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Best Practices

Only do business with people you trust

Regardless of how clever a companies website or marketing, make sure that you enter into agreements with companies you trust. At some point, all merchants have issues and often, those issues require a dedicated team that will assist in proper resolution.

Know what is in your Merchant Agreement

Do you know what you current agreement says? Do you even know where it is at? Take a moment and find it, read it, and contact a third party who will be able to explain it to you. Make sure that what was promised to you in the agreement is what is being delivered to your business. If you can’t find your agreement, contact your Merchant Service Provider and have them get you a copy of your agreement. When getting a copy of your agreement be sure to have them include any revisions, addendums or amendments that may have been made to it.

Make sure you understand all FEES associated with your account before you sign any agreement. Get those fees in writing.

Ensure all software and equipment used is current and meets industry standards

As Association rules change, and security standards are updated, it is critical that all systems used adhere to current standards. Often, fraud is allowed when systems simply don't meet approved guidelines.

Ensure all systems and procedures are poperly setup

Things to consider:

Make sure you correctly identify the specific merchant type for your business.
Make sure that if you have more than one merchant type (i.e. universities or resort environments) that each Merchant MID is set up individually.
Ensure that your processing setup provides you the ability to process directly to American Express or Discover if they account for more than 25% of your transaction count.
Publish a refund policy. Place it around your cash registers, print it near the signature line of the receipt and put it on your website. Take every step possible to make sure that your customers know that they can return merchandise and what the policies and procedures are. When you issue a credit, only issue the credit to the same card that made the original purchase. YOU CAN NOT GIVE CASH OR CHECK REFUNDS FOR A CREDIT CARD PURCHASE.
If more than 20% or the dollar volume that you process is being handled by corporate cards, you need to ensure that your processor and processing solution support Purchase Level II information. Even though corporate cards are less risky than cards held by individuals, there is more expense involved in the reporting provided to the cardholder at the end of each payment period and end of year.
Have the customer sign the receipt. Then compare the signature with the signature on their ID card.
Make sure the receipt is only printing the last 4 or 5 digits of the card number on the receipt.
If you know you are going to handle a promotion that triples your normal monthly sales volume, notify your Merchant Services Provider because uncommon sales volumes can raise flags. If you don’t they may completely shut you off from doing business or withhold all or some of your funds in “reserve” to help cover the potential risk. When the Merchant Services Provider places a hold on your funds it may be several months before those funds are released to you. There are some Merchant Services Providers that would terminate or de-activate the account immediately, which could cause a Merchant real problems when dealing with a high period of sales.

Ensure you and your staff get the appropriate education

When the cardholder presents their card for payment the first thing you must do is examine the card. Has it been altered in any way? Is it expired? Is it signed? Does the signature panel indicate the card is VOID?

Train your employees on proper practices for accepting credit cards in your business. Get them in the habit of comparing and checking the signature, verifying the card number on the card with the number that shows up on the receipt, asking for a driver’s license to make sure the name on the card matches the name on the person’s license and checking the expiration date on the card. Make sure your closing or opening staff is familiar with closing out your daily credit card batches and auditing the totals with your point-of-sale. Each of the card brands has published handbooks that you can order. These materials will help educate you in all the nuances involved with accepting and processing their card type. Get this information and arm yourself with the knowledge they provide.

Only accept cards the provide the correct AVS & CVV2 information

Whenever you can not get a magnetic stripe read, be it a problem with the reader at the store or because it is a transaction on the Internet, you should run AVS and CVV2 checks on the transaction. Address Verification Service (AVS) is a simple check that compares information presented by the cardholder with information on the billing account for the card.

Each Issuing Bank supports different levels of verification. The most widely accepted and supported level of verification is the zip code. If the person presenting the card to you can not identify the zip code for that card, you need to further scrutinize the transaction. When you send an authorization request with AVS verification the Issuing Bank will return two separate responses back. One response will be whether the dollar value of the transaction is approved and the other is whether the AVS information supplied for verification matched with the information the Issuing Bank has on file for that cardholder.

