Do you take orders over the phone? How can you defend against chargebacks? You’re not going to like the answer I outline below because the burden on merchants is nearly insurmountable.

RULE NUMBER ONE.  You must have a MOTO* merchant account. If you run a card absent transaction on an RETAIL account, you will automatically lose because you won’t be presenting the transaction according to the rules of the merchant account with an in-person signature or pin entry AND card swipe or manual imprint. * MOTO is an abbreviation for mail order / telephone order; Faxed orders fall under this rule as well.

RULE NUMBER TWO: If the payment was made via a web page or ecommerce shopping site, the merchant must have an ECOMMERCE merchant account.

What if you accept credit cards via the internet and MOTO? Ecommerce presentment rules generally include MOTO requirements, but MOTO presentment rules do not include all Ecommerce presentment requirements.  You should read the rules carefully as it applies to your particular situation and NOT rely on this article.

Below are excerpts of the relevant rule from Visa and the condition I most often see cited on merchant chargeback forms. (Other cards have similar language. Please note the Visa International Operations Guidelines book is over 1100 pages so to keep this brief, this is a very narrow look, with text beginning from page 836.  Excerpts may be taken out of context to provide insights and should not be replied upon.

Reason Code 83 Fraud—Card-Absent Environment
Overview: Time Limit: 120 calendar days
Cardholder did not authorize or participate in a Card-Absent Transaction or Transaction was
processed with a Fictitious Account Number or no valid Card was outstanding bearing the Account
Number on the Transaction Receipt.

Chargeback Conditions – Reason Code 83
1. Cardholder did not authorize or participate in a Card-Absent Environment Transaction.

Representment Processing Requirements – Reason Code 83
b. Evidence of Imprint and signature or PIN  (Yes, it really says this under card not present!)
d. For Chargeback Condition 1, compelling evidence that the Cardholder participated in the
Transaction, excluding U.S. Domestic Transactions.

Further,

8. Mail/Phone Order or Electronic Commerce Transactions, if both: This provision applies to U.S.
Domestic Transactions (This only applies in the U.S. Region.)
a. Merchandise was shipped or delivered, or services were purchased (This only applies in the
U.S. Region.)
b. Issuer was not a participant in the Address Verification Service on the Transaction Date and
Acquirer received an Address Verification Service response code “U” (This only applies in the
U.S. Region.)

Additional Information – Reason Code 83
1. “Signature on file” notation is not an acceptable signature.
2. Pencil rubbing of the Card or a photocopy of the Card is not considered proof of a valid Imprint.

CARD ABSENT CHARGEBACK PREVENTION TIPS:

• When a merchant account is opened merchants are issued a metal plate with their required merchant account identifying information to use with imprinting forms.  Don’t toss is into a drawer. Buy an imprinter (about $25 from most office supply stores) and some voucher forms, put your plate in and keep it secured but handy in case you need it.  If you don’t know where your plate is, call your processor and ask for a new one. To mitigate risk, run the form through your imprinter, fill in all the information and then send the form to your customer. They must a) rub a pen across it to simulate as if the imprint mechanism ran across it. b) sign the form. This creates additional burdens to the merchant for PCI Compliance, since the imprint would have to be stored for 180 days, the current allowable chargeback time. But think of the burden of proof trail you’ll be able to produce- the form is sent to the customer address, the card must  pass AVS verify (address on card matches address mailed to), and you have a signature.
• To save time, merchants frequently only partially fill in the form, but this is not sufficient. All fields must be completed and the customer must sign.
• Ship merchandise with signature required, only to addressee.
• Shipping address and billing address must match. (You will lose automatically if they don’t unless you have special supporting document signed by the customer stating their desire to have shipped to a 3rd party address.)

Editors note: This article primarily addresses card absent,  not ecommerce.  A merchant solution to help mitigate risk is Cenpos. Here’s a few ways you can use CenPOS tools:

• Restrict user permissions for transactions.
• Set additional requirements to pass a transaction over merchant defined thresholds.
• Set up email alerts for notification of transactions over thresholds.
• Restrict types of cards accepted and rules for acceptance.

Is a pencil rubbing of the credit card or a photocopy of the credit card OK to defend against chargebacks? Yes, but only if the merchant has an imprint of the card on a credit card voucher form that is fully completed and signed by the customer.

Is a faxed approval form for the charge amount OK to defend against chargebacks? No. The merchant must have an imprint of the card on a credit card voucher form that is fully completed and signed by the customer.

Your credit card terminal goes down or your wireless unit can’t get a signal, but you’ve got customers lined up to buy. Is a pencil rubbing of the credit card or a photocopy of the credit card OK to defend against chargebacks?

