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Risk Management...
VaultLine is committed to helping you to prevent and control fraud. With the growth of e-commerce and the rise of identify theft, fraud prevention has never been as critical. It is not just e-commerce and mail order transactions that require extra diligence. Face to face transactions are also subject to continuing fraud attempts.
Scam artists are more savvy than ever before and understand the latest security features that Visa and MasterCard are creating to control this problem. Merchants must be alert and take extra precautions wherever possible, because they are financially responsible for fraudulent transactions, including those approved by the bank that issues the consumer’s credit card.
Through the accompanying documents and links, we hope to provide the basic information you will need to help prevent fraud from occurring in your business.
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Chargeback Process |
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Preventing Chargebacks |
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12 potential signs of Card Not Present Fraud |
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Visa-MasterCard Card Not Present fraud prevention tools |
Additional Fraud Management and e-Commerce Resources
Visa/MasterCard Terminal Response Codes
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Chargeback Process
Introduction to the Chargeback Process
Chargeback
As a general rule, cardholders have
the right to dispute any transaction
processed on a Visa/MasterCard. These
disputes are called chargebacks, and
are governed by a series of rules set
forth by these entities. In the chargeback
process, the burden of proof lies with
the merchant. The merchant will be given
the opportunity to provide supporting
documentation to prove the legitimacy
of the transaction. If the merchant
is successful, the transaction is credited
back to his account. If the merchant
is unsuccessful, or does not respond
in a timely fashion, they will be financial
responsible for returning funds to the
consumer who filed the dispute.
Summary of
Chargeback Process
When a chargeback is initiated, the
Issuer gives the cardholder provisional
credit. In turn, the Issuer sends a
request to the merchant's Acquiring
Bank. The Issuing Bank is often required
to submit the documents that support
the customer’s dispute. To facilitate
the handling of the dispute, we use
an “auto-resolve” database
that automatically places the chargeback
in a pending status, waiting for the
Issuing Bank documents to arrive. The
system will auto-resolve the case in
the event the bank documents do not
arrive and will send the chargeback
back to the Issuer. When the bank documents
are received, the system may place the
case in a queue for a chargeback operator
to process, or automatically debit the
merchant and generate the chargeback
letter.
The chargeback letter gives the merchant about 8-10 days to respond. No second warning is sent in absence of a response. At times, the request comes in at a later time. It is IMPORTANT that the merchant always checks the “Respond by” date on top of the communication letter to insure that the response is sent on time. A case number is assigned to each disputed item. The merchant must attach the correct case number to each page of the rebuttal paperwork. Cardholders may dispute a charge for various reasons (i.e. “Non-Authorization”, “Merchandise not received”), and often attach a letter of explanation to the output package. Merchant’s rebuttal must address each one of the customer’s complaints. A rebuttal letter containing the merchant’s point of view should always accompany the paperwork. As a default, we send the letters to the business address indicated by the merchant. Once the rebuttal paperwork is received by the chargeback department, the case is reviewed and, if applicable, it is reversed back to the Issuer. A credit to the merchant for the transaction amount will be granted in that instance. In the event the documents do not provide a valid reason to reverse the dispute, the Chargeback Department will try to contact the merchant for more information.
Chargeback fees will apply on each disputed item. Fees are debited as follows:
| • | MO/TO - Internet accounts: fees are debited immediately when the chargeback is initiated by the Issuing Bank. |
| • | Retail accounts: fees are charged when the chargeback is in the working stage at EVO, and the merchant is given the time to respond. In the event the chargeback comes in, but it is immediately reversed back to the Issuer with no request of documentation on the merchant’s side, no charge will apply. |
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Summary of
Retrieval Process
Often the first step in the chargeback
process is a request made by the Issuing
Bank for the transaction information
document (TID), or receipt.
This request is called retrieval. The
Acquirer is obligated to fulfill this
request by providing a copy of the transaction
receipt. Alternatively the merchant
should respond to the Issuer explaining
the reason he cannot honor the request.
