Small Businesses: Tips to Avoiding Fraudulent Chargebacks

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Information about Small Businesses: Tips to Avoiding Fraudulent Chargebacks

Published on March 7, 2014

Author: bluesme



Compiled and designed by Mark Fullbright , Certified Identity Theft Risk Management Specialist™ (CITRMS) as a free guide for merchants to protect themselves online & POS and to reduce their exposure to chargebacks and losses due to fraud.

• Company names mentioned herein are the property of, and may be trademarks of, their respective owners and are for educational purposes only.

SMALL BUSINESSES: TIPS TO AVOIDING FRAUDULENT CHARGEBACKS Fraud is an intentional deception made for personal gain or to damage another individual.


FACTORING     Processing transactions through a merchant account for a business or entity other than the specific business that was screened for the merchant account  Also called credit card laundering For example, if an individual operates two separate businesses, they cannot process one store’s sales through the other store’s merchant account. Since you are ultimately responsible for all transactions that run through your merchant account, if any items are charged back, you are held responsible and your account will be debited for theses transactions. The crime? Factoring is used as a method to launder money via credit cards. Visa and MasterCard can have your merchant account shut down, and you can be substantially fined, and placed on the TMF

CARD-NOT-PRESENT SCAMS       The risk of fraud increases greatly if your customer and their credit card are not present at the time a purchase is made because you don’t have the opportunity to inspect the card. “Card-not-present” transactions typically occur over the phone or fax, or are Internet sales or catalogue purchases. Without the card in hand, you are unable to inspect the card, check for suspicious markings or verify the customer’s signature. As a merchant, you put yourself and your company at greater risk by accepting these types of transactions. If you are processing card transactions by telephone, fax or Internet, make sure that you have signed the specific merchant agreement required to perform Mail Order/Telephone Order transactions where the card is not present. Even after you have the proper agreement in place, it is crucial that you take the precautionary steps to prevent potential chargebacks.

SKIMMING     One example of skimming is where the fraudster uses a device to read and copy the data on the magnetic strip of a credit card – a process known as “skimming.” Other times the information is received by tapping into phone lines. Regardless of the method used, skimming is responsible for millions of dollars of losses. Typically, fraudsters ‘skim’ the magnetic stripe in order to later use it to Credit card skimming is when a person records the information on a credit or debit card without the owner knowing about it with the intention of using that credit card information illegally. Be on the lookout for devices used to swipe credit cards. They are usually box-shaped cordless devices that look like pagers and fit in the palm of your hand. Laptop computers have also been used to accomplish the same thing.

DON’T BE BULLIED       Here the “customer“ attempts to intimidate the cashier by causing a fuss at the register so that the purchase is rushed, which may lead to improper check out. They may tell you that the card won’t read and not to bother running it through – that you’ll have to key it in manually. The crook may provide an authorization code they claim was given to them by their bank. Don’t use it! If the card in hand does not work, call your processor or bank. If the crook demands anything else, give the card back and deny the said. It’s better to lose a sell to a crook any day. Don’t be intimidated by these bullies; always take your time and make sure the correct procedure is followed when authorizing the card.

THE MANUAL KEY-IN       Often fraud occurs when the thief damages the card on purpose so that you are forced to manually enter the number in the electronic point-of-sale terminal. Fraudulent cards are often damaged in order to bypass the antifraud features that are placed on them – the magnetic strip cannot be swiped and transmitted to the verification center for authorization in the case of a manual key-in. If you have an electronic point-of-sales terminal, swipe every card that you come across – no matter how damaged or worn. And be wary of customers who let you know right away that their card won’t read. If the card doesn’t work and you end up keying in the number, make sure you take an imprint of the card. If the card is severely damaged, simply ask for another form of payment.

BORROWED CARDS       Beware of people waving letters of authorization for use of a credit card. Never accept any form of verification or authorization. Don’t fall for children borrowing their parent’s card either. Friends, coworkers, and spouses are not permitted to borrow each other’s cards. The only person who should be presenting the card to you is the person whose name is on the front of the card and signature on the back of the card. Chances are the rightful owner gets the statement and a chargeback inevitably occurs.

THE TERMINAL REPAIR SCAM      This is a classic fraud scam. Crooks come into your business and tell you that your POS terminal needs to be repaired – offsite. But don’t worry, they’ll replace your broken one with a loaner. Once the loaner is in place, all of the information you scan through is recorded, and now the information is theirs. You may not even see it coming, as these criminals often pretend to work for POS companies or say that they are attending to other official business. Any attempt to repair your terminal should be reported to the police, and no replacement terminals should be accepted. The safest thing you can do is to be cautious and report any suspicious happenings immediately by calling your Merchant Services Help Desk. They will help you verify whether your device has been scheduled for pick up and repair and as well as the authorized repair dealer.