No. The merchant must have an imprint of the card on a credit card voucher form that is fully completed and signed by the customer.

Below are excerpts of the relevant rule from Visa and the condition I most often see cited on merchant chargeback forms. (Other cards have similar language. Please note the Visa International Operations Guidelines book is over 1100 pages so too keep this brief, this is a very narrow look. Link t

Visa Chargeback Reason Code 81 Fraud Card-Present Environment

Chargeback Conditions – Reason Code 81
pg 825 One of the following:
1. Cardholder did not authorize or participate in a Card-Present Environment Transaction.

CHARGEBACK PREVENTION TIPS:

• A signature and imprint or magnetic stripe card data is required on all retail merchant accounts with a Terminal ID that is set up for retail  presentment. For most merchants, this means they need two merchant accounts- one for card present or retail, and another for card not present or MOTO if they have key entered transactions and the card is absent.
• To save time, merchants will only partially fill in the form, but this is not sufficient. All fields must be completed and the customer must sign.
• When a merchant account is opened merchants are issued a metal plate with their required merchant account identifying information to use with imprinting forms.  Don’t toss is into a drawer. Buy an imprinter (about $25 from most office supply stores) and some voucher forms, put your plate in and keep it secured but handy in case you need it.  If you don’t know where your plate is, call your processor and ask for a new one.

Editors note: Two merchant accounts will help mitigate risk because card absent aka card not present requirements differ from card present. For example, depending on the transaction method,  address verification and or security code may be required. Merchants with a single dial up terminal that has two merchant accounts my experience costly errors when the salesperson or cashier processes the transaction on the wrong account. It happens.  I see it all the time when I review statements and dig for downgrade reason codes. One solution is automated merchant account switching via Cenpos.

Phase 1 of Visa’s new chargeback rules are now in effect. Effective for fraud-related chargebacks processed on or after 16 April 2011, in lieu of a paper-based signed cardholder letter stating that the cardholder neither authorized nor participated in a transaction, issuers may submit information collected from the cardholder electronically.

Essentially, the dispute can now be completed elecronically instead of having to mail in a letter. The following reason codes are impacted by this rule change:
•     Reason Code 57 Fraudulent Multiple Transactions
•     Reason Code 62  Counterfeit Transactions
•     Reason Code 81  Fraud – Card-Present Environment
•     Reason Code 83  Fraud – Card-Absent Environment

Fraud-Activity Certifications
In April 2011, in lieu of a cardholder letter, card issuers will be required to certify through Visa Resolve Online (VROL) three fraud-activity  certification requirements to support their chargeback.  VROL is an innovative Visa back-office system used by all Visa members to process disputes. The three requirements are the following:
•     Card status at the time of transaction (lost, stolen, counterfeit)
•     Date fraud activity was reported through VisaNet
•     Date account number was listed on the Exception File
The fraud-activity certifications validate that the issuer closed the cardholder’s account, fraud reported the account number to Visa and statused the account either lost, stolen or counterfeit. The fraud-activity certifications will only be required if the issuer elects not to send a cardholder letter. In October 2011, Visa will mandate issuers to send the fraud-activity certifications with or without a cardholder letter.

What does this mean for merchants? The time that lapses between the customer initiated dispute to the time  merchant receives such notification shrinks.

If a retail customer walks in an pays with their credit card, but the cashier made a mistake and entered the wrong amount, can the merchant go back and charge the customer the balance AFTER the customer has left the store? No. According to the Visa Card acceptance guide, “Merchants must NOT alter a sales receipt after the cardholder has signed it and left the establishment. If the cardholder has been undercharged, attempt to contact the cardholder and obtain permission to adjust the receipt so that it reflects the correct amount.”

COMMENTS:

This issue is outlined in Chargeback Reason Code 80: which includes invalid adjustment.

This question was presented by a building supply company that is largely in the wholesale B2B business, but also has some walk-in retail traffic. The consumer selected their merchandise and an invoice for the materials was issued and presented to the customer. Then the card was charged, but the amount entered was wrong.  The customer does not sign the invoice.

The merchant can research information about the transaction in their processors online transaction research, if they offer that capability. Finding the customer can be difficult, but you can try whitepages.com and hope the customer has an unusual name and is from the local area.

The merchant may not be allowed to, and should not try to, charge more than the original authorization, even if they locate the customer. The merchant or the processor may have risk management tools in place to prevent this. If the retailer locates the customer, get permission to create a new transaction which will be key-entered. In the B2B world, ideally, a note with invoice copy is faxed and the customer signs authorization to be billed the balance due. Charging a different amount than the original authorization is an automatic interchange rate downgrade.

