The ABC's Of Credit Card Processing

You've seen how transactions work. Now we'll step back and review what keeps the whole credit card system together, namely:

• Built-in Protections
• Trust

Credit cards offer protection for you, your customers, and the banks involved. In fact, protection is why credit cards are safer for everyone.

MERCHANTS

When you accept a credit card (and the transaction is authorized) you can be sure you'll receive the funds. (Later, we'll discuss disputes where funds go back to the consumer.)

BANKS

The credit card system protects issuing banks from unscrupulous merchants. When you submit a deposit, you are promising the issuing bank that you have delivered the goods and services promised to the cardholder. If you don't, the issuing bank has the right to charge back the transaction.

CONSUMERS

Cardholders are protected from merchants who fail to keep their promises. They're not liable for payment if a merchant fails to deliver as expected.

Trust holds the credit card world together. The issuing bank doesn't ask a cardholder if he is satisfied before you get your money. They TRUST that the cardholder will be satisfied. Here's how you earn that trust: When you sell by credit card, you must deliver on the cardholder's "expectations" (note that word!) of your goods and services.

"What expectations?" Think about it. Either by policy or by practice, implicitly or explicitly, you tell customers that they can expect a level of quality, delivery times, etc. By accepting a credit card for payment, you are promising the issuing bank that you are going to "make good" on those expectations. If not, your customer can get his money back

Almost everyone has an idea how a credit card sale works. But even some experienced merchants don't know the other side of the system: Chargebacks. Understanding chargebacks can save you a lot of money, and help to salvage customer relationships.

If a cardholder believes a charge isn't legitimate, or her expectations weren't met by the good or service provided, she could come to you for a refund. But she has another, more troublesome, option: Chargebacks.

Here's how chargebacks work: Regardless of merit, the issuing bank is obligated to investigate complaints from cardholders, including:

• You never delivered the goods and services you promised her.
• She never ordered the goods that showed up on her credit card bill.
• She received the goods and services, but they didn't meet her expectations, so she wants a refund.

In these circumstances, the issuing bank initiates a Retrieval Request and/or a Chargeback to resolve the matter.

Some common causes of chargebacks can be avoided easily:

• If your company name appears one way on your advertising and your receipts, but a different way on the customer's credit card statement. In some cases, this problem results from two businesses attempting to process transactions from the same account. This is frowned upon, so call us if you have a second business, and call us if you just need to change the name of your business in our system so customers are not confused.
• When you charge the customer before the goods have been shipped. To avoid this, don't submit the "deposit" transaction before you have shipped the goods or performed the service.

Traditionally, the dispute process begins with a Retrieval Request that asks for documentation.

1. The issuing bank sends a Retrieval Request (often called simply "retrieval") to MPRO. (Sometimes, they start with a chargeback and skip the retrieval request altogether.)
2. MPRO sends the retrieval to you. The retrieval asks for proof that you delivered the disputed goods or services to the cardholder.
3. When you provide proof that you delivered the goods or services to the cardholder, MPRO forwards it to the issuing bank that informs the cardholder. The proof is usually a document (delivery receipt, credit card receipt and/or your store receipt) signed by the cardholder TIP: Reply PROMPTLY to these requests. Late responses almost always result in chargebacks.
4. At this point, the complaint is usually dropped (but not always)

If you don't have documents for the retrieval, or if you don't deliver a copy of the documents to your processor in time, the cardholder is deemed to be right. When this happens several things occur:

1. The issuing bank submits a chargeback to your processor through the Visa/MasterCard network.
2. Visa/MasterCard debits the original transaction amount from your bank account. (Or, it is deducted from your most recent deposit transactions).
3. Your sponsoring bank records the chargeback on your account record.

Besides the obvious financial loss to you, chargebacks are also bad because of that final step. Here's why.

Everyone in the credit card system knows that eventually a few transactions will result in chargebacks. They're a cost of doing business.

But, if you cause too many chargebacks, the credit card system will start to doubt you and your standing as a credit card merchant. When chargebacks become too prevalent, your merchant account may be terminated by your sponsoring bank. Then you may find it impossible to find another sponsoring bank. In other words, no more credit card acceptance. Ouch!

In most cases, chargebacks must be initiated within 120 days of the original transaction.