A retrieval request can simply be a
request for the information, or could
indicate that the Issuer will initiate
a chargeback in the near future.
Upon notification of the retrieval request, a letter is automatically generated to the merchant. This letter states that the merchant has a certain number of days (usually 10 days) to respond by providing the indicated sales draft. On the 11th day, a second and last letter is generated, and sent to the merchant. The sales draft must be submitted to the Issuer on the 28th day from the moment the request has been initiated.
A case number is assigned to each request. The merchant must include the correct case number on top of the TID. Once the merchant has responded to the retrieval, a chargeback analyst will review the received documentation. In the event the sales draft is illegible, wrong, or has missing items, the analyst will notify the merchant via phone or fax, when available. If the merchant does not respond within the given timeframe, no notification will be sent to the merchant. A Good Faith Collection letter will be submitted to the Issuing Bank when:
| • | The transaction has a POS entry of 90 (swiped), and the signed sales slip is available; |
| • | For MO/TO transactions, the merchant matches the AVS (Address Verification), and provides signed proof of delivery. |
No partial credit is granted to the customer in the event of a retrieval request. As a result, the merchant will not be debited for the transaction amount, unless the request turns into a chargeback due to non response.
A Cardholder writes a letter or fills out a “Dispute Resolution Form” and submits it to their Credit Card Issuing Bank. The Issuing Bank then processes a chargeback along with the “Chargeback Documentation” (i.e. Cardholder letter) through the corresponding Association (Visa or MasterCard) and thus is credited the disputed transaction amount. The Acquirer or “Merchant Bank” then receives notification of the Chargeback upon receipt of the “Chargeback Documentation” and is subsequently debited for the disputed transaction amount. At this point the Acquirer internal database assesses the Merchant a “Chargeback fee”. Acquirer’s systems then run the Chargeback through a series of simple filters to check to see if the Merchant issued credit and for certain technical errors. At this point one of two scenarios occurs:
| 1. | If, via the filters, the Chargeback is deemed invalid, Acquirer “Reverses” the Chargeback back through the Association and eventually back to the Issuing Bank along with a debit for the disputed amount. The Acquirer is then credited for the amount in dispute. The Chargeback fee remains on the Merchant’s account as this is a fee charged by the Associations as a cost for processing the Chargeback. This “First Chargeback” phase of the dispute is then considered “Resolved To the Issuing Bank” and will remain closed unless the Issuing Bank initiates a “Pre-Arbitration” notification (Visa) or a Second Chargeback (MasterCard). | |
| 2. | If, via the filters, the Chargeback is deemed valid, the Merchant’s business checking account is immediately debited for the amount in dispute and a letter is sent to the Merchant the same day advising of the debit and explaining what, if any, documentation is required to “Reverse” this Chargeback. This “First Chargeback” phase of the dispute is then considered “Resolved to the Merchant” and will remain closed until the Merchant responds back to the letter sent to them. |
If the merchant does indeed respond with a “Merchant Letter” back to the Acquirer, a “Reversal Phase” of the dispute is opened and a Chargebacks Analyst will review the Merchant Letter and will see if the merchant’s response and the overall dispute qualify to be “Reversed” back to the Issuing Bank. At this point, one of two scenarios will occur:
| 1. | 1. If the Chargebacks Analyst deems the Merchant’s response as invalid, they will close out this phase as “Request Denied” and will mail a letter to the Merchant explaining why the Chargeback cannot be reversed back to the Issuing Bank at that time. | |
| 2. | 2. If the Chargeback Analyst deems the Merchant’s response as valid, the Acquirer “Reverses” the Chargeback back through the Association and eventually back to the Issuing Bank along with a debit for the disputed amount. The Acquirer is then credited for the amount in dispute and in turn credits the Merchant’s business checking account. The Chargeback fee remains on the Merchant’s account as this is a fee charged by the Associations as a cost for processing the Chargeback. This “First Reversal” phase of the dispute is then considered “Resolved To the Issuing Bank” and will remain closed unless the Issuing Bank initiates a “Pre-Arbitration” notification (Visa) or a Second Chargeback (MasterCard). |