Along with AVS is the Card Verification Value check, which is most commonly referred to as a CVV2 card type, though it can be referred to as the CID, or CVC2 depending on the card type. This is a 3 or 4 digit number that is printed on the physical card and stored nowhere else except at the Issuing Bank for that card. Cardholder Verification processes are similar to Address Verification. The CVV2 value is passed to the Issuing Bank along with the regular authorization. The Issuing Bank will respond with two responses.

One response for the dollar amount to be authorized and a second response to identify whether the CVV2 provided matched for that card. You should ask the customer for the number on the card. If you do not get a match on the number during the authorization, you may not want to accept that card for payment. This “security” number exists on the card and in the computer system of the Issuing Bank for that card. This number is never to be recorded anywhere for any reason by anyone, doing so would break down the security of the number.

Routinely Audit Transactions

Auditing transactions before settlement is a powerful way to minimize the Effective Rate. If errors are discovered after settlement, Merchants may pay Discount Rates for a transaction for which they will ultimately not receive funding. Timely adjustments made before settlement cost nothing.
Auditing transactions is the practice of balancing your daily batches with your point-of-sale system. Most point-of-sale systems provide a daily totals report (X or Z Out) that will provide a sum of all credit card transactions run through the system. In some cases, they may even provide a list of the individual transactions that are included in that sum. This total should be compared to your credit card solution to ensure that what you are submitting for funding exactly matches what your sales for the day were in your point-of-sale. If for some reason these reports do not balance, you should have sufficient abilities in your credit card solution to find the problem causing you to be out of balance and to correct the problem prior to submitting your batch to the processor for funding.

Properly Settle all Batches

Settle your batches daily. This will help ensure that you are getting the best rate possible on all of your transactions for each day. Transactions not closing within 24 hours are considered higher risk as there is a greater chance of the cardholder disputing the charge.

Understand Debit Cards

People talk about Debit Cards more today than ever before. The move by our banking institutions to provide checking account customers with a check card branded by a Card Association, as well as backed by a Debit Network, has given consumers more flexibility in their payment options.

There are two types of debit when talking about Debit Cards. They can both be represented on the same physical plastic card.

Online Debit – Online Debit is sometimes referred to as PIN debit. This is similar to performing a transaction at the ATM. The card is swiped or inserted and the consumer is asked to enter their secret Personal Identification Number (PIN). The transaction is processed over the banking ATM network and the transaction is approved or declined. As a Merchant, you must be specifically setup to accept these types of transactions through your Merchant Account, and you must have special hardware to accept the PIN entry from the customer.

Offline Debit – Offline Debit is sometimes referred to as Signature Debit. This is similar to a credit card transaction. If the card has a branded logo on the front, such as Visa or MasterCard, the card may be processed by simply swiping it through a credit card terminal that supports that card’s brand. The transaction is processed over the Merchant’s regular credit card network and the transaction will come back as either approved or declined. The customer must then provide their signature as approval of the transaction.

There is a big difference between these two types of debit transactions. Since the Offline Debit transaction runs through the Card Association, the Merchant pays an Interchange-based rate on the transaction since it must go through Interchange. With an Online Debit transaction, the transaction is processed through the ATM network which would bypass Interchange. Online Debit transactions are typically processed for a flat per transaction fee of between $.35 and $.65 per transaction.

If you are a retail Merchant with an Effective Rate of 1.9% and an Online Debit fee of $.45, there is a huge difference in what your cost is on a transaction whether you run it as an Offline or Online Debit. Assume a transaction for $100. The Offline Debit would cost roughly $1.90, while the Online Debit would only be $.45. That is a savings of $1.45.

Now if we look at a smaller transaction amount, like $20, the Offline Debit would cost $.38 and the Online Debit would cost $.45. In this case, the Offline is actually cheaper.

It is important to know what your rates are and how the math works to determine which transactions you want to process as Online Debit and which you want to process as Offline Debit. Careful analysis of this can save a Merchant thousands of dollars in a single year.

