Inside the Black Hole

Do you ever monitor your daily batch deposits? Do you know how your daily transaction volumes vary over a week or a month? Do you track how your average sale’s amount or transaction count changes from month to month? No? Well, your processor does and, if you want to avoid potential unpleasant surprises resulting from changes in these or other patterns in your daily batches, you should too.

Unfortunately, such unpleasant surprises occur far more often than we would like. They come in the form of an audit of the merchant’s credit card processing practices and can take anywhere from a day to a week or more to be resolved, depending on how quickly the merchant provides the requested documentation (e.g. sales invoices, bank statements, etc.). The worst part of an audit is that, while it lasts, the merchant’s funds are frozen and no deposits go into its checking account.

So what is it that processing banks are looking for when monitoring your daily batch deposits? To answer this question, we should look at the requirements that Visa and MasterCard (the Credit card Associations) have set for their member banks. Whether your processor is Bank of America, Wells Fargo, First National Bank of Omaha or any other bank, they all have to comply with the Associations’ rules.

Processing banks are required to generate daily reports or real-time alerts monitoring merchant deposits no later than on the day following the deposit, which must be based on the following parameters:

1. Increases in merchant deposit volume.
2. Increase in a merchant’s average ticket size and number of transactions per deposit.
3. Change in frequency of deposits.
4. Frequency of transactions on the same cardholder account, including credit transactions.
5. Unusual number of credits, or credit dollar volume, exceeding a level of sales dollar volume appropriate to the merchant category.
6. Large credit transaction amounts, significantly greater than the average ticket size for the merchant’s sales.
7. Credits issued subsequent to the receipt of a chargeback with the same account number and followed by a second presentment.
8. Credits issued to a card account number not used previously at the merchant.

Moreover, there are a couple of additional metrics that processors are either required or encouraged to monitor and you should be aware of them:

• 90-day rule. Processing banks are required to compare their merchants’ daily deposits against the average transaction count and amount for each merchant over a period of at least 90 days, to lessen the effect of normal variances in a merchant’s business. For new merchants, processors should compare the average transaction count and amount to other merchants within the same merchant business code (MCC) assigned to the merchant. In the event that suspicious credit or refund transaction activity is identified, the processor should consider the suspension of transactions and initiate an audit.
• 150 percent recommendation. To minimize the probability of investigating variances that are consistent with the merchant’s business cycle (i.e. seasonal, monthly, etc.), the Associations require that merchants that appear in the monitoring reports should exceed the average by 150 percent or more. However, the amount over the average is left at the processing bank’s discretion.

So if you want to make sure that you don’t get surprised by an audit, which by the way always happens at the most inconvenient moment, start monitoring the eight parameters listed above on a daily basis. Implement the 90-day rule and, whenever your transaction count or deposit amount exceeds the average by 150 percent or more, be proactive and contact your processor and alert them. You will find that they are much easier to work with when you show that you understand their concerns.

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).

Yesterday’s post reviewed how the Member Alert to Control High-Risk Merchants (MATCH) works and how it affects merchants and processors. This article will elaborate on the possible results from searches in the MATCH database. Firstly, though, it should be pointed out that all positive responses to a MATCH search are considered “possible matches” because the search system cannot guarantee an exact match with absolute certainty. This is the reason why you will see an oxymoronic-sounding “exact possible match” item in the list below.

A MATCH search can return one of the following types of possible matches:

• Retroactive possible matches. If the information in the original inquiry finds new possible matches of a merchant or inquiry record in the MATCH database added since the original inquiry was submitted and this information has not been previously been reported to the processing bank at least once within the past 120 days, the system returns a retroactive possible match response.
• Exact possible matches. An exact possible match exists when data in an inquiry matches data in any of the following data fields on the MATCH system letter-for-letter, number-for-number, or both.
  
  

  Field	+	Field	+	Field	=	Match
  Business Phone Number					=	√
  Business National Tax ID	+	Country			=	√
  Business State Tax ID	+	State			=	√
  Business Street Address	+	City	+	State	=	√
  Business Street Address	+	City	+	Country	=	√
  Principal Owner’s (PO) First Initial	+	Last Name			=	√
  PO First Name	+	Last Name			=	√
  PO Phone					=	√
  PO Social Security Number (if the country is USA)					=	√
  PO National ID (if the country is not USA)					=	√
  PO Street Address (lines 1 and 2)	+	PO City	+	PO State	=	√
  PO Street Address (lines 1 and 2)	+	PO City	+	PO Country	=	√
  PO Driver’s License (DL) Number	+	DL State			=	√
  PO Driver’s License Number	+	DL Country			=	√

  
  MATCH uses Street, City, and State if the merchant’s country is USA. Otherwise, Street, City, and Country are used.

• Phonetic possible matches. The MATCH system converts certain alphabetic data, such as Business Name and Principal Owner Last Name into a phonetic code, which generates matches on words that sound alike, such as “Easy” and “EZ.” The phonetic feature of the system also matches names that are not necessarily a phonetic match but might differ because of a typographical error, such as “Rogers” and “Rokers,” or a spelling variation, such as “Lee,” “Li,” and “Leigh.” MATCH evaluates the following data to determine a phonetic possible match:
  
  

  Field	+	Field	+	Field	=	Match
  Business Name					=	√
  Doing Business As (DBA) Name					=	√
  Business Street Address	+	City	+	State	=	√√
  Business Street Address	+	City	+	Country	=	√√
  Principal Owner’s (PO) First Initial	+	Last Name			=	√
  PO Street Address (lines 1 and 2)	+	PO City	+	PO State	=	√√
  PO Street Address (lines 1 and 2)	+	PO City	+	PO Country	=	√√

  
  MATCH uses Street, City, and State if the merchant’s country is USA. Otherwise, Street, City, and Country are used.