However if a merchant is alleged to have violated Visa or MasterCard rules, a "compliance" case can be disputed up to 180 days after the rules violation.

Preventing credit card losses is not only good for you, but it is also part of your responsibility. Here are some general guidelines on how to prevent fraud and avoid chargeback situations. For more information, ask for our booklet, "10 Plus Ways to Beat Credit Card Crooks."

• Make sure that the credit card is from the legitimate cardholder… not just someone who knows the card number, or has stolen the actual card
• Verify signatures (for face-to-face transactions) on the card and on the receipt signed by the customer
• Take special care with non-magnetic transactions like telephone orders, mail orders or Internet orders.
• If applicable, use the Address Verification System and verify the Security Codes (also known as "Validation Codes") on the card (this prevents many pass-through fees).
• Obtain a signed receipt from the cardholder and, if applicable, a signed proof of delivery from the shipper for delivered goods.
• Protect your merchant ID and terminal ID so no one submits transactions without your permission.

• Make sure shoppers know your warranty and return policy. Make sure YOU consistently live up to it. When consumers can resolve problems directly with you, you avoid the hassles of dealing with chargebacks.
• If you have a "no refund policy," the customer must acknowledge this with a signature. The words "No Refunds" must be printed at least ¼" high and be within ¼" from the signature space.
• Do not submit a deposit transaction until you deliver the goods or services.
• If you rent equipment or sporting goods, do not attempt to cover damage to your products by charging the customer's credit card without doing the following: You must run a separate transaction for the damage after swiping the card again and having the customer sign a separate sales draft and invoice for the damage claim. You must never attempt to charge for damage or loss using only the credit card draft obtained when performing your rental transaction… NEVER

Your processor and sponsoring bank expect you to be honest with your customers (thereby managing "expectations"). And you're expected to live up to your bargain. This translates into four requirements:

• Fulfill your shipment dates and commitments to your customers
• Promptly respond to requests for refunds according to your policy and submit the appropriate credit transactions to your processor. Do not refund a customer with a check or cash.
• Prevent fraud.
• Only charge cardholders after delivery of the goods or services.

MPRO supports its merchant customers with round-the-clock access to highly-qualified assistance. To reach customer support:

Call 888-573-1133

E-mail Customer Support at: customerservice@merchantproinc.com

Rule No.1: Every sale requires both an authorization and a deposit.

Rule No.2: Always note the Authorization Code.

An Authorization Code indicates that the cardholder has the credit to pay for the purchase. This assures you of payment, as long as

• A valid card was used by the authorized cardholder.
• The cardholder (not someone else) has signed a sales draft.
• The signature on the sales draft was matched against the signature on the back of the card.
• You have proof that the card was present ( a receipt created by your printer as the result of a magnetic stripe read, or an imprint of the card created by your imprinter). You won't have this for mail-order, telephone-order, etc., increasing the risk.
• The transaction is not disputed later by the cardholder. (If this happens, you'll have to fight for your money through the chargeback process.)

When the goods or services are provided at the time of the sale, the authorization and deposit are simultaneous. However, if the customer is paying hours or days before she'll receive the goods or services, process the authorization first. This reserves the amount from the cardholder's credit balance for you. Perform the deposit transaction when the goods or services are delivered.

TIP: To avoid a pass-through fee on the transaction, make sure you deposit as soon as possible after the goods are delivered. After three days, the pass-through will be applied but that's no excuse to make the deposit before the goods are shipped. Do not wait longer than 7 days, or you'll need to obtain a new authorization.

DEPOSITS

Deposits take funds from the cardholder's credit line and deposit them into your account. For an in-store purchase, the deposit is simultaneous with the authorization (unless the goods will be delivered at a later date). With in-store processing provided by MPRO, this is a single sale transaction.

Remember: In mail-order or telephone- order business (MOTO), the deposit must not be run until the goods are shipped.

When Are Funds Available? We thought you'd ask. Visa/MasterCard funds are posted to accounts two business-days after the date of the transaction.

A sales draft is a legal and binding contract between you and your customer. If you have a retail store, a sales draft must be completed and imprinted for every credit card sale. So, even if you're not using a POS terminal that prints a draft for you, you should still imprint the card and obtain a customer signature on a sales draft, an MPRO processing form.

