Using the E-Commerce Internet .... Credit Card Payment Issues According to the Merchant Fraud Squad, an online fraud prevention and education group, a survey of 368 merchant members showed that, for all size retailers, 60% to 70% experienced on-line credit card fraud of less than 0.5% of overall sales and only about 20% reported that fraud accounted for more than 1% of sales. Believe these numbers only in context. Take a look at the stat in our opening statement. The Fraud Squad survey was with Fraud Squad members and the survey includes all sales from a member, brick and mortar as well as Internet. Also, the surveyed members tend to be larger retailers with greater fraud prevention resources. Many small internet retailers will take issue with these numbers. PROBLEMS There are six ways an Internet retailer can have problems from a credit card purchase: 1) The customer claims they never received the merchandise. 2) The customer claims the good are not as advertised. 3) The customer does not recognize the charge on their credit card statement. 4) A stolen card was used to make the purchase. 5) The person making the purchase was not authorized to use the card. 6) The card user fraudulently makes up a claim to beat the system. Note that this review is for Internet, MOTO (Mail Order/ Telephone Order, "card not present") transactions but, brick and mortar retailers can have some of the same problems. In each case outlined above, the customer may call their card issuing bank and refute the charge. If the bank thinks their customer has a plausible claim, they will immediately credit the charge back to the customer's card account. PROCEDURE This credit is a charge back to the merchant. It is the process where-by the credit card transaction is reversed. To the merchant, it means that funds deposited to their merchant account are taken back. Yes, the reversal can happen even before the merchant knows there is an issue. US banks generally honor requests among themselves and the customer's card bank generally honors their customer's request. So if the customer wants their money back they get it back from the merchant's bank right away. The merchant is frequently low man on the totem pole when it comes to sustaining a credit card transaction. The charge back request is followed up with a formal paperwork process from the customer which is forwarded to the merchant along with additional transaction information. The merchant must answer the charge back or lose the money and possibly the merchandise. Even if the charge back request is eventually resolved in the merchant's favor, a charge back fee is often assessed. Without doubt, the merchant is on the defensive. To save the sale the merchant must respond with all guns blazing! A good response is a brief cover letter explaining the situation and, depending on the complaint, plenty of documentation. Usually information can be faxed back to the merchant's processor for a quick resolution. If the response is a valid refutation of the customer's claim, the funds will be returned to the merchant in short order. DOCUMENTATION Documentation may comprise one or more or even all of these items: a) a proof of shipment and delivery: A signed receipt from the customer is best but, a shipping invoice and way bill may suffice. b) copies of sales materials: This may be a web page or printed specifications and promotional information that the customer most likely viewed before ordering. c) copies of the purchase order: While a purchase order itself may not be available, the merchant should at least be able to show a printed record of all order details. These details should include the customer order number, name, date, shipping and billing address, the items ordered, and any special instructions that accompany the order. d) a summary of the credit card transaction: Preferably this information will be included with the order details document; however, as a minimum, it should show the date of the card authorization and the authorization number, an AVS code (Address Verification Service), the IP address of the customer, and possible the referring page. The referring page is documentation to show what page enticed the customer to place an order. e) a copy of the credit card form: This is important pre-contractual information and should show the amount of the order, the terms and conditions for accepting an order, and the return policy of the merchant. Another important piece of information on the card form will be the credit card billing company name which is frequently different from the store name. Customer confusion over differences in the billing company name on their credit card statement and the store name where the merchandise was purchased is the most frequent cause of a charge back request. SPECIAL SITUATIONS a) stolen or lost card: This is one case of unauthorized card use that the merchant can't win. The only defense is to know your customer type and review all orders before shipping. b) not lost or stolen but unauthorized: This can occur in Internet transactions where an underage person orders merchandise. Get the merchandise back and apply a restocking charge if warranted by the situation. c) digital goods: Selling goods and services where delivery is immediate such as downloadable MP3s, software, and porno site access is a case of the toothpaste being out of the tube. Special procedures are needed to prevent unauthorized card use and buyer's remorse charge backs. Getting the merchandise returned is not an option. When selling software