THE LAST MINUTE SHOPPER  Be on the lookout for the shopper who is purchasing expensive items just before closing time, or someone who is hurriedly filling a shopping cart with this type of item, without paying much attention to price, size or quality.  These are the shoppers whose transactions need to be handled with your utmost attention.  Crooks use this scam to catch merchants of guard and not looking at the card carefully or bypassing security protocol.

COUNTERFEIT CARDS      Stolen and counterfeit cards are a huge problem for merchants and credit card issuers alike. Because of the technology available to them, counterfeiters are able to reproduce false cards that are high quality, even without the benefit of the original. All they really need is personal information and technology to produce credit cards, debit cards, and smart cards. The result is a huge financial loss to businesses around the globe. Protect your business by teaching your staff to recognize the signs of a false credit card by checking the card security features every time you make a credit card sale. Call in a Code 10 if you suspect that the card presented to you seems suspicious.

YOUR FIRST LINE OF DEFENSE CALL IN A CODE 10     Any time you have doubts about something – a fraudulent card, a signature or even a customer’s behavior – call in a Code 10. A Code 10 allows you to call for an authorization without the customer becoming suspicious. After dialing the authorization center, inform the operator that you have a Code 10. The operator will put you through to the correct person, who will ask you a series of “yes” or “no” questions. If the operator decides something is amiss, he or she will deny authorization. The operator may even request to speak with the cardholder to ask account information questions that only the true owner of the card would know. Call the voice authorization phone number provided by your Merchant Services. Choose the prompt for "Code 10"


TAKE CHARGE OF CHARGEBACKS Chargebacks are one of the most common – and costly – ways that fraudsters take advantage of merchants.  For example, some fraudsters, appearing to be legitimate customers, will take both the “merchant copy” and “customer copy” of the sales slip after they have signed it.  When they receive their credit card statement, they dispute the charge. And, since your company has no record of the transaction, the full amount is credited back to the consumer, and your business loses the merchandise 

FRAUD CHARGEBACK    A chargeback is a transaction disputed by the cardholder or card issuer. There are many reasons for chargebacks, but the most common are returned merchandise, terminated services, disputes, errors, or fraud. Merchants must be able to provide proof that the disputed transaction is valid and in accordance with Visa/MasterCard regulations or risk having their account debited for the disputed amount.. For your business, a chargeback translates into extra processing time and cost, a narrower profit margin for the sale, and possibly a loss of revenue. It is important to carefully track and manage the chargebacks that you receive, take steps to avoid future chargebacks, and know your representment rights.

AVOIDING CHARGEBACKS       Respond to retrieval requests and chargebacks promptly. Another suggestion to prevent fraud is to require customers to enter the 3 digit security code on the back of their card when ordering products online. Advertise honestly and have clear terms of service — these can prevent customers from disputing transactions because the product they purchased was not as described. Make it as easy as possible for customers to get customer service, and make the return policy clear at the time of the transaction. Follow the terms of service set by the card brands. Any compliance violation can cause a merchant to lose its chargeback rights. Card-present businesses can prevent chargebacks by requiring that cards be swiped, and get a signature whenever possible.

CHARGEBACK GUIDELINES Chargeback Management Guidelines for Visa Merchants  Chargeback Guide For MasterCard  Merchant Chargeback guide-American Express   Chargeback and Exception Processing Guide

VERIFICATION NUMBERS     VISA Merchant Verification Service 800-847-2750 AUTOMATED Option 1, Address Verification: enter in the numeric portion of the street address, zip code, and VISA card number and it will advise you if there is a match. Option 2, Issuing Bank Phone numbers: enter the VISA card number and it will provide you with the 800 number for the issuing bank if available. MasterCard Assist 800-622-7747 Select your language preference, then Option 2. Enter the MasterCard card number and it will provide you with the 800 number for the issuing bank if available. Discover Address Verification 800-347-7988 AUTOMATED You will need your Discover Merchant number. Enter the Discover card number and address information, and it will advise you if there is a match. American Express Address Verifications 800-528-2121 Option 3 allows you to verify the name and address of a particular AMEX card number.


