- The customer has 6 months to issue a chargeback on any purchase. Most of the time, you are dealing with legitimate customers. However, there are customers who know how to “abuse” the chargeback system, and attempt to issue a chargeback, even if they received the product/service. We call this “friendly fraud,” and there are steps you can take to help prevent these chargebacks.
- Credit card fraud….the possibility of a customer making an order with a stolen credit card is higher than you would think. We will help train you to prevent these types of fraudulent transactions.
Obviously these are two large risks; however, they are offset by the fact that accepting credit cards can usually increase your sales by 50% to 400%. We are not trying to scare you, but would prefer that you understand how to keep your profit margins safe.
- Get a signed receipt for all card-present transactions.
- Require “CVV” or “CCV” (card code verification) on card-not-present transactions.
- Require at least partial AVS (address verification system) “match” on card-not-present transactions.
- Review transactions with a different “ship to” and “bill to” address (if you accept a transaction with different billing & shipping addresses, you cannot dispute a chargeback, even if the billing AVS matches).
- Review transactions from outside the USA.
- Watch for transactions that are “too good to be true”…they often are! If it’s the first time a customer has ordered from you, and wants a very large or expensive order over-nighted ASAP, its worth double-checking by manually confirming the order with the customer.
- Review transactions that were preceded by several failed transactions, especially if different credit card numbers were used.
- On Card-Not-Present transactions, especially on higher ticket transactions, require a signed authorization form from your customers. We can provide you a draft form to update with your company information to have your customers sign and return.
- Monitor the “velocity” of transactions. Signs of fraud are if several transactions are submitted in a row with the same IP address, same email address, same name or billing address, but different card numbers.
Besides these basic fraud protection measures, we also advocate the following:
- Verified by Visa & MasterCard 3D Secure (VbV and 3DS). Protect yourself from chargebacks for “fraud” reasons.Click here to read more.
- Fraud Scrubbing: AVS & CCV alone is not fail-proof. Bolster your confidence and bottom-line by preventing fraudulent orders before they occur. Click here to read more.
- Clear copy of the principal’s drivers license or passport
- Void business check or bank reference letter to confirm the account for deposits
- Proof of business: Depending on the business type, we’ll need the DBA registration, business license, or articles of incorporation or articles of organization (sole proprietors do not require any of the above)
- If a US company: 1-3 business days
- Canadian: 3-10 business days
- UK: 5 business days
- EU: 5 business days
- Panama: 5-10 business days
You can get put on the TMF file when a previous processor terminates your account, if there was a violation of your merchant agreement. Often this is having excessive chargebacks (more than 1% per volume or more than 1% per transaction count), or it may be for other reasons, such as fraud or collections issues. You should note, that you cannot just change your business name and reapply at a new bank, the TMF file lists *everything* that was on your application with the first bank (names, addresses, URL, EIN, SS#, DBA, etc).
It is nearly impossible to be removed from the TMF list once you are on it. It is critical to understand your responsibility as a merchant, and the risks you are assuming, when you accept credit cards. Many merchants feel that finding the lowest rates is the most important aspect of a new merchant account….we feel instead that finding a partner that will help you protect your business and minimize your risks, is the most important aspect to look for.
How you will respond to the chargeback claim will depend on what the “reason” for the chargeback was. Common reasons for chargebacks are: product not received, credit/refund not processed, unauthorized transaction (fraud), and more…in all there are well over 30 chargeback reasons. Click here to read a more detailed explanation of the chargeback cycle.
There is another old saying: “There is no free lunch.” Nothing in business is free….You should realize that there are real costs involved in the discount rates, transaction fees, and terminals. If a broker is offering you rates well below the average industry, we guarantee there is a catch somewhere. Also, a prospective merchant should take some time to step back from the “lowest rate game:” the difference between 2.29% and 2.39% is $10/month *if* you are processing $10,000/month. Is $10/month a reasonable cost to incur to pay for responsive 1-on-1 merchant support? Many merchants don’t realize until it’s too late in the process, but a merchant account is a relationship with that bank and its risk managers, and this relationship is one of the most important aspects of your business. With processors that charge the lowest rates, there isn’t enough incentive for them to take the time to assist your business, and its all too easy to end up on the TMF list, or encounter problems with fraudulent orders, or have to settle for sub-par merchant support.
- Your Website and/or Shopping Cart: Your website hosts your products or service descriptions and pricing. You may or may not have a “shopping cart” to organize your products. We offer our own free shopping cart with our gateway, or you can integrate into many other shopping carts on the market (see the list of supported shopping carts listed on our Merchant Login page).
- Gateway: Your website/shopping cart will send transactions to our gateway; the gateway is the entity that securely handles credit card data between your website and the processing bank (log into Durango’s gateway with our Demo access here). We also support most all other major gateways on the market. Please note the gateway charges a monthly & transaction fee seperate from the processing bank.
- Processor: The gateway will send the transactions to the processing bank, or “Processor.” The processing bank deducts the discount rates & transaction fees from Visa/MC/Discover etc, and then deposits the net funds into your checking account.
Since a customer has 6 months to issue a “chargeback” on any credit card transaction, every transaction the bank allows a merchant to process is a “signature loan” or “provisional credit” to the merchant for 6 months. A prospective merchant should realize that a processor offering merchant accounts is doing so as an investment vehicle, and on all investments there are risks. The ultimate risk here is that a merchant will process, for example $20,000/month, for 3 months, and then go out of business, unable to fulfill their services/products promised to their customers. Since customers have 6 months to issue a chargeback for services/products not received, a right granted to them by their credit card issuing bank, the bank can expect to see many of these transactions to come back as chargebacks. While it is true, that most processors require a “personal guaranty” and will attempt to pursue you personally to collect any losses, it is the processor that is ultimately responsible to Visa/MC/AmEx/Discover for repaying these transactions if the merchant is unable to.
True, this is a “worst case” scenario, however, losses are incurred on a more regular schedule, on merchants that experience even less significant chargeback problems. So, this is why underwriting is involved on a merchant account application, to ensure that the processor is not assuming more risk than is warranted.
It is difficult to get a merchant account approved, if you are in an industry that has a HISTORY of high chargebacks. The banks must spend valuable time on defending merchants’ chargebacks, and processing the paperwork, and possibly even assuming a financial loss. Many banks don’t feel the reward (the fraction of a % of the discount rate that you pay that is profit to them) is worth the risk/time of an account whose industry has traditionally high chargeback ratios.
So a processing bank may consider your account hard to acquire for four main reasons:
- Worst-case scenario of taking a loss on your account, due to your personal credit or company finanacials not able to support the sales volume that you are applying for.
- Your service or product has a longer chargeback liability period. If you are offering annual memberships, customers have 18 months to issue a chargeback (6 months from the end of the service date).
- You are in an industry that has a history of high-chargebacks. The bank feels they will spend too many resources managing your account, and eventually have to turn you off regardless if/when you exceed chargeback thresholds.
- The account has a “reputational” risk, such as the adult industry, or if you are on the TMF list.