Tuesday, June 5, 2012

eCommerce Card Pyment Acceptance

The eCommerce card payment acceptance process goes through several stages:
  • eCommerce Transaction Authentication

    Authentication of an eCommerce transaction is the process through which a merchant verifies the validity of the payment information provided be the customer. The process can include a verification of both the cardholder's identity and the card's authenticity. It is important to understand that eCommerce merchants have the responsibility to select and apply the appropriate transaction authentication services. The proper application of the transaction authentication process reduces the number of customer disputes and chargebacks.

    The most popular card processing transaction authentication tools are:

    • Address Verification Service. Address Verification Service (AVS), as its name suggests, is a service that helps eCommerce merchant account users verify a cardholder's billing address. The verification is done simultaneously with the payment processing transaction authorization. The merchant sends an address verification request to the card issuer who compares the provided data with the information it has on file for its cardholder and sends back a response code indicating the result of the comparison.
    • Card Security Verification. Card Security Verification (CSV) is 3- or 4-digit number located on the back (Visa, MasterCard and Discover) or the front (American Express) of every payment card. In eCommerce transactions the CSV number is used to verify that the customer is actually in physical possession of the card. Similarly to AVS, the CSV request is routed to the card issuer, who compares the provided value to the one it has on file for its cardholder and responds accordingly.
    • Verified by Visa and MasterCard SecureCode. These services provide cardholders with the option of registering their cards with the respective Association. Upon registration with Verified by Visa (VbV) or MasterCard SecureCode, the cardholder is given a password. When the card is used at a participating eCommerce merchant, the cardholder is asked to enter this password before the transaction can be completed. The provided password is compared to the one the card issuer has on file and, upon confirmation, the cardholder is allowed to complete the transaction.

    Employing the above listed authentication tools will greatly improve your ability to fight fraud in your card payment processing operations and will have a positive effect on your bottom line.

    • Product Description. Online customers are fully reliant on the merchant's product description for any relevant information about the merchandise or service they are interested in. Unlike an old-fashioned brick-and-mortar store, where consumers can go in and physically inspect the product, in the virtual world of eCommerce this is not possible. Moreover, a physical store presents the opportunity of discussing the product's or service's qualities and features with a live sales person - a presence that many consumers find reassuring. Many customers simply feel more comfortable communicating with another human being and do not trust the descriptions that eCommerce merchants make available on their websites for the products and services they sell. Taking this into account, the question becomes "How do we make an eCommerce website a more consumer-friendly place and how do we make an online product and service description better?" There are simple best practices that can be employed to help address these concerns.

      In order to make sure that your website presents an accurate description of the products and services that you sell and to boost your customers' confidence in shopping at your store, you should:

      • Develop a clear and comprehensive product descriptions. Be as detailed as you can. Provide a PDF or other type of a file with the complete manufacturer product sheet. Also, remember that the eCommerce is a global industry and your customers can be anywhere. Unless you limit your sales to a local market, you should include in your product description information that domestic merchants can ignore. For example, if you sell electric goods, you should state the voltage requirement, as it varies around the world. Also, when you provide the products dimensions you should use both English and metric measures.
      • Use product photos and images, if applicable. An image of a product is a very powerful marketing tool. Many of us will not consider making a purchase unless we see what it is we are buying. You should use high-quality images and provide shots from various angles of the product.
    • Shipping Policy. A web-based store's shipping policy communicates to consumers the terms and conditions for delivering a product or service purchased on the merchant's eCommerce website. It has to be written in a clear and concise manner and to be made available to consumers through a link on the merchant's website, as well as sent to customers in the confirmation emails that they receive after they place an order. In order to avoid misunderstandings and to minimize customer disputes, your shipping policy should include the following information:

      • Details on the shipping options that you offer and the expected delivery time frame for each one of them.
      • A full disclosure for all shipping and handling fees. It is extremely important that your customers know in advance the exact amount of the shipping charge. This is one of the most common causes for disputes and chargebacks.