On a final note, if the customer DID SIGN THE INVOICE then the merchant MIGHT have a basis to re-bill the customer, provided they had adequate information to do so.  Since card issuers generally side with the customer, not the merchant, if the customer disputed the bill, the merchant will likely lose. PLEASE READ THE CURRENT MERCHANT RULES for the specific card association ( MasterCard, Visa etc) for clarification.

When do you need to take a manual imprint? Why does a key entered face to face transaction occur? If the magnetic strip is bad or if there is a card reader malfunction you won’t be able to get proper swipe. If you put a card present transaction on a card present merchant account, a signature on a receipt is not enough to protect you from a chargeback if the customer disputes the charge. You have to prove that the card was present with a physical imprint to protect yourself in a fraudulent transaction dispute.

If you are unable to take an imprint with an old fashioned imprint machine with metal plate, then get a pen and paper and pass the pen back and forth until you get the imprint.

A power outage or special off site events are additional reasons why you may need to get a card imprint. We send all merchants a metal plate for manual imprinting, and many ask why they ever would need it. The manual imprint is required for all key entered face to face transactions.

How can technology increase protection from card present fraudulent transactions?
CenPOS smart payment engine has many functions to reduce risk. For example, a standard set up might require the cashier to enter the last 4 digits of the credit card. Fake  credit cards are a major crime problem in the US. Most fake cards have a valid credit card number on the front, but the number won’t match the magnetic strip information on the back. The logic of CenPOS will protect you from this type of attempted credit card fraud.

When a card is declined for a last 4 digits mismatch NEVER attempt to put through the transaction by overrides or any other method. Even if you get the transaction through, you will lose any chargeback fight because there will be a record of the failed attempt with the reason code for mismatch.

This is just one example of many features CenPOS has built in to protect merchants from both internal and external fraud. Contact Christine Speedy at 954-942-0483 for additional information on CenPOS technology and other merchant services.

Our solution offers extremely robust chargeback management. How does this compare with Paypal?
Unfortunately, we can’t show you the paypal screens due to copyright issues.

Since Paypal is web based, they do have a web based solution. Buyers and sellers alike manage disputes and chargebacks in the Paypal Resolution Center. There are two main types:
Disputes:
- Buyer and seller negotiate to resolve issue. Communications are via email using the Resolution Center.
- Dispute is resolved or escalated to PayPal claim.
- Paypal investigates and resolves the claim. This section says they “try to resolve within 30 days.”
Unauthorized activity:
- Buyer says they didn’t make the purchase. A lot of times the buyer may not remember who they made the purchase from.
Paypal reviews the claim and asks seller to respond.
Seller are notified and have 7 days to respond. Paypal resolves the claim.

A more robust solution works like this. First, the buyer calls the credit card company to complain. They file a form which asks questions like ‘have they contacted the merchant and attempted to resolve first’. Ultimately, the payment processor sends notification of the dispute via email, fax, or mail. The most common practice is via mail. The clock is ticking since you only have so many days to respond.

The best system sends you an email alert so you can respond quickly.
With the addition of a scanner, you can even respond to retrieval requests right from your PC and upload documentation.

Compared to most processors, the Paypal solution is very robust so you can respond quickly. Where it falls apart from the merchants perspective, ie numerous complaints from merchants, is the unilateral decision making and sometimes long process that can last months.

The optimum solution is two-way communications. You can manage all chargebacks from a web based interface. The processor will give you a decision within 14 days after you respond. They will tell you if additional information is needed. If you think the disagree with a decision, you can add additional documentation via file upload, fax or snail mail.

The first step is to make sure you have a system to respond to chargebacks.

Q: How quickly do I have to respond to chargebacks?
A: within 10 calendar days

The most common scenario is for your payment processor to fax a copy of the complaint. The clock is ticking. Many lose money by simply not responding in time. Then the retailer looks up the details in their files, or sometimes online.

With the right processing solution, you can streamline this and reduce lost money from slow response time. For example, we recommend all hotels use a processor that has an automated response system. Chargebacks are directed to the merchant account electronically and the required response is sent automatically. With a proper set-up, instead of losing money by not responding in time, 80% or more of potential chargebacks are eliminated without any intervention by your staff at all!

You’d think this would be common, but it’s not. Many, many processors are not set up with the more advanced technologies to enable auto-responding, and even if the processor offers it, the person who set up your account may not have been trained to set you up properly.

One last note- you can be notified via email (you set up the parameters) of chargebacks, their status, and even manage them from a single online console, creating a valid record of all actions. The more advanced systems let you upload documents that support your response.