Note:
Merchants such as hotels and restaurants tend to over authorize a transaction prior to the transaction settling. Hotels do this to ensure that there are enough funds to cover any incidental charges that may arise and restaurants do this to ensure that there is enough balance on the card to cover the tip. With traditional credit cards this is not a problem and transparent to the cardholder. With more consumers using Debit Cards, this has created a real problem for these Merchants in customer service. Since Debit Cards directly tie to the consumer’s bank account, the extra amount held in the authorization ties up funds in the cardholders’ bank account that will not be released for several days. Many consumers do not understand this practice and most Merchants don’t understand it either.

Have a backup plan for when electronic systems fail

No matter how much you plan and prepare, the world of computers and networks it is not a perfect environment. A Merchant must be ready for an occasional outage in credit card processing.

Every location that accepts credit cards as a normal means of payment should have the phone number and other specific information that the Merchant needs to place a voice authorization call on a transaction. Voice authorizations are needed when the Merchant can’t send it though their normal processing channels because the communication method is down (i.e. Internet), if the transaction amount is too high to be approved or when a transaction is being declined with without a specific reason. The voice authorization obtained from the call center should be recorded and notated on this slip.

A “knuckle buster” should be present, as well as the authorization slips, to take an imprint of the card and retain the customer’s signature with the transaction.

Diligently work Chargebacks

While a cardholder has 60 days from the day it receives its statement, the Issuing Bank has 120 days or more after the transaction date to file a dispute with the Merchant.

The process begins with a retrieval request to the Merchant. If you receive a retrieval request, it is in your best interest to respond to it as quickly as possible. Failing to respond will result in the transaction being charged back and you will not only lose the funds from that transaction, but also have to worry about the status of your Merchant Account. Each card brand has its own guidelines regarding the Merchant’s dispute process for a chargeback. The typical process is rather involved and may be escalated to a point of arbitration.

Chargebacks place an additional burden on the Merchant Bank and Issuing Bank, and since the Banks make a very low profit on each individual transaction, any deviation from the normal processing cycle digs into the profit margin substantially.

Chargebacks are also a burden to the Merchant receiving the complaint. Merchant’s must take time away from their normal business day to research records and pull together information to substantiate a transaction and keep the money they earned for a good or service they have already provided.

Excessive cardholder disputes, just a person filing a complaint whether upheld or not, counts as a negative against a Merchant’s Merchant Account. These disputes can cause a Merchant to have their Discount Rate increased, be subject to additional fees or even lose their Merchant Account. If the amount of chargeback(s) for a Merchant exceeds 1% of one month’s sales volume, the Merchant may be considered as having excessive chargebacks.

The Merchant Services Provider may then deem the Merchant to be a high-risk and increase the fees that it charges the Merchant. There may even be a required deposit made to “guarantee” funds, as well as a hold placed on transactions prior to them being funded to the Merchant’s Account. Merchant with excessive chargebacks may have its Merchant Account terminated and placed on the MATCH (Member Alert to Control High-Risk) listing.

Issuing a credit works in much the same manner as a chargeback, only it is initiated by the Merchant. When a Merchant returns money from a prior purchase transaction to the cardholder, this is considered a credit. Because of the involvement of moving funds in the opposite direction of a regular transaction this creates a burden on the involved financial institutions.

Here are some helpful hints to help you avoid and fight chargebacks.

Maintain an easy to use database of all your credit card transactions. When it comes time to fight a chargeback the quicker and easier you can access the information the more likely you will be to better fight the dispute and win. At the same time, you need to take a variety of measures to secure this information as described in the Security section.
Your Merchant Services Provider should offer an electronic alert system that you can enroll in to help make you aware of retrieval requests more immediately and provide you with more time to respond to the request. The more time you have, the more accurate and complete information you will be able to provide to protect and uphold the charge.
Using a Gateway that provides you quick and easy access to your transactions will make it much easier for you to respond to these retrieval requests. If you have the ability to use an electronic signature capture device and have the signature stored with the Gateway, you will have a single location to pull all your information for the retrieval request.
The more information that is on the receipt: specific items purchased, signature, return policy, and address and phone number for location, the better your chances of defeating the chargeback inquiry.
When you receive a chargeback against your account you will receive a description and explanation for the reason you lost the charge. Examine the reason given, learn from it, find out what was done wrong or missing that caused you to lose the charge and use this to prevent losing another charge for the same reason in the future.