      Once the product has been shipped and the customer has been informed of the expected delivery time frame, you should monitor the shipping process. If there is a delay, you should immediately inform your customer of the new circumstances and provide him with the updated delivery date. Be advised that if your customer does not receive the product by the expected delivery date, it is very likely that he or she will file a dispute, initiating a chargeback.

      Be advised that criminals have exploited a weak link in the shipping process. When placing an order on an eCommerce merchant website, they will provide the stolen card number with the correct billing address. Once the merchandise has been shipped and they are given a tracking number, they will redirect the shipment to their own address. To protect the integrity of your card processing account and your customers from this type of fraud, you should consider not providing a confirmation number on a selective basis, when selling higher-risk merchandise or shipping to higher-risk addresses.

    • Merchant Account Benefits. Setting up a merchant account is a process that requires that the merchant invests a certain amount of his or her time to first find the right processing provider and then to go through the actual application and set up. Once the service is established, it has a certain monthly maintenance cost, in the form of a statement fee and, in some cases, other fees and charges. Moreover, payment processing contracts are usually for two or three years. So it is a legitimate question to ask what benefits your establishment will get from a merchant account and is it worth the investment of time and effort to set one up.

      For most merchants the answer is that yes, it is worth it and you should consider setting one up as soon as your processing volumes grow large enough to justify it. By that I mean that there is a break-even point, specific for every business, beyond which the lower card processing rates, associated with merchant accounts, fully offset the fixed monthly fees, which are absent with third party solutions. The main benefits of having your very own merchant account service are:

      • A more professional image. All types of merchant accounts are perceived, and justifiably so, as a sign that the business is of a certain size and it is committed to providing a complete shopping service. Actually, taking into account the strict requirements that payment processing companies demand that applicants meet, it is true that a merchant account shows a certain level of commitment on the part of the merchant.
      • A lower card processing cost. The difference in card processing rates, that a direct merchant account provides over a third party processing solution, is significant and cannot be overstated. A comparison between an average eCommerce merchant account and PayPal shows that the difference can be as high as 0.8% + $0.05 per transaction for merchants that process less than $3,000 per month. Now that is substantial!
      • More control over your account. A third party processing solution leaves your processor with a complete control over your card payment processing activity. They can hold on to your money and even freeze your account if a suspicious activity is thought to have occurred. A direct merchant account gives you complete control over your processing activities, provided you follow the rules established in your processing agreement. As far as fraudulent transactions are concerned, the final decision, and responsibility, on whether a payment should be processed or not, is yours and various fraud prevention services are available to help you reach that decision.
    • Avoiding Duplicate eCommerce Transactions. ECommerce merchants need to develop procedures to help them identify and prevent duplicate orders from being processed. Unlike face-to-face transactions, where once the card is swiped, it is pretty easy to determine whether or not the transaction has been processed, orders placed online are susceptible to being duplicated, as sometimes it takes a long time for the customer to receive an authorization response and he or she might do it all over again. Duplicate orders can lead to higher card processing costs, as merchants will pay for every transaction that their merchant account provider processes, regardless of whether it is legitimate or not. Moreover, merchants will have to spend extra time to sort out the duplicate transactions, issue credits to the affected customers which all leads to additional expenses as well. Another unwanted side effect from duplicate transactions is the customer dissatisfaction that naturally results from having their credit card accounts billed twice for the same purchase. Customers may, in such cases, call their card issuer directly, instead of contacting the merchant and try to clear up the issue. They are likely to dispute the transaction, initiating a chargeback.

      As you see there are plenty of reasons why you should establish controls to prevent customers from inadvertently submitting a transaction twice. You can use the following best practices to build your procedures around:

      • Require customers to make positive clicks on order selections, rather than hit the "Enter" key on their keyboard. In other words, have customers click on a "Submit" or a similar button.
      • Once the order has been submitted, display a "Order Being Processed" or a similar message.
      • Regularly check your orders for duplicates.
      • Send email messages to customers to confirm whether or not a duplicate order was intentional.