III. Second Chargeback and Second Reversal Phase (MasterCard only):
Once a Reversal (and the subsequent debit) is received back at the Issuing Bank, they will then forward the “Merchant’s Letter” back to their Cardholder for a response. If the Cardholder wishes to pursue the dispute further, they then send in a “Rebuttal Letter” back to the Issuing Bank and if the Issuing Bank feels that their response is valid, will submit a Second Chargeback. A Second Chargeback functions just like a First Chargeback, except a Chargeback fee is not assessed and the disputed amounted is immediately debited out of the Merchant’s business checking account. The Merchant is sent another letter explaining what, if any, documentation is required to pursue this dispute further. This “Second Chargeback” phase of the dispute is then considered “Resolved to the Merchant” and will remain closed until the Merchant responds back to the letter sent to them. If the Merchant does indeed respond to the letter sent to them a ‘”Second Reversal” phase of the dispute is opened. An Acquirer Chargeback Analyst will then review the letter and one of two scenarios will occur:
| 1. | If the Chargeback Analyst deems the Merchant’s response as invalid, they will close out this phase as “Request Denied” and will mail a letter to the Merchant explaining why the Chargeback cannot be pursued further at that time. | |||||||||||||
| 2. | If the Chargeback Analyst deems the Merchant’s response as valid, they will submit a “Pre-Arbitration” letter directly to the Issuing back advising that the Acquirer believes the Merchant’s claim is valid and that Acquirer will request MasterCard to make an Arbitration ruling on the dispute if the Issuer disagrees with the Merchant’s claim.
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IV. Issuing Bank Pre-Arbitration Phase (Visa only):
Once a Reversal (and the subsequent debit) is received back at the Issuing Bank, they will then forward the “Merchant’s Letter” back to their Cardholder for a response. If the Cardholder wishes to pursue the dispute further, they then send in a “Rebuttal Letter” back to the Issuing Bank and if the Issuing Bank feels that their response is valid, will submit a “Pre-Arbitration” letter directly to the Acquirer advising that they feel that their Cardholder’s claim is valid that they will request Visa make an Arbitration ruling on the dispute if the Acquirer disagrees with the Cardholder’s claim. The Merchant is then sent another letter along with the Cardholder’s rebuttal advising that they need to respond within 10 days. If the Merchant does not respond to the letter within the specified timeframes, the Acquirer Chargeback Analyst will credit the Issuing Bank back for the disputed amount and in turn debit the Merchant’s business checking account. This phase of the dispute will then be closed as “Unsuccessful”. If the merchant does indeed respond within the specified timeframe, one of two scenarios will occur:
| 1. | If the Chargeback Analyst deems the Merchant’s response as invalid, they will close out this phase as “Request Denied” and will credit the Issuing Bank back for the disputed amount and in turn debit the Merchant’s business checking account. The Chargebacks Analyst will also mail a letter to the Merchant advising of the debit and will also explain why the Chargeback cannot be pursued further at that time. | |||||||
| 2. | If the Chargeback Analyst deems the Merchant’s response as valid, the Acquirer will then send a form to the Merchant requesting that they sign the form which makes the Merchant liable for Arbitration filing fees. (When Visa makes an Arbitration ruling, it assesses a $400.00 filing fee to the loser of the dispute) If the Merchant does not agree to the fees, the Acquirer simply closes out the Pre-Arbitration phase of the case as “Unsuccessful” and will credit the Issuing Bank back for the disputed amount and in turn debit the Merchant’s business checking account. If the Merchant does indeed agree to the fees and submits the signed form, the Acquirer then responds to the Issuing Bank advising them that they do not agree with the Cardholder’s claim. The Issuing bank then submits an Arbitration Request directly to Visa.
