» Merchant Resources
» Merchant Memos

Preventing Chargebacks

The following 15 items will provide helpful insight into preventing chargebacks and fraud.

1. Top Factors Contributing to Fraud
» Top four by Percent

• 24.7% Stolen Cards
• 23.1% Counterfeit Cards (Skimming, Stolen Identity)
• 20.8% MOTO and Internet Fraud
• 14.9% Lost Cards

2. Store cardholder data securely

Cardholder Information Security Program (CISP) Requirements:

• Install and maintain a working firewall to protect data
  
• Keep security patches up-to-date
  
• Protect stored data
  
• Encrypt data sent across public networks
  
• Use and regularly update anti-virus software
  
• Restrict access by "need to know"
  
• Assign unique ID to each person with computer access
  
• Don't use vendor-supplied defaults for passwords and security parameters
  
• Track all access to data by unique ID
  
• Regularly test security systems and processes
  
• Implement and maintain an information security policy
  
• Restrict physical access to data
  

3. Factoring

» What Is Credit Card Factoring?
Credit card factoring, sometimes referred to as laundering, works like this: A company that does not have a credit card merchant account with a bank or credit card company recruits another company to process its credit card transactions through its own merchant account. When the processing merchant receives payment for the credit card charges, it turns the money over to the company without an account, but it keeps a previously agreed to percentage or other fee.

This seemingly simple procedure for earning extra cash usually does not work so well for the credit card processing merchant. The "guaranteed" easy income frequently turns into losses far beyond any commissions.

» Financial Risks Of Laundering
When you agree to process other merchants' credit card charges, you take on the responsibility of paying for any chargebacks, which very likely will exceed any commissions you might earn. When the banks charge you for these chargebacks (and they will, since you submitted the charges through your account), you will not be able to pass the charge backs on to the business that enlisted you to process the charges. When these companies close or move and become inaccessible to their customers, they are inaccessible to you, the processing merchants, as well.

4. MOTO/Internet Transaction
» Fraud - no cardholder authorization

Helpful Hints:

• Block future purchases by establishing a negative database of specific credit card numbers you have had a problem with as well as set customer access by limiting the number of transaction per hour / day.
• Use AVS (address verification service) and CVV2 for added protection. With AVS you key in the street number and zip code on "card not present" and "card present" non-swiped transactions. Always ship merchandise to the credit card billing address for maximum protection. International credit cards do not support AVS and offer no protection.
• Include your merchant phone number on customer billing statements so they can call you prior to initiating a dispute.
• Know more about your customers, perhaps only giving repeat customers the privilege of purchasing by credit card.

Credit card fraud on the Internet is serious and largely an unacknowledged problem. Although consumer security has grabbed headlines, US consumers face little risk because federal law caps liability for unauthorized charges at $50. The real risk belongs to merchants. Merchants carry full responsibility for fraudulent credit card transactions. While all online merchants are at risk, small and mid-sized merchants are most vulnerable.

The rules are the same for Internet transactions as for MOTO (mail order / telephone order) but the Internet makes it easier for criminals to put merchants at risk. Two of the most prevalent forms of fraud occur from 1) identity theft where fraudsters get personal data and apply for cards under assumed names and 2) where criminals pose as legitimate online merchants gather data for unsuspecting consumers. Internet fraud orders fall into two categories: 1) items that are easily exchanged for cash and 2) transactions that do not require physical shipment of goods.

5. Get An Imprint
» No imprint obtained
» No cardholder authorization

Helpful Hints:

• There are two ways to prove a card is present at the point of sale. One is to get a full read on the mag-stripe by swiping it through a certified credit card terminal. If the card will not swipe, then you are required to obtain an imprint of the embossed information on the card (a photocopy is not a substitute).
• Fill out the manual sales imprint draft with the date of the sale, purchase amount, authorization code to tie this imprint directly to the sales draft that prints from your terminal. Attach both drafts together for storage.

6. Respond Promptly to Retrieval Request
» Non-receipt of request for copy or response not in time
» Requested copy illegible

Helpful Hints:

• Both customers and issuing banks may request copies of sales and credit drafts. Once a request is initiated a 30-day clock begins. Responding quickly to get your copy of the draft back is very important.
• Keep all sales drafts readily available for 180 days then store for long term in a safe and secure place.
• Legible drafts, store thermal receipts in a cool, dry place and make sure information is legible before completing the sale. Replace ribbons often to prevent illegible copies.
• Will your customer remember the transaction? Always be sure signage matches billing statements and when possible help customers remember by sending confirmation directly to cardholder's address.

7. Credit / Refunds
» Credit not processed

Helpful Hints:

• Always put return policy near the signature line of the sale receipt (signage at the point of sale is not enough to meet the rules and regulations of the card association).
• Never give credits in cash or check.
• Never give credits on items if you are unsure the sales are made from your merchant account or that have been paid to you. Customers presenting their credit card statements or print outs from their bank are not sufficient evidence and in these cases, you should instruct your customer to contact their card issuer with a dispute.

8. Account Numbers Don't Match
» Non matching account numbers.

Helpful Hints:

• The number on the face of the card should match the number read from the mag-stripe. This terminal security feature is available on most terminal systems.
• On phone orders, read back the card number.
• Pay close attention when keying any offline transactions and credit transactions since these items do not require a terminal authorization check.

9. Duplicate Transactions
» Duplicate Transaction Chargeback

Helpful Hints:

• Always run reports and balance your batch prior to settling your terminal system. Look for duplicate sales on the same card number for the same amount.
• Be sure to call terminal help desk to respond to any error message when transmitting your batch to ensure it is submitted only once.

10. Merchandise Not Received / Service Not Rendered
» Non receipt chargeback

Helpful Hints:

• Do not process cards prior to delivery.
• Obtain a cardholder's signed proof of delivery.
• Installment transactions cannot include finance charges.
• Notify customer of any currency conversion fluctuations.
• Put terms in writing including shipping and handling charges.
• Note the receipt staes"deposit" or "balance".
• Prepayment may be processed on custom-orders if noted on receipt.
• On items out of stock and where delivery will be delayed, you should immediately advise the customer in writing and offer them options to purchase similar item or cancel the sale.

11. Recurring Transactions
» Cancelled transaction

Helpful Hints:

• Stop processing immediately for cancelled orders

12. Decline Authorization Means Decline
» Non receipt chargeback

Helpful Hints:

• Do not reduce amount or split sale in an attempt to get a declined card through the system.
• Do not call for a voice authorization on a decline message (only call when instructed).

13. Merchandise / Service Dispute
» Not as described
» Defective merchandise

Helpful Hints:

• Make customers aware of return policies and procedures.
• If a customer disputes transaction this way, they must first attempt to resolve with you. Always keep full detail and accurate records.
• Ensure package delivery for breakage.

14. Ownership Cash Advance
» The owners, principals, and officers of the merchant business may not swipe their own credit cards through the terminal, regardless of the intent. Because they have control of the business checking account funds, this is considered an illegal form of a cash advance and is strictly monitored by fraud control.

15. Employee Training
» Focus on card security

Helpful Hints:

• Match embossed numbers to mag-stripe.
• Check for bankcard hologram.
• Look for V or MC next to expiration date.
• Verify signature panel has not been altered.
• Compare signatures on card with signed draft.
• Hold on to the card during approval process so you can quickly check the cards basic elements and compare signatures.