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Avoid Credit Card Fraud
By:
Todd Sumrall of Merchant Processing NW FL
Merchants
need to avoid credit card fraud at all costs.
This goes without saying getting hit by
fraudulent orders affects the bottom line of any
business. I was reading an article a while back
about one of the bigger travel agencies on the
Internet who wasn't able to get out of the red
ink simply because they are getting so many
fraudulent orders. Now this company may think
they are too big to monitor all their
transactions, but if they are in the red because
of it, well then it's time to make some changes.
Smaller
merchants with big-ticket items can be wiped out
with just a few fraudulent orders; sometimes it
only has to happen once. I wrote an ebook,
"Protect Your Merchant Account from Fraud
& Chargebacks" that goes into great
detail on this subject. I will highlight some of
it here.
Chargebacks
happen when a cardholder disputes a credit card
purchase. There are a variety of reasons a
cardholder may dispute a charge. Some examples of
these are:
Never receiving the item
ordered
Not getting what they
thought they were buying
Their credit card was
stolen and they did not authorize the
charge
They could just be a thief
and use the chargeback clause to their
advantage
In
the event of a chargeback, the card-issuing banks
will initiate a chargeback against the merchant.
The funds for that sale are pulled from the
merchant's bank account and the merchant may or
may not be notified of the chargeback and be
given the opportunity to dispute the chargeback.
I was told by one really big acquiring bank that
they were not obligated to notify the merchant of
a chargeback. Anyhow, the merchant and merchant
bank knows nothing of the chargeback until it is
over and done with. Keep in mind, the customer's
card issuing bank is the one who initiates
chargebacks.
The
most important part in accepting a credit card is
to do your best to verify the cardholder is
actually placing the charge. On the Internet,
this can be done with AVS (Address Verification
System). Not a 100% guarantee, but it is the best
available right now. AVS will attempt to match a
portion of the customer's credit card statement
billing address against the billing address the
customer placed during the order. If you get an
address and zip code match, well chances are the
actual cardholder or someone authorized to use
the card placed the order. If you get a match of
one or the other, then it is your call if you
want to accept the credit card. I have a merchant
who does between 13,000 and 15,000 online
transactions per month and will accept a partial
match, but rejects all that come back with no
match. His chargeback rate is pretty low and this
seems to work for him. If you do not get any
match, then you need to sit on the order, jump up
and down on it, and chew on it for a while and
try your best to get in touch with the customer.
If you cannot, then it is in your best interest
to reject the order. Now the limitation of the
AVS system is that it only works in America with
American orders. There is no system in place, as
of yet, for accepting International orders. As
the attorney I interviewed in my ebook says,
"You accept International credit card orders
at your own risk."
There
are a few hotspot countries you would be best to
avoid unless you have an established relationship
with your client. Let me preface this by saying,
I draw this conclusion from my own personal
experience and the feedback I get from my
merchants, so take it for what it is worth. This
is not gospel! The countries are; any country
that was part of the former Soviet Union, and
Malaysia. They seem to have a larger than average
amount of fraudulent orders placed from there.
Now
for my most controversial comment, never accept
an order placed with a FREE email address! I have
been laughed at and scoffed at over this comment
simply because there are so many honest people
who use free email and this means losing orders.
Simply put, you are correct. You will lose orders
and sales and maybe even money if you follow this
rule. However, I don't think you will lose as
much as you would if you accepted orders from
free email addresses though. I know one merchant
doing $45,000+ in credit card orders per month
from the Internet that was following this rule.
Then one day, he decided to throw the rule out
and increase sales, as a result he almost lost
his merchant account due to excessive
chargebacks. Take it for what it is worth.
Statistics show that more then 50% of orders
placed from a free email address will be
fraudulent. For more facts about this, I suggest
you visit http://www.antifraud.com
There
is more to a chargeback than meets the eye. Not
only does a merchant lose the actual inventory
and the purchase price, but there are also
chargeback fees assessed to the merchant each and
every time. These fees add up because they are
anywhere from $15 to $50 a pop. Consult your
merchant account provider if you do not know what
fees you can be hit with. That is not all.
Merchants who have excessive chargebacks, this is
again defined by the provider, range from ½% to
2 ½%; a merchant can lose their merchant
account. That is, get terminated without warning
and could end up on the MasterCard Match List,
a.k.a. Terminated Merchant File, which is looked
at by other providers and if you show up on it,
this means you will not get a merchant account.
You can expect to stay on the list for 5 years
too. There are new rules and regulations that
have cropped up with the card associations. Visa
has an International Fine for excessive
International chargebacks and MasterCard has a
fine for excessive chargebacks for high volume
merchants. These fines are in the several
$1,000's to over $100,000. I am in the process of
updating my ebook to reflect this along with an
interview with T.J. Walker of http://www.antifraud.com and hope to have it
ready within a few weeks.
Keep
an eye on those transactions, use some common
sense and good judgement and things will be well
with your Internet business and merchant account.
My
ebook, "Protect Your Merchant Account from
Fraud & Chargebacks," is free to
download. To obtain a copy visit us at http://www.merchant-solution.com/
** SPECIAL NOTE **: If you have lost your
merchant account from excessive chargebacks and
are now on the MasterCard MATCH list because of
it there is help! Bank Card Law helps businesses get
their name off the MATCH list, help you obtain
another merchant account and educate you on how
to eliminate future chargeback episodes. Visit
Bank Card Law at http://www.bankcardlaw.com
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