applications, there is most likely a registration code that allows the program to be fully operational. Provide immediate download if desired but, don't deliver the registration code until examining the order for validity. Immediate fulfillment items like MP3s and pornography site access are the most abused services on the Internet. The result is that a merchant account to accept credit cards for selling these services, if one can even be found, will have a much higher than normal discount rate. 3rd party processors may get as much as 50% of the transaction amount. These services are frequently purchased with stolen or unauthorized use cards. GOOD PRACTICES Do not be in a hurry to ship. In spite of some of the newer fraud prevention utilities being introduced, there is nothing better than a hands on examination of the order before shipping. After looking for the usual bogus order triggers, no AVS, different shipping and billing addresses, customer IP address not related to either shipping or billing address, etc., the merchant is still in the best position to determine if the order makes sense by knowing their customer. For instance, a digital camera order being shipped to a freight forwarder is most likely a scam using a stolen card to steal cameras as is an order for multiple stereo units shipped to the same residential address. A telephone call to the customer is frequently a good way to determine the validity of an order. We've never gotten anything less than an appreciative response from a customer whose card was billed and we called to verify the charge. With software sales, e-mail correspondence can be used to verify that the software and/or registration code was actually received. For instance, a merchant might provide an incentive to get a customer reply. IE: "Please reply to this e-mail to receive your free coffee cup." Such correspondence may serve as evidence of delivery. If the financial gateway you are using supports it, always process credit cards in two steps: authorization and settlement (capture). This way, if the order is bogus, do nothing. By not settling the authorization, you won't have to make a return or respond to a charge back complaint. If the authorization is automatically settled, be quick to make a return on bogus orders. This is much less costly in time and money than getting a charge back and will maintain your merchant account in good standing. Finally, the best way to overcome charge backs is to avoid them altogether. Don't be intimidated though; customer charge backs requests on Internet sales can and are frequently overcome. Reply promptly with solid, professional documentation. Next issue:  Getting known .... linking, etc. Up-comming:  more on attracting and keeping customers Further reading:  SearchEngineWatch.com  Products of ImagineNation!    Providing on-line stores for small and mid-size Internet businesses since 1996,   Imaginenation is a full service company meeting all of your e-commerce needs:    Storefronts     Credit Card Processing     Back Office Utilities     Merchant Accounts DO YOU NEED HELP WITH OUR PRODUCTS OR HAVE A GENERAL QUESTION? Please E-Mail specific product questions using the mail form at  ImagineNation.com For general information questions, visit our moderated public Q&A   FORUM Have you seen the new PeddleGold storefront? Did you know that PeddleGold is a robust storefront that is quick to set up, easy to maintain, has advanced features, and integrates seamlessly with any of the ImagineNation back office utilities for taking credit card payments? Oh, and it's free with any of those utilities. PeddleGold is the standard for robust, easy to use, low cost storefronts. Take a demo ride.       Check our low prices. Get your first month free. Tips 'n Tricks    HTML tags shown here use the caret (^) instead of braces <> for proper rendering.     Brackets are represented by the curly bracket symbols ({}). A standard storefront "buy" button when clicked will immediately add the related item to the shopping cart. webPeddleGold supports this type of buy button with an optional feature. Where required, the PeddleGold buy button can be used to first present the customer with a menu(s) of preference selections before adding the item to the shopping cart. This feature works automatically when the item ID in the "addToCart()" link corresponds to an ID in the database table where that ID has appended, in parentheses, numbers representing records in the preference selection table, sl.js. For instance if the buy button link is: ^a href="JavaScript:top.addToCart('ID111(4)',1,'B')"^Buy Now^/a^ and the customer clicks "Buy Now", they will be presented with an item description that includes a drop down menu for selecting one of the preferences specified by record 4 of the sl.js table. The item can't be added to the cart until a selection is made, giving the merchant a fail safe method of insuring that required preferences are selected. ImagineNation © 1996 - 2002 Suffering from overload?  List Removal E-ComTips is brought to you by ImagineNation because you are listed as a user of one of our storefront products or have subscribed to receive the Newsletter itself. To remove your address from our list, go to List Remove and, if your correct address and service ID are not showing when you get there, enter the correct values manually. Please do not reply to this newsletter return e-mail address. Replies here are not processed. Use the Mail Form at ImagineNation to correspond.

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