on a separate sales receipt, which would also need to be signed by the customer. The card imprint protects the merchant from chargebacks in a case of a fraud.

Key-entered credit card transactions are perfectly acceptable, however a significant disadvantage proves to be the fact that certain security features, such as the expiration date and the card security code, are unavailable, which makes them prone to higher levels of fraud and chargebacks. This is the reason why your processor will charge you higher processing rates for keyed transactions than for swiped 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).

In a recent post we discussed the procedures merchants need to follow at the checkout of their store when they have enough reasons to suspect that a card is counterfeit or is being used for payment by an unauthorized person. In this post we will discuss the rewards that the merchant is entitled to receive for each successfully recovered MasterCard card.

Firstly, it should be emphasized that it is in merchants’ best interest to do their best to verify the validity of the cards customers use for payment at their stores and that the cards are being used by their authorized users. Failure to do so will almost certainly result in a chargeback and sometimes in angry calls by the cards’ legitimate owners.

Once you have accumulated enough evidence that a card is counterfeit or that your customer is not its authorized user, you must retain the card, but only if possible by peaceful and reasonable means, and return it to the card issuer. You should not be taking any risks and, if your customer is behaving in a threatening manner, you should complete the transaction, return the card, wait until the customer leaves the store and call your processing bank to report the incident. Even if it is too late at this point to prevent a fraudulent transaction from taking place, you will ensure that the card will not be used again in the future, possibly at your store.

Visa and MasterCard have established programs for rewarding merchants for picking up invalid cards. Following is an outline of MasterCard’s reward program.

MasterCard has mandated that the person who has captured the card should receive the reward. A reward payment is not required for capture of a Cirrus-branded or Maestro-branded card. MasterCard’s acquiring banks must follow these standards when paying a reward:

1. Pay no less than $50 to the merchant capturing a card listed on the Electronic Warning Bulletin file or in the Warning Notice.
2. Pay the merchant $100, if a merchant initiates an authorization call because of a suspicious transaction or captures a card not listed in the Electronic Warning Bulletin file or in the Warning Notice.
3. Pay a reward to a representative of the acquiring bank for the capture of another bank’s card if it is the acquiring bank’s practice to pay its representatives rewards for picking up its own cards. The amount of the reward should be the same amount paid for the capture of the acquiring bank’s own cards.
4. Charge the card issuer for reimbursement of the reward paid upon dispatching each card captured by either a merchant or a bank representative.

It is always nice to have an additional incentive to do what we should be doing anyway. After all, who doesn’t like to be rewarded for doing a good job?

Merchants operating restaurants, as well as other businesses where customers are expected to leave a tip, in addition to paying the amount of the bill, need to understand and implement authorization practices that are slightly different from these for transactions where tip is not generally expected.

Firstly, as all of us who live in the U.S. know well, the amount of the tip is not regulated nor is it regulated the form in which it should be paid – in cash or added to the total credit card bill. This is all left to the customer to decide. The merchant is not allowed to estimate the tip and add it to the bill. An automatically added tip can result in a customer dispute and a chargeback. Rather, the merchant must obtain an authorization approval from the card issuer for the full transaction amount of the sum of the bill amount and the tip, as decided by the customer.

It is important that merchants understand when an additional authorization is required. The following procedures apply specifically to transactions in which the cardholder adds a tip:

• The transaction amount is below the merchant’s floor limit, and the cardholder adds a tip in an amount less than or equal to 20 percent of the transaction amount. In this case the merchant is not required to obtain an authorization for the amount above the amount of the bill, even though the total transaction amount may exceed the merchant’s floor limit.
• The merchant has obtained an authorization for a transaction, and the cardholder adds a tip in an amount greater than 20 percent of the transaction amount. In this case the merchant must obtain an authorization for the additional amount. The card issuer is responsible for the full amount of the transaction.
• The cardholder adds a tip in an amount greater than 20 percent of the transaction amount and causes the transaction amount to exceed the merchant’s floor limit. In this case the merchant must obtain an authorization for the total amount of the transaction.

Zero-percent tip transactions. Following this rule is particularly important for restaurants and it means that card transactions should only be authorized for the known amount of the bill. Consumers today can, and do, check their credit card activity online in almost real time. If they see an amount that they do not recognize, cardholders are likely to ask questions and contact their card issuer, which can easily lead to disputes and chargebacks.

For example, if a restaurant bill is $50, but the staff adds a 20 percent tip ($10) and authorizes an amount of $60, that would create a discrepancy if the cardholder actually adds a $7 tip, or chooses to leave cash for the tip. In this case the customer would be overcharged and you might receive an angry phone call, or a chargeback, or both.

To ensure zero-tip authorization for all transactions, restaurant owners and managers should do the following:

• Train your staff to authorize only for the actual amount of the bill. Your personnel should understand the importance of not authorizing amounts that are higher than the bill amount and follow the procedure without exceptions.
• Set up your authorization system for zero-percent authorization. If you do not know how to do that, contact your point-of-sale (POS) terminal provider and ask for assistance.

Visa and MasterCard provide chargeback protection for restaurants. Their authorizations are automatically valid for the transaction amount plus 20 percent to protect merchants from chargeback liability for an incorrect or disputed transaction amount.

Merchants are required under Visa and MasterCard regulations to ensure to their best abilities that credit and debit cards used for payment at their stores are valid and used by their legitimate cardholders. Under certain circumstances and if there is sufficient evidence to believe that a payment card is being used fraudulently or if its security features look as if they have been altered, merchants are required to recover the card from a customer at the point of sale, but only if it is safe to do so. Any of the following examples would provide a sufficient reason for recovering a payment card:

• The card’s security features are missing or altered. If the 3- or 4-digit card security code (CVV2, CVC 2 or CID) is missing or has been tampered with, or if the hologram does not appear right, or if the “Good Through” date is altered, that should raise your suspicion.
• The card number on the sales receipt does not match the account number on the card. If the account number that your terminal has read from the magnetic stripe and printed on the sales receipt does not match the one on the front of the card, this should immediately raise a red flag.
• The merchant receives a pick-up response. If, during a Code 10 call with the card issuer, you have been instructed to pick up the card, you should follow the instructions.

Once you have accumulated enough information to justify a decision to recover a card, or after you have been instructed to do so during a Code 10 call, you should follow these procedures:

• Firstly, you should only attempt a card recovery if you can do so safely. You should never take unnecessary risks. If the customer acts in a threatening way, you should complete the transaction and alert your payment processor after the customer leaves your store.
• Once you have established that it is safe to recover a card, tell your customer that you have been instructed to keep the card, and that he or she may call the card issuer for additional information.
• Remain calm and courteous throughout the recovery procedure. If the cardholder behaves in a threatening manner, return the card immediately and complete the transaction.
• Once you have recovered the card, contact your processor for further instructions.
• Cut the recovered card in half lengthwise, but be careful not to damage the hologram, the embossed account number, or the magnetic stripe.
• Send the recovered card’s pieces to your processor.

Be advised that card issuers offer cash rewards to merchants for recovering altered and counterfeit cards or for information that can lead to the arrest and conviction of any person involved in a counterfeit operation. Contact your processor for additional details.

For cards that are found at your store or have been inadvertently left by customers and have remained unclaimed, you should follow the above procedures for contacting your processor and sending in the card.