Telephone sales opened new markets for merchants who advertised in any area of the country. However, the Internet opened worldwide markets to businesses with websites. Since credit cards are the most convenient payment method, the marketing potential of local merchants expanded worldwide.
Unfortunately, the expanded markets increased the number of card-not-present sales. Anyone with a telephone or Internet connection could purchase items using another person’s credit card. Fraud and chargebacks are extremely expensive.
Since risks of card-not-present transactions are greater than card-present transactions, processing fees are higher. However, many safeguards have been established, and new ways to prevent fraud are constantly researched.
Credit Card Processing
- Card is presented for authorization
- Merchant presents card and transaction information to the merchant’s bank
- Merchant’s bank submits request to credit card network
- Credit Card Network sends request to card issuer
- Card issuer approves or disapproves transaction
- Credit Card Network sends response to merchant’s bank
- Merchant’s bank sends response to merchant
- Merchant receives response and completes transaction
- Merchant deposit receipt with merchant’s bank
- Bank credits Merchants account and sends transaction to Credit Card Network
- Credit Card Network pays merchants bank and debits card issuer account
- Card issuer posts transaction to the cardholder account
- Card issuer sends monthly statement to cardholder
Methods of Protecting Against Fraud
Merchants are protected from fraud when card-not-present transactions are processed. Some examples follow:.
- Address Verification – The cardholder’s billing address is confirmed by matching it with the address on file with the issuer. The customer must have more information than the card number.
- Card Security Code – Customers must have physical possession of credit cards to know the security number on the back of the card.
Authentication of Credit Cards – Visa and Master Card use secure methods to verify online purchases made with their cards. Cardholder identification is made in real time if the cardholder is registered in their programs. Merchants are protected from chargebacks when cardholders use these services.
In the business world, the key to success and profit is completing sales transactions. Banks seek to provide peace of mind to their customers by offering protection from unauthorized charges to their accounts by letting them dispute purchases. This puts business owners at risk of falling victim to the “Card Not Present” fraud tactics. Exposing criminal schemes commonly used against merchants will ensure better processes to protect the profit side of fraudulent charge claims.
Never Manually Enter Card Information
Old credit cards may not swipe properly, which may seem like the perfect time to take advantage of the key pad for credit card processing. Avoid doing this, even with regular customers that have built up trust with the establishment. Taking a risk with money will inevitably hurt profit if a customer identifies how easy it is to call their financial establishment to claim that the purchase was fraudulent. They do not investigate much further than looking for tell-tale evidence that the customer was indeed present with the card in question. In order to not let sales walk out the door due to a card not swiping, keep a manual imprinter on-hand to have evidence in the event of a dispute. Proof that the card was present will keep money from being removed from merchant accounts.
Always Get A Signature
Every card transaction will provide a customer receipt, as well as a business copy that requires a signature. Never skip this step or forge a name for any reason. In the event that the card was stolen, that signature can pinpoint the culprit. With proof of a card present and a recorded signature, the financial institution is responsible for the loss rather than the merchant. Treat every customer the same, and always follow every step in credit card processing.
Process Payments In Person
In today’s business world, a lot of businesses rely on Internet sales as a big part of their profits. Unfortunately, there is not a lot of verification in the process of transactions made through this medium. Elaborate security measures have not been put in place for reasons of inconvenience pushing customers away. Merchant accounts are best protected by screening customers for warning signs while orders are processing. Billing and shipping addresses unusually far apart, ordering large quantities, and choosing expensive quick shipment options are all worth a little investigating for authenticity.