  • eCommerce Transaction Processing
    • Transaction Settlement. Settlement is a process through which a card issuing bank exchanges funds with an acquiring bank to complete a cleared transaction, where clearing is the exchange of transaction information between the card issuer and the acquirer. Clearing and settlement occur simultaneously. The settlement process may vary slightly from one merchant account service provider to another but it goes through the following stages:

      1. Once the service has been provided or the merchandise shipped, the merchant captures the transaction payment information and submits it, with the daily batch, to its merchant processing services provider for settlement.
      2. The merchant processing bank submits the transaction data to the Credit Card Association (Visa or MasterCard) for settlement.
      3. The Credit Card Association sends the transaction information to the card issuer and then settles it by crediting the merchant processing bank's account and debiting the card issuer's account. The amount, debited from the card issuer's account is equal to the transaction amount, minus interchange. The amount credited to the processor is equal to the transaction amount, minus interchange, minus the association fees.
      4. The merchant processing bank receives its funds, usually within 24 hours of the transaction, and credits the merchant's account, usually within 48 hours of the transaction. The merchant receives an amount that is equal to the amount credited to the merchant bank's account, minus payment processing costs.
      5. The card issuer posts the transaction information on its cardholder's account and sends a monthly statement. The cardholder has the option to pay the full amount or a lesser amount, but no less than a minimum amount, established in the cardholder agreement. If the cardholder chooses to pay an amount, lesser than the full amount, the remaining balance will be charged an interest rate.
    • Transaction Controls. Implementing transaction controls will help eCommerce merchants reduce their risk exposure by identifying high-risk transactions. These controls help determine when a cardholder or transaction should be more thoroughly investigated. When establishing your transaction control policies and procedures, consider implementing the following steps:

      • Setting up transaction controls and velocity limits. The initial process of establishing and implementing your organization's transaction control should adopt the following procedures:
        • Establish review limits on the number and dollar amount of transactions approved for a customer within a specified period of time. Later you should adjust these limits to reflect the customer's purchasing patterns.
        • Establish review limits based on single transaction amount.
        • Make sure that velocity limits are checked for multiple characteristics, including shipping address, telephone number and email address.
        • Track and adjust velocity limits as you accumulate information on your customers' purchasing patterns. The limit should be stricter for new customers and looser for customers with solid purchasing and payment track record.
        • Contact customers that exceed your preset limits to determine whether the activity is legitimate and should be approved.

      • Adjust transaction controls and velocity limits based on transaction risk. Use your risk experience regarding selected products, shipping locations and customer purchasing patterns and modify your transaction controls and velocity limits to reflect it.
      Implementing transaction controls will help prevent fraud, minimize customer disputes and reduce the number of chargebacks.

    • AVS Processing. Address Verification Service may be used with or without an authorization request.

      • AVS with an Authorization Request. MO/TO and eCommerce merchant account users can process AVS requests just as they process authorizations, either in real time or in a batch using a terminal or a PC. Real-time authorization requests are used typically for transactions where the customer waits for a response online. Batch authorizations are used for transactions where there is no immediate need for a response. The process of transaction authorization and address verification goes through the following stages:
        1. A consumer place an order in a card-not-present environment.
        2. The merchant confirms the order information, including the merchandise description, price, card account number, card expiration date and shipping address. The merchant now requests that the customer provides a new piece of information - his or her billing address (the billing address is where the cardholder receives his or her card statements).
        3. The merchant enters the provided billing address information into its authorization request, along with the rest of the transaction information. Both requests are sent to the merchant's payment processing provider who sends them on to Visa or MasterCard.
        4. The Credit Card Association (Visa or MasterCard) then sends the requests on to the card issuer who makes separate decisions on each request. The card issuer compares the provided billing address to the one it has on file for its cardholder. It then returns both the authorization and the address verification responses through the same channel. The address verification response consists of a single-digit code which the merchant's credit card processing provider may change to make it easier to understand.
      • AVS without an Authorization Request. In some cases merchants can send an address verification request without a transaction authorization request. Such situations may arise when:
        • Merchants want to verify a customer's billing address before a transaction authorization is requested.
        • An earlier transaction authorization request has received an approval but an AVS request has received a "Try again later" response.

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