How to Accept Online Payments In a Way that Limits Fraud

If you are reading this blog, you probably already know very well that fraud prevention is a much bigger concern when processing non-face-to-face payments as the process is quite different from the one for payments involving merchants operating in a non-face-to-face environment. Because online payment processing is by default performed over the web, the card acceptor never really sees and examines either the card or its cardholder.

On the bright side, however, there are quite a few solutions and best practices which, if performed for each transactions and implemented consistently, will help mail order and telephone order (MO / TO) and web-based card acceptors limit fraud and maximize their bottom lines.

How to Accept Online Payments In a Way that Limits Fraud

Card acceptors doing their online payment processing in a card-not-present environment, incorporate the following suggestions into your payment processing cycle for each of your transactions:

• Get an authorization approval for all payments. The floor limit for all card-not-present transactions is inevitably zero and all that means is that card acceptors always ask for and actually receive an authorization approval for each payment, regardless of the payment amount.
• Get the expiration date of the card. You need to always ask consumers to provide their card's expiration date. It serves as another way to verify that the consumer is in a physical possession of their card during the time of the payment.
• Get the security code of the card. Card security codes are, as you no doubt know, the three- (for Discover, MasterCard and Visa bank cards) and the four-digit (for AmEx cards) codes on the back (for MasterCard, Discover and Visa bank cards) or the front of the bank card (for AmEx). Getting the security code of the card in none-face-to-face payments is a crucial way to validate that the customer is in actual physical possession of his card. Remember that you should never store the security codes of the cards anywhere in your database. This storage is prohibited by Visa and MasterCard and violators, when caught, will be charged with substantial fines.
• Use the AVS (Address Verification Service) system. The (AVS) allows web-based merchants to validate the correctness of the billing address that the customer has listed at the checkout. It does that by routing the provided address, through Visa and MasterCard, to the card's issuer. The card issuer receives the information and matches it to what it has on file for its own customer and returns a response code that gives the result of its validation process.

Using these fraud prevention tools and procedures will help reduce fraud and limit chargebacks. Your online payment processing provider should always be available to help you implement these suggestions and offer others.

Credit Card Merchant Services Fee Guidelines

If you are in our business, you are probably used to fielding questions about the lowest possible credit card merchant services fees available to businesses. I don't know about you, but my responses have no doubt disappointed many merchants, because I simply tell them that the question is not answerable. It is just not feasible that one can be arrived at. The issue is that, if you want to reach an answer, you will be required to wade through zillions of website pages of across all merchant account service providers in existence, provided you could get your hands on a list of their URLs. Then, even if you somehow managed to do that, you will immediately run into another issue, which is that many of the credit card merchant services vendors just won't list their processing rates online.

Watch out for 'Low Rate' Banners

So we have all stumbled upon incredibly low processing rates, prominently displayed in banners with contrasting colors within the headers of their websites. I have, for example, just recently seen one such banner promising rates "as low as 1.57%" for card-not-present transactions. That will have to be the lowest non-face-to-face rate I have come across. OK, but what does such a rate tell us? What kinds of payments does it apply to? Under what conditions? What kind of rates do all other transactions get?

There are many other questions whose answers you will need to know, before you can make a well-informed decision, one you can feel confident will ensure a real low-cost processing service. To get these answers, you will have to analyze the pricing schedule in its entirety. If you have not received a full proposal, make sure to get one from your processor.

Analyzing Pricing Proposals

This is the crucial pint so let's stop for a moment and analyze the information the above rate gives us. A 1.57 percent is only possible to apply to some of your debit card transactions, but is not at all possible to have your credit card payments processed at this rate. It is just that interchange fees prevent that, unless the processor wants to be losing money.

The issue is that debit payments typically make up a very tiny proportion of the average merchant's total card volume. That's the reason you absolutely need to find out the rate for credit cards. In our little example your credit card processing rate is probably going to be a little over 2 percent, although it is not completely improbable to be somewhat lower than that.

So you will need to make sure that your credit card processing acquirer gives you separate rates for credit and debit cards. That is the only way to ensure that you are not overcharged for any of your transactions.

Examine the Whole Proposal!

Now that you understand that the flashy advertising rate on your credit card services provider's website is but one of the factors that you should be taking into consideration when selecting a service provider, you should also have realized that there are a few other factors you should look at and you will have to take the trouble to understand them all. Otherwise you just can't be sure that the incredibly low headline rate is not made up for in some other way.

Considerations for E-Commerce Credit Card Merchant Services Fees

What are acceptable rates you should agree to pay for your credit card merchant services? This is of course the most common question we are asked by businesses looking for processing services. Then we also get asked why card-not-present rates are higher than face-to-face rates. In this post I will explain the reason for it the discrepancy and will give you a template on the fees you should agree to be paying.

Why Are E-Commerce Processing Fees Higher?

This one is simple. E-commerce transactions are more expensive, because historically they have produced much more customer disputes than transactions processed by brick-and-mortar businesses. Disputes are a problem in themselves, however, to make matters worse, they often deteriorate into the even more unpalatable chargebacks, which are the biggest reason why Visa and MasterCard suspend merchant account services.

The Issue with Chargebacks

The problem with chargebacks is that, if their rate jumps above 1 percent of your total transaction count, your credit card processing service will be suspended one of the Credit Card Association, if at all it comes to that. What I mean is that your acquirer will be the one to suspend your account way before the rate comes anywhere close to 1%. Why? Because acquirers also get fined by the Associations quite steep penalties for any of their merchants whose chargeback rate exceeds this threshold and they won't accept that.

E-Commerce Rate Suggestions

So what should you pay for your w-commerce merchant account? Here are my suggestions:

• Discount. E-commerce transaction processing rates should never exceed 2.11 percent for credit cards and 1.88 percent for debit cards. These rates, however, will be for the so-called "regular cards." There are other types like rewards, commercial, purchase, etc., that are usually processed at considerably higher rates. However, the type of pricing model you have set up by your processing bank will have much to do with the concrete rates you get. Some models, for instance, will give you one rate for both debit and credit cards. The problem with this type of model is that the interchange rates for the various debit cards are much lower than the ones for credit cards. What you should take of that is that such models will have you overpay. A considerably better model would be one based on the interchange-plus pricing structure, which provides for your acquirer's fee is directly added to the interchange fees set by the Associations. While you don't have control over what the Association charge, you can ensure that your processor charges the same for all transactions.
• Transaction charges. Transaction fees at $0.30 per item should be acceptable.
• Application processing and set-up fees. Do not agree to any such fees!
• Payment gateway fees. Payment gateways are virtual tools used to connect shopping carts of online stores with the acquirer's payment systems and communicate information back and forth between the two of them. For instance, the most widely used gateway is Authorize.Net. A set-up fee of under $100 should be considered acceptable and a monthly fee of $10 is also OK.
• Monthly statement fee. This one is known by any number of names, but in any case it shouldn't be in excess of $20 per month.
• PCI compliance fee. This one is a new fee, charged either on a monthly or yearly basis. Whatever the calculation, the fee should remain below $150 a year.

Finally, evaluate each pricing proposal you receive as a whole, not by looking at its components separately.