For your protection, a manual imprinter can be used to imprint the credit card when any of the following are true:

• You're not using a POS terminal
• You have to manually enter (not swipe) the credit card information into your POS terminal " You do not have a POS printer.

Information that MUST be on a Sales Draft

• Credit card number (recorded from the card's magnetic strip or imprinted)
• Authorization Code and Reference Numbers
• Signature of customer
• Card expiration date
• Date of sale
• Amount of sale, including tax
• Description of goods/services

Keep drafts in a secure manner for three years (even if you sell your business). Check with your accountant for guidance before destroying them. In case of a chargeback, you may be required to produce sales drafts quickly, so file them so they're easy to find.

TIP: Keep the white copy of all receipts: They photocopy better. Also, handle carbonless paper and carbon/silver-back paper carefully. Pressure on the paper during handling causes black blotches that make your documents illegible.

TIP: You will be asked to find chargeback documentation based on the card number, transaction date, and the amount of the transaction. Therefore, filing your retrievals by cardholder name will make your research process more difficult unless you also have a cross-reference system.

IMPORTANT: Storing and destroying of sales drafts must be done in a secure manner to avoid the credit card information being stolen.

We've all heard about companies who have become victims of thieves who steal credit card information stored by merchants. To avoid this, your responsibilities to safeguard data include the following:

• Don't share, sell, purchase or exchange cardholder names and account numbers in any form. If you are mailing or emailing an invoice or other transaction data to a customer, do not show any credit card data except, if necessary, the last four digits of the card number.
• Secure all records, electronic or otherwise, that include cardholder names, account information, transaction information etc. to prevent access by anyone other than your processor.
• Never store magnetic stripe data.

In the electronic commerce arena, a number of best practices to help protect data from unauthorized access include:

• Encrypt cardholder data and only store that data in encrypted form.
• Back up files only in encrypted form.
• Secure encryption and communication keys in a secure hardware device or tamper-resistant security module.
• Limit personnel access to computers.
• Encrypt and decrypt within a secure hardware device. This isolates the encryption keys and minimizes their exposure.
• Manage all keys using split knowledge and dual control so no one person can have access to data in the absence of other employees.
• Protect access to file servers

Skimming is the act of capturing card data and then using the data to create counterfeit credit cards, or to make purchases. Typically, a crooked employee such as a store clerk or restaurant waiter will use a small device, such as a Personal Digital Assistant equipped with a card reader, to swipe a customer's card when no one is looking. The data can then be re-injected onto a magnetic stripe on a fraudulent card.

While skimming is often a high-tech endeavor, it has a low-tech angle as well. Simply put, an employee who gathers credit card information and writes it down is just as much of a threat as his tech-savvy counterpart.

Prevent this from happening. MasterCard will assess fines on merchants who are determined to be a "point of weakness" in preventing employee fraud. Meanwhile, Visa pays a reward of $1,000 to anyone who provides information leading to the arrest of a "skimmer," so it can literally pay to be vigilant about employee fraud.

You should review your credit card drafts at the end of each day or the beginning of the following day. No matter how reliable your processor (and we are reliable), you want to make sure that each transaction was properly processed. This can save you lots of grief at the end of the month, and help ensure you're getting proper credit for your sales.

Compare the total dollar amount of the drafts to the total amount you processed for the day. If you have a POS terminal printer, you can print both detail and summary reports of your day's transactions. For our other processing options, information can be obtained by using our online reporting service or by calling Customer Support at (888)573-1133.

Funds are deposited automatically to your sponsoring bank account. We recommend you always leave a balance in your bank account as a "buffer" to ensure funds are available for monthly transaction fees, chargebacks, etc.

Each day's Visa/Master Card transaction total will appear on your bank statement as a deposit described as "MPRO V/MC Trans." Since your Visa/MasterCard discount fee is deducted daily, the deposit shown is your net deposit.

Discover and American Express deposits are listed separately. Your processing agreements with these companies control the payment of your funds.

MPRO Billing

At MPRO you will receive a Monthly Statement ("Automatic Deduction Notice") detailing the month's total debit to your account. That debit to your bank account occurs on the first banking day of each month for MPRO's transaction fees, Visa/MasterCard pass-through fees, supplies, etc.

Merchant Processing Solutions
200 Harry S. Truman Parkway
Annapolis, Maryland 21401
1-888-573-1133