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Preventing Chargebacks
Most chargeback situations
arise at the point of transaction—at
the time the transaction is completed—and
most can be prevented with a little
training.
Consider these tips to avoid potential
chargebacks...
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Card Present Transactions |
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Card-not present Transactions |
| 1. | Do not complete a transaction if the authorization request was declined. Do not repeat the authorization request after receiving a decline. | |
| 2. | If you receive a “Call” message in response to an authorization request, call your authorization center. Be prepared to answer questions. The operator may ask to speak with the cardholder. If approved, write the authorization code on the sales receipt. If declined, ask the cardholder for another Visa card. | |
| 3. | Make an imprint for all card-present transactions. If you have a point-of-sale terminal with a magnetic-stripe reader, swipe the card through the reader for every face-to-face transaction. If the terminal isn’t working or a card’s magnetic stripe cannot be read, key-enter the account information and make an imprint of the embossed information onto the sales receipt using a manual imprinter. Even if the transaction is authorized and the cardholder signs the receipt, if the receipt does not have an imprint of the embossed account number and expiration date, the transaction may be charged back to you for “no imprint” if the cardholder later denies participating in the transaction. | |
| 4. | Obtain cardholder signature. The cardholder’s signature on card-present transactions is required. Failure to obtain the cardholder’s signature could result in a chargeback for “no signature” if the cardholder denies authorizing or participating in the transaction. Always compare the signature on the sales slip and the signature on the back of the card. If the card does not carry any signature, ask the customer to show you a picture ID, and have him sign the card at the time of purchase. | |
| 5. | Make only one imprint of the card for each transaction. Making more than one imprint can lead to duplicate deposits and increase the chance of a chargeback. If you need to redo a sales receipt because of an error, write “VOID” across the incorrect sales receipt, inform the cardholder, and tear up the incorrect sales receipt in view of the customer. | |
| 6. | Ensure that transactions are entered into point-of-sale terminals only once—and deposited only once. Entering the same transaction into a terminal more than once, or depositing both the merchant copy and the bank copy of the sales receipt with your acquirer, or depositing the same transaction with more than one merchant bank can all result in “duplicate transaction” chargebacks. | |
| 7. | Ensure that incorrect sale receipts are voided and that transactions are processed only once. | |
| 8. | If your establishment has policies regarding merchandise returns, refunds, or service cancellation, disclose these policies to the cardholder at the time of the transaction. Your policy should be pre-printed on your sales receipts within ¼ inch of cardholder’s signature; if not, write or stamp your refund/return policy information on the sales receipt near the customer signature line before the customer signs (be sure the policy shows clearly on all copies of the sales receipt). Failure to disclose such policies at the time of the transaction will be to your disadvantage should the customer return the merchandise. | |
| 9. | Deposit sales receipts with your merchant bank as quickly as possible, preferably within one to five days of the transaction date—do not hold on to them. Failure to deposit in a timely manner can result in chargebacks for “late presentment.” | |
| 10. | Deposit credit receipts with your acquirer as quickly as possible, preferably the same day as the credit transaction is generated. Failure to process credits in a timely manner can result in chargebacks for "credit not issued." | |
| 11. | Keep customers informed on the status of their transactions. | |
| 12. | If the merchandise or service to be provided to the cardholder will be delayed, advise the cardholder in writing of the delay and the new expected delivery or service date. | |
| 13. | If the merchandise ordered by the cardholder is out of stock and delivery will be delayed or this item is no longer available, advise the cardholder in writing and offer the cardholder the option of purchasing a similar item or canceling the transaction. Do not substitute another item unless the customer agrees to accept it. By giving the customer notice and the option to cancel, you may help avoid a customer dispute regarding the merchandise and a possible chargeback. | |