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).

Member Alert to Control High-Risk Merchants (MATCH) is a mandatory system for U.S. acquiring (processing) banks. It is a database that includes information reported by processing banks about merchants and their owners whose merchant accounts have been terminated for cause. The MATCH system is sometimes referred to as the Terminated Merchant File (TMF).

MATCH requirements for processors. All processing banks are required to use MATCH. In particular, processors are required to:

• Add information about a merchant that is terminated for cause. If either the processor or the merchant acts to terminate a merchant account (by giving notice of termination), then the processor must add the required information to MATCH within five calendar days of the earlier of:
  • The effective termination date or
  • The date it received the termination notice by the merchant.
• Inquire against the MATCH database. When a processor considers signing an agreement with a merchant, it must first check MATCH for information on whether the merchant was terminated by another processor.

MATCH system features. MATCH offers processing banks the following fraud detection features and options for assessing risk:

• Processors can add and search for information about up to five principal and associate business owners per merchant.
• Processors can designate regions and countries for database searches.
• MATCH uses multiple fields to determine possible matches.
• MATCH edits all data and notifies inquiring processors of errors as records are processed.
• MATCH supports retroactive alert processing of data residing on the database for up to 120 days.
• Processors determine whether they want to receive inquiry matches, and if so, the type of information the system returns.
• MATCH processes data submitted by processors once per day and provides daily detail response files.
• Processors can access MATCH data online in real time.

An inquiring processor can contact the listing processing bank directly to determine whether the merchant that is being reviewed is the same merchant previously reported to MATCH, terminated, or inquired about within the past 120 days.

MATCH database searches. MATCH searches the database for possible matches between the information provided in the inquiry and the following:

• Information reported and stored during the past five years.
• Other inquiries during the past 120 days.

MATCH searches for both possible exact matches and possible phonetic matches. All positive MATCH responses are considered “possible matches” because the search mechanisms cannot guarantee a true and exact match with absolute certainty. There are two types of possible matches, including a data match (for example, name to name, address to address) and a phonetic (sound-alike) match made using special software. It is up to the inquiring processor to determine whether a possible match is trustworthy.

MATCH searches return the first 100 responses, including all terminated merchant MATCH responses, regardless of the number of possible matches.

Merchant records remain on the MATCH system for five years. Each month, MATCH automatically purges any merchant information that has been in the database for five years.

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).

Each chargeback is identified by a code that specifies the reason why an issuer is disputing a transaction’s validity. Visa and MasterCard use different Reason Codes and often a code used by one of the Associations does not have an exact equivalent with the other. Visa’s Reason Codes are two-digit numbers, while MasterCard uses four-digit numbers. This article will review MasterCard’s Reason Codes.

The following codes are used by MasterCard issuers to identify the first chargeback and specify the portion of the transaction amount that is being disputed:

An issuer can process a First Chargeback / 1442 message if it determines that a transaction can be charged back to the processing bank for one of the valid chargeback reasons specified in the table below.

An issuer can only process one first chargeback per presented transaction within the time frame applicable for the chosen chargeback reason code (typically 180 days). To generate a chargeback, the issuer must submit the First Chargeback / 1442 message with the applicable message reason.

MasterCard’s Corporate Purchasing Department Account Program does not have chargeback rights for the following message reason codes:

• 4835 – Card Not Valid or Expired.
• 4837 – No Cardholder Authorization.
• 4840 – Fraudulent Processing of Transactions.
• 4847 – Requested / Required Authorization Not Obtained and Fraudulent Transaction.
• 4862 – Counterfeit Transaction Magnetic Stripe POS Fraud.
• 4863 – Cardholder Does Not Recognize – Potential Fraud.

We have reviewed in detail the causes for chargebacks designated with some of the Reason Codes mentioned in this post and have suggested preventive measures in separate articles and will do so for the others in the near future.

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 and MasterCard process chargebacks in a similar way, with the biggest difference being the codes used by the two payment networks. This article will review the stages in MasterCard’s chargeback cycle.

The chargeback cycle begins with the presentment for clearing and settlement of a transaction from the processing bank to the issuer. If, for a specific reason, the issuer determines that the transaction may be invalid, the issuer may return it to the processor as a chargeback. When an issuer has billed a transaction to its cardholder’s account for payment and then initiates a chargeback, the issuer credits the cardholder’s account for the amount of the chargeback, so that, if the chargebacks is accepted by the processor, the issuer does not get reimbursed twice for the same transaction.

Each individual charged-back transaction is processed in the following fashion:

• First Presentment / 1240.
• First Chargeback / 1442.
• Second Presentment / 1240.
• Arbitration Chargeback / 1442.
• Arbitration Case Filing.

Additionally, if an issuer needs a copy of the sales receipt, the retrieval process has two steps – Retrieval Request and Retrieval Fulfillment. The retrieval process also may include Image Review.

The following table lists the stages of a transaction when the issuer initiates a chargeback.

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).