Credit Cards are a Convenience, not a Guaranteed form of payment

Each year millions of dollars are lost on fraudulent card use. Preventing fraud and losses start with the understanding that the responsibility for risk of fraud is solely with the merchant. Know your customer!

Each card company has its own set of regulations. It is important to understand that credit card payments are not guaranteed. Disputes or inquiries arising from card transactions result in retrievals and possible merchant chargebacks. A chargeback is a dispute procedure initiated by the card-issuing bank to settle a financial claim between the issuer and the acquirer. It is also important to remember that the issuing bankcard companies use a variety of fraud checks against their customer accounts to ensure proper use. A claim does not have to be initiated by the cardholder. For this reason, merchants are required to maintain accurate and complete records of customer bankcard transactions. Length of time varies, but it is advisable for merchants to have transactions readily available for 180 days before storing these away permanently and securely. A chargeback means that the amount of the original charge that was deposited is taken back out. The best way for merchants to protect themselves is to obtain "card present", swiped transactions with electronic authorizations and cardholder signatures. If the card swipe is unreadable due to a damaged card or terminal, then an imprint of the card proving it was present is required (not a photocopy, but an embossed imprint of the raised information on the front of the card).

Credit card transactions are divided into two categories: "Card present" (face-to-face transaction with card and cardholder present) and "card not present" (neither card nor cardholder are present) transactions. Because many fraud detection and prevention devices built into the cards are not utilized in "card not present" environments, merchants need to exercise good risk control when accepting these transactions.

Ultimately, merchants should use caution when accepting credit card transactions to ensure that the terms of sale with their customers are clearly understood, including return policies. Merchants should put procedures in place to make sure they know their customer.

Protect yourself from chargebacks and fraud

  1. Always obtain a manual imprint of a credit card whenever you cannot swipe the card through the terminal. A customer can dispute the charge and essentially “win” the chargeback case if you cannot provide proof that you had the card in your hand and were able to compare signatures!
  2. Utilize security functions such as entering the “last four digits” of the card on swiped-card transactions and Address Verification and CVV2 code to discourage use of counterfeit cards. Verified by Visa and MasterCard SecureCode are payment initiatives designed to reduce the risk of unauthorized use of a cardholder account by authenticating the cardholder attempting to make a purchase online. Authentication makes Internet shopping better and safer for both buyers and sellers on the web by reducing the merchant's exposure to fraud and frivolous disputes, and protecting the cardholder from fraudulent use of their credit card. Implementing Verified by Visa shifts liability away from the merchant and on to the card issuer.
  3. Use caution when taking an overseas order. Fraudulent transactions that originate overseas are on the rise. Remember that international transactions are high-risk transactions. Know your customer. Properly identify the person with whom you are dealing. Take a second look at what is being ordered and where it is being shipped. Did your customer offer you multiple cards as payment? Is the customer asking for immediate shipment? Does the transaction make sense? If not, you may have just detected a fraudulent transaction and saved yourself from taking a loss. There is a tremendous amount of fraud with international transactions, and it is virtually impossible to win the chargeback case. Banks outside the U.S. may not support additional security features like AVS, CVV2, and Verified by Visa.
  4. Do not charge a customer’s credit card before you have shipped the merchandise.
  5. Do not split a transaction. If a sale on a card for $1,000 is declined, it means the cardholder does not have the available credit. Do NOT charge the card $250 four times to get the sale to go through. The cardholder’s bank will most likely charge this back to you, and you will lose.
  6. Do not factor transactions. This means that you do not run transactions for another business through your credit card terminal. This will not only cause chargebacks (customers won’t recognize your business name on their statement) but MC/Visa will promptly relinquish your right to accept credit cards if you are caught doing this.
  7. If you are going to run an unusually large transaction or if, for some reason, you need to manually key numerous transactions when you usually swipe your credit cards, call ahead to let someone at your processor know what you are doing. Otherwise, your account may be flagged for unusual and suspicious activity, which may cause your funds to be held.