10 Ways to Beat Credit Card Crooks

Millions of dollars are lost by merchants each year due to the fraudulent use of credit cards and the resulting chargeback liability. Chargeback liability usually arises when there has been a failure to comply with all the processing regulations. Preventing credit card losses is not only good for you as a merchant, it is also part of your responsibility as a credit card system participant. Here are some guidelines on how to avoid chargeback situations.

1.  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.
Note: If a cardholder knows her card has been lost or stolen, and has reported that fact, then your authorization will be prevented. However, if the cardholder is unaware that her card is lost, or if just the card number was pirated and the cardholder hasn’t yet reported bogus charges on her credit card statement, then your authorization transaction may go through as if it were legitimate. You must take additional steps to avoid this kind of fraud.

2.  Verify the Signatures
     For face-to-face transactions where the credit card is presented to you, verify that the signature on the back of the card matches both the name on the front of the card, and the signature on your sales slip. If possible, ask for another form of identification to make doubly sure that the person in front of you is in fact the cardholder.

3.  Take special care with non-magnetic transactions like telephone orders and mail orders.
     In telephone sales and mail order sales, you cannot see the card or the cardholder, so it is difficult to verify that the person using the card is in fact the right person. This increases the risk of fraud.

But there are still several methods to help prevent fraud:

• Ask for the cardholder's name and telephone numbers (home and business phone). You might tell the presumed cardholder that you intend to call him back before delivery. Fraudulent shoppers (people who use credit card numbers that do not belong to them) will not want to give out information that can be traced back to them.
  
• If you are delivering by ground carrier, then use a carrier that requires a signature on delivery, and allows you to get a copy of that signature.
  
• Do not ship to an address that is not the same as the cardholder's billing address (as used in Address Verification described below). A crook, using a stolen card number, will not usually want you to ship to the real cardholder's address.

4.  Take extra precautions on Internet Transactions
     Like MOTO sales, you need to be more careful on the 'Net'. Be sure your Internet software or Internet service provider provides:

• A system that requires the cardholder to provide his phone number and E-mail address. The system should automatically verify that the E-mail address contains a valid domain name.
  
• Automatic capture and recording of the shopper's computer IP address. If fraud can be shown, then the IP address, along with the time and date, can be used to track down the fraudulent party. (This threat may prevent some attempted fraud).
  
• A posted warning on your site that attempted credit card fraud will be prosecuted to the fullest extent of the law.
  
• Hard-copy receipts of the order and delivery fulfillment, including as much information about the cardholder as possible.
  

5.  Know your cardholder personally if at all possible
     Preventing fraud often comes down to knowing your customers. If you have a repeat customer, and you know him personally, then you might be able to relax some of your normal restrictions.

• If you can't verify that the person presenting the card or card number is the cardholder, then you need to decide how much risk you are willing to take. If you are delivering low-cost services and you have taken reasonable precautions, then you probably can accept the transaction.
  
• The more you handle risky credit card transactions, the more you need to budget and price for chargebacks.
  
• When selling high-cost products or services, a chargeback can cost you a lot. It pays to reduce chargeback risks as much as possible. For example, you should avoid taking orders for high cost goods to one-time customers in non-domestic (e.g. overseas) locations.
  

6.  Use the Address Verification System
     One of the tools available to merchants for preventing fraud is the Address Verification System, a service offered by ECHO and most processors (at ECHO it is free). 

• AVS can be used for all domestic (not foreign) orders and only requires that you record part of the cardholder's billing address (the street number and Zip Code used by the issuing bank for billing). This must then be submitted as part of the authorization to your processor.
  
• Once used, the processor will attempt to verify the address with the issuing bank. If address verification fails completely (for Domestic addresses only), you may wish to refuse the order, or to confirm it by calling the cardholder.

7.  Obtain a signed receipt from the cardholder and, if applicable, a signed proof of delivery from the shipper for delivered goods

• The receipt is your proof of sale and delivery that you will need in case of a dispute.
  
• Ideally, the receipt should be signed by the cardholder, and the receipt should be stored in your files so that you can promptly respond to a retrieval request. Remember, a signed receipt from someone that is not the cardholder (or does not represent the cardholder) will not do you any good.

8.  Reduce chargebacks by advising shoppers of your warranty and return policy, and then consistently live up to that policy 

• Advise shoppers of your warranty and return policy, and then consistently live up to that policy. Remember, your warranty and return policies set up expectations in the minds of your customers.
  
• To maintain the trust placed in you as a credit card merchant, you are obligated to meet those expectations.
  
• If the cardholder is disappointed and you do not issue a refund for returned merchandise or honor your warranty, you may get a chargeback that you will have to pay.
  
• If you are advertising and accepting orders on the Internet, then states like California require you to include your phone number, address, and return policy on the Internet order form. This makes it easy for cardholders to know how to reach you for a return or warranty protection.
  
• Be sure your Internet software, or your Internet service provider permits you to submit credit transactions to your processor.
  
• Need more information on refunds? Click here.

9.  Do not submit a deposit transaction until you deliver the associated goods or services
      If you submit the deposit transaction days or weeks before you deliver the goods, you do two things.

• You are accepting money from the Issuing bank that is not really yours. Remember, the Net Settlement Amount you receive from a deposit does not really "belong" to you until you have satisfied the cardholder's expectations. You have not even begun to satisfy the cardholder's expectations until you deliver your goods or services. Even then, the cardholder must be satisfied that the quality and features were as advertised.
  
• You increase your risk of a chargeback. Banks are quick to list a recent credit card charge on a cardholder's credit card statement. If this happens before the goods are delivered, then you run the risk of annoying the cardholder (your customer), and getting a Retrieval Request and/or a chargeback.

10. Protect your merchant id and terminal id (i.e., ECHO-ID) so no one submits transactions without your permission
    Your terminal-id identifies you to your processor. You do NOT want anybody submitting transactions to your processor using your terminal-id without your permission. Remember to:

1. Keep your transaction processing equipment physically secured in your place of business.
2. Ensure that only authorized individuals have access to that equipment at all times.
3. If you use Internet order-taking software, or contract with an Internet service organization to accept credit card orders over the Internet on your behalf, then be sure your software and/or Internet service organization keeps your terminal-ID absolutely confidential.
4. Qualify your Internet service provider as being completely honest and reputable. In particular, do not permit your terminal-ID to be exposed to Internet shoppers, even in hidden HTML fields. Go to the next topic - How To Avoid Merchant Account Closures.

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