Top 14 Practices for New Online Merchants

 

Best Practices

Accepting credit cards as a form of payment is a MUST in today’s eCommerce environment. However, to many new merchants want to believe that once they start their online store, and get an Authorization on a transaction that everything is great. Unfortunately, there are risks to consider. Your Customer can file a claim with their bank indicating:

  • They did not receive the merchandise/service
  • They did not authorize the purchase
  • They did not get what they thought they were buying.

But, it gets worse. The story goes like this…. The bad guys use a stolen credit card on your site. You had NO IDEA. You ship the product to their “Ship To” address. The actual card holder notifies their credit card company of the unauthorized usage. The card holder gets an immediate refund per Card Brand Rules. The processor takes back your money from your bank account. You lose your product.

Most new merchants think that their bank or their processor or the Card Brands is going to protect them. Not true! The merchant is responsible for these claims, known as Chargebacks.

When your customer makes such a claim, the money is taken from the Merchant’s bank account immediately. The merchant is sent a form via email or snail mail to complete. After an independent arbiter makes a decision, the money either, goes back to the merchant or your customer keeps their refund. It is up to the merchant to get the product returned.

Merchants whose Chargeback ratio exceeds 1% often lose their merchant account or must allow for a reserve account to be established by the processor. For the Processor, this is a very big deal, because if you go out of business, they are required to refund your customers transactions, themselves.

The “Bad Guys” often target new sites. They always pay the asking price and often ask for expedited shipping. They usually pick the most expensive item(s) on your site and often, act like they are in a hurry, asking few questions about the product(s). Here are a few tricks from Online Veterans:

Top 14 Tips

  1. Reconcile your Bank Account DAILY. Make sure each daily batch of credit card transactions are deposited into your Bank Account every day. Deposits generally come in 48 - 72 hours after the transaction.
  2. Always purchase the processors “Reporting Tools” if available. Usually $5 to $10 per month.
  3. Call every customer to confirm the order! (What you are really doing is verifying that the buyer is legitimate paying close attention to all details)
  4. Always verify that the Address and Zip Code match the billing address of the customer. This is called an AVS (Address Verification System) response.
  5. Be VERY careful about shipping goods to addresses OTHER THAN the Billing Address. Review the shipping address on Google Earth to make sure the address “makes sense” and is NOT going to a Shipping Center like a UPS Store or a Freight Forwarder.
  6. Determine your own appetite for risk. A Non-Profit Charity will accept lots of risk since they are not sending out merchandise whereas, a Merchant selling expensive watches cannot accept any risk. Therefore, determine if you want to Decline transactions where the 3-digit security code does not match. If it does not match, this means the buyer does NOT have possession of the physical card.
  7. As often as possible have a live person answer the phone. Most problems can be avoided before Chargeback claims are made.
  8. Be generous with refunds. “Any reason, anytime” is a policy that many successful websites have adopted even though they don’t advertise this.
  9. Remember, the Card Brands only automatically decline cards that are a) NOT in good standing, b) funds are not available or c) the expiration date does not match. It is up to you, the merchant to make sure your gateway/shopping cart declines transactions where there is an AVS Mis-Match or a CVV Mis-Match. Check the fraud filters inside your gateway or call us to learn how.
  10. If you are shipping products that are expensive, require the buyers signature from your shipping carrier. If you are selling products for Adults (for example Alcohol from a Wine Club) request an ID Verification from your Shipper (UPS).
  11. If you get a large purchase from someone you have never done business with, evaluate your risk. Many merchants establish their own internal Buying Limit meaning, for example, all purchases over $1000 must be made by Wire Transfer or Check in advance. Remember, your processor creates a soft Transaction Threshold for each merchant. Very large transaction may NOT be funded immediately or with that day’s batch.
  12. On some large transactions, some merchants may even process a partial refund back to the buyer’s card of an insignificant amount, for example, $.37. Then, the buyer must notify the merchant of the refund amount thus confirming the buyer has access to the cards online service.
  13. If you sell custom products that will need to be made/manufactured/acquired BEFORE the product ships, many merchants will first do an Authorization Only for $.01 to verify the card is good. Then, once the product is ready to ship, they re-run the transaction. Yes, you will be double charged a transaction fee (usually $.20) but you are not holding the customer’s funds for a product that has not shipped.
  14. CALL OR TEXT EVERY CUSTOMER AFTER THEY HAVE RECEIVED the goods or service. Ask them how they liked it, did it arrive in good condition, etc, etc. What you are really doing is fixing problems BEFORE they turn into claims.

We offer a Chargeback Mitigation service that actually STOPS claims BEFORE they become Chargebacks. Call today, 714.529.0500 for details.

Lastly, the best judge of your business’s Risk Tolerance is YOU. Neither your gateway, nor your shopping cart, nor your bank and certainly not your processor can tell you which transactions to accept. That is a decision for each business owner to make. Note: If you turn down EVERY order, of course, you won’t have any bad debt or fraud, nor will you have a business! Avoiding ALL fraudulent transactions is next to impossible but keeping these transactions, to, let’s say, 1% of your business may be a ratio you can live with.

Marlon Harris, President, Pathway Payments

Marlon Harris has been advising merchants on Risk related issues for over 20 years. Consulting for High Risk merchants, he has been instrumental in reducing credit card losses that can put Merchants out of business. Billed as an eCommerce Payments expert, he has grown Pathway Payments into one of the leading Merchant Services providers in the nation.

 

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