| 14. | Ship merchandise before depositing transaction. Don’t deposit transactions with your merchant bank until you have shipped the related merchandise. If customers see a transaction on their monthly Visa statement before they receive the merchandise, it could lead to a preventable chargeback. | |
| 15. | When refunding a customer, always credit the same card that was used for the corresponding sale. | |
| 16. | Respond to all sales draft requests. Should you receive a request for copy of sales draft, respond immediately. Failure to send in copy will result in a chargeback with no representment rights | |
| 17. | Change printer ribbon frequently- illegible sales drafts can also initiate chargebacks. |
Card-not present Transactions:
| 1. | Do not complete a transaction if the authorization request was declined. Do not repeat the authorization request after receiving a decline. | |
| 2. | If a customer requests cancellation of a recurring transaction which is billed periodically (monthly, quarterly, annually), always respond to the request and cancel the transaction immediately or as specified by the customer. As a customer service, advise the customer in writing that the service, subscription, or membership has been cancelled and state the effective date of the cancellation. Failure to respond to customer cancellation requests almost always leads to chargebacks. | |
| 3. | If the merchandise or service to be provided to the cardholder will be delayed, advise the cardholder in writing of the delay and the new expected delivery or service date. | |
| 4. | If the merchandise ordered by the cardholder is out of stock and delivery will be delayed or this item is no longer available, advise the cardholder in writing and offer the cardholder the option of purchasing a similar item or canceling the transaction. Do not substitute another item unless the customer agrees to accept it. By giving the customer notice and the option to cancel, you may help avoid a customer dispute regarding the merchandise and a possible chargeback. | |
| 5. | Ship merchandise before depositing transaction. Don’t deposit transactions with your merchant bank until you have shipped the related merchandise. If customers see a transaction on their monthly Visa statement before they receive the merchandise, it could lead to a preventable chargeback. | |
| 6. | When refunding a customer, always credit the same card that was used for the corresponding sale. | |
| 7. | Use the Address Verification tool (AVS) and require a match on cardholder’s billing address. | |
| 8. | Make sure the billing and the shipping address are the same. If not, make sure you verify the shipping address. You can search through the Yellow-White pages, ask for a copy of a utility bill, or a copy of a Driver’s License to confirm the shipping address. | |
| 9. | Obtain and verify the Card Code (CVV2/CVC2). This is the 3-4 digits number on the back of your card (on the front for American Express) | |
| 10. | Cancellation/Return Policy needs to be acknowledged by cardholder - within ¼ inch of the “submit-I accept” button if Internet merchant. Policy needs to be acknowledged with a signature on the order form, contract, or invoice, or can be incorporated in the online Terms and Conditions of the sale, and require the cardholder to click on an “I agree” button. | |
| 11. | Generate an RMA number for submitted cancellations. | |
| 12. | Obtain signed proof of delivery. | |
12 potential signs of Card Not Present Fraud
Keep your eyes open for the following fraud indicators. When more than one is true during a card-not-present transaction, fraud might be involved. Follow up, just in case.
| 1. | First-time shopper: Criminals are always looking for new victims. | |
| 2. | Larger-than-normal orders: Because stolen cards or account numbers have a limited life span, crooks need to maximize the size of their purchase. | |
| 3. | Orders that include several of the same items: Having multiples of the same item increases a criminal's profits. | |
| 4. | Orders made up of “big-ticket” items: These items have maximum resale value and therefore maximum profit potential. | |
| 5. | “Rush” or “overnight” shipping: Crooks want these fraudulently obtained items as soon as possible for the quickest possible resale, and aren’t concerned about extra delivery charges. | |
| 6. | Shipping to an international address: A significant number of fraudulent transactions are shipped to fraudulent cardholders outside of the U.S. Visa AVS can't validate non-U.S., except in Canada and the United Kingdom. | |
| 7. | Transactions with similar account numbers: Particularly useful if the account numbers used have been generated using software available on the Internet. | |
| 8. | Shipping to a single address, but transactions placed on multiple cards: Could involve an account number generated using special software, or even a batch of stolen cards. | |