PROCESSING TRANSACTIONS MANUALLY WITH AN IMPRINTER            When you process transactions manually, be sure to take an imprint of the card every time a purchase is made with a credit card Hold onto the credit card throughout the sale Be sure to call in for authorization for every credit card transaction, if required. Make sure you neatly print and fill out the sales draft so that it is complete, clear, and easy to read Have the customer sign the receipt while you watch and verify that this signature and the signature on the back of the card match Don’t divide one purchase onto more than one sales draft Do not change or alter the sales draft after the customer has signed it – if there’s a dispute, the customer’s copy is treated as correct If a transaction has been cancelled by the customer, take the required steps to stop the billing or reverse it immediately Be sure to display your return policy at the point-of-sale – remember it is your responsibility to inform your customers of this policy Maintain a well-trained staff and ensure that they follow card acceptance check-out procedures correctly Save all copies of your sales draft in case of future disputes

MAIL AND TELEPHONE ORDERS       If possible, establish the customer’s identity by writing their name, address, credit card number, and expiry date on the sales slip (also include name of issuing institution) Be sure to call in for an authorization for every credit card transaction, if required. If you are taking an order over the phone, fax or Internet, only ship items to permanent addresses – steer clear of post office boxes or hotel lobbies, if possible. Consider utilizing a shipping vendor that requires a customer signature for delivery of merchandise. Moreover, use a shipping vendor that can provide easy access to ‘proof of delivery’ information as this may assist in the chargeback process. Where applicable, utilize a billing system that provides address verification or CVV processes Always send a copy of the sales draft to the customer either when the product is ordered or when it is shipped

ADVOCATE TIP#1 Understand the consequences of high risk transactions and be proactive in preventing unnecessary chargebacks and taking losses.  Be familiar with your processor’s steps for potential fraud. Have a list available with contact numbers for employees to call if needed.  Consider training classes for employees using the resources listed in this guide.  If you take a loss from a chargeback, follow up with your processor or bank on how to prevent it from happening again.   Repetitive losses could cost you in processing pricing

FRAUD RESOURCES Look Up a ZIP Code – Validate if address is real  Credit Card Fraud Prevention & Security – Discover Card   The FTC’s Bureau of Consumer Protection

MASTERCARD FRAUD SECURITY  Arming You With Knowledge  MasterCard Security Features  Unsigned Cards  Design Features  Fraud Training

VISA FRAUD SECURITY  Visa Fraud Control  Key-Entered Transactions  Card Not Present  Know the signs of possible fraud  Skimming is a Scam

ADVOCATE TIP#2 Keep updated on current fraud trends and training from your processor or bank.  Order flyers and/or posters from Visa and MasterCard to post as reminders to employee to be aware of fraud.  Avoid Force Posting transactions, if you are not able to receive a valid authorization code, ask for another form of payment.  If you received large international orders and you had not before, use caution.   Think of what you have to lose, before thinking of what you’ll make in profit.

VERIFIED BY VISA     Verified by Visa works to confirm an online shopper's identity in real time by requiring an additional password or other data to help ensure that no one but the cardholder can use his Visa card online. When customers see the Verified by Visa symbol on your site at checkout, they can rest assured that their online transactions are protected by the brand they know and trust. And, even if the cardholder isn't enrolled in the program or their issuer isn't participating, the merchant is not liable for certain fraud-related chargebacks on Visa personal debit and credit card transactions. Protecting both merchants and consumers against fraud

MASTERCARD SECURECODE   MasterCard SecureCode is a private code for your MasterCard account that gives you an additional layer of online shopping security. Only you and your financial institution know what your code is – retailers aren't able to see it. So you can trust that your transactions get independent approval every time. MasterCard SecureCode®

CONSIDER EMV      EMV stands for Europay, MasterCard and Visa, a global standard for inter-operation of integrated circuit cards (IC cards or "chip cards") and IC card capable point of sale (POS) terminals and automated teller machines (ATMs), for authenticating credit and debit card transactions. The EMV standards define the interaction at the physical, electrical, data and application levels between IC cards and IC card processing devices for financial transactions. There are standards based on ISO/IEC 7816 for contact cards, and standards based on ISO/IEC 14443 for contactless cards (PayPass, payWave, ExpressPay). The Future of Payments with MasterCard Visa U.S. Merchant EMV Chip Acceptance Readiness Guide

EMV IN THE NEWS  “Part of the October 2015 deadline in our roadmap is what’s known as the ‘liability shift.’ Whenever card fraud happens, we need to determine who is liable for the costs. When the liability shift happens, what will change is that if there is an incidence of card fraud, whichever party has the lesser technology will bear the liability”  “Visa and MasterCard require U.S merchants and card-issuing banks to migrate to EMV technology by October 2015 or face increased liability exposure.” IN_Visa_says

COMPANY NAMES MENTIONED HEREIN ARE THE PROPERTY OF, AND MAY BE TRADEMARKS OF, THEIR RESPECTIVE OWNERS AND ARE FOR EDUCATIONAL PURPOSES ONLY. Compiled and designed by Mark Fullbright , Certified Identity Theft Risk Management Specialist™ (CITRMS) as a free guide for merchants to protect themselves online and POS to reduce their exposure to chargebacks and fraud losses. Stay Safe, Stay Secure

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