Avoid Common Merchant Mistakes

Below are some common things that Merchants have done that have caused them a great deal of problems related to their Merchant Account. All of the following items may result in you losing your Merchant Account and/or being fined.

Do not run your own personal credit card through your own Merchant Account.
Do not process transactions through your Merchant Account to provide cash to yourself or a friend.
Examine the card! There have been many cases of an expired card being presented for payment that gets a valid authorization from the processor. However, in the end the transaction is not paid to the Merchant. The Merchant is responsible for examining the card and verifying the information present on the card.
Never let another Merchant user your Merchant Account. Processing transactions that do not belong to you is called “factoring” and can cause you to lose your Merchant Account, as well as make you liable for any criminal activity that was being done or handled in those transactions. Also, if for any reason there was a dispute or chargeback filed, it would be against your account.
You are absolutely not allowed to only process transactions above a certain minimum or below a certain maximum value. Per regulations, if you are going to accept credit cards, you must accept them for any transaction.
Merchants are not allowed to charge any sort of usage fee for credit card transactions to offset the cost of accepting credit cards. This was done many years ago, but has since been outlawed by the card networks. Your Discount Rate and other associated fess are simply a cost of business that you accept when you decide to accept credit cards.
Do not split a transaction up into smaller transactions. Doing this not only can get you in trouble with your Merchant Services Provider, but it can also open you up to a chargeback, as the customer may only claim one of the charges and not all of them. You lose money, lose product and get a chargeback filed against you.
You can no longer request a credit card to guarantee a check. This is an old practice that is no longer allowed.
You must truncate account numbers on your receipts. Each state has its own laws governing what can and can not be on the receipt. For both the Merchant’s and cardholder’s protection, the general rule of thumb is to print no more than the last four digits of the card number on the receipt.
Always get an authorization for every credit card transaction you are going to settle. Not doing so will only create headaches and lost revenue for you.
Take every measure possible to prevent duplicate transactions. Duplicate transactions will result in a credit, dispute or chargeback and all of these can add up to losing your Merchant Account.
Read your Merchant agreement. This is the document that you executed to get your Merchant Account. It outlines all the various fees and charges, as well as specific rules and regulations that you need to be aware of. Read and understand your Merchant agreement before executing it. If there is any portion or areas of the agreement that you have the slightest bit of question on have your Merchant Services Provider give you a WRITTEN explanation of it. Once you sign it, you have committed yourself to the rules within it.
Make resolving customer issues a priority. If you won’t take the time to help a credit card customer that has a question or issue regarding a charge from your business, they will take the problem to their Issuing Bank and again excessive disputes can ruin your ability to continue processing credit cards.
There are a variety of fraud screening products and services available to Merchants. Take advantage of them. If you don’t think you need them, remember it will be too late to do anything about it after something happens. Today’s thieves can break a business in no time.
When investigating a business venture or business partner, take the time to examine the credit history and MATCH listing for those entities. If they have problems and you take over the business or go into business with them, you will be inheriting that problem yourself.
Ensure that old Merchant Accounts are properly closed and terminated. When getting rid of terminals and other credit card related equipment, ensure that proper steps have been taken to close the equipment out of all transactions to ensure that you get funded for your sales. Contact your processor’s support center to find out how to clear the memory of the equipment. If the equipment were to wind up with a criminal, they could take all of your Merchant information from that terminal and use it to steal money with your account settings.
As your business changes and grows, you need to keep your Merchant Services Provider aware of those changes and growth. If you have a retail Merchant Account and decide to branch out to the Internet, you need an additional Merchant Account to handle your Internet payment transactions. Trying to process Internet transactions with your retail Merchant Account can lead to serious fines and even the loss of your Merchant Account.