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How to Handle a Large Order

Friday, November 16, 2007

When you have an order that varies significantly from your typical order size, special care needs to be taken to make sure the order is legitimate. Fraudsters typically place large orders with unsuspecting merchants so you should be wary of shipping out merchandise until you have fully "vetted" the order.  For example, lets say your average ticket is about $200.00.  You just received an e-mail from your store showing that a customer has placed an order for $3,000.00 worth of merchandise and the electronic payment gateway shows that the address verification (AVS) and Card Verification Value 2 (CVV2) was verified. But what now?  Do you ship out the merchandise to the customer and hope that they are legitimate?  Of course not!  The AVS and CVV2 verifications are simply not adequate enough to ensure that the customer is not using a stolen credit card.  Further vetting of the transaction is required.

Vetting the Transaction

Fraudsters will ask that the merchandise be shipped to a different address than the one on the credit card so a good place to start is to look at the Internet Protocol (IP) address of the consumer to see if it is close to the credit card billing address. Some merchants have a service built into their shopping cart software that will verify this automatically. Or you can use a website like Geo IP Tool or IP 2 Location.  Unfortunately, this might not work for all consumers, especially dial-up users on America Online (AOL). For example, an IP address of AOL is 172.192.48.225. Most of these will report back to Reston, Virginia, United States. This does not help you as the merchant, especially if the billing and shipping address is in Colorado.

Contacting the Consumer

Fraudsters will typically not leave a valid phone number and will usually use a free email service such as Yahoo!® or Hotmail®. Don't hesitate to contact the customer on large orders. When calling them you should identify yourself and ask them to verify the order. Don't be afraid to also e-mail the customer and ask them to reply back to the e-mail to verify the order. You might also require the customer to sign a credit card authorization form and fax it to you.

Require a Signature on Delivery

When shipping out the order, ask the shipper to get a signature on delivery. You should also notify the customer that you will require a signature on delivery or else the merchandise will be returned.

Contact your Payment Processor

After you have vetted the transaction and documented your actions, contact your merchant account provider before your daily batch is uploaded. Most processors will place funds on hold if the order amount is significantly larger than the typical ticket size for your account. Tell them about the order and what you have done to verify it. Ask them if they need you to do anything else. When they tell you everything is OK, get the representative's name and / or employee ID number.

People Sending One Cent via Paypal

Wednesday, October 24, 2007

Some people have reported receiving a $0.01 (one cent) deposit to their Paypal account.  The sender could be verified or not.  The sender could be from the United States or not.  The question is, do you want to accept this payment?  While finding a penny lying on the ground may be considered good luck, finding a penny in your Paypal account may not be so lucky.  Chances are that you do NOT want to accept this payment because the sender is probably trying to verify your e-mail address and / or establish a business relationship with you so they can sell your email address to spammers.

Verifying Your E-Mail

Once the person has verified your e-mail address, he or she can now add it to their list of valid email addresses and then sell the list to spammers.  Never accept money from someone that you do not know.  If you are like me and use a particular e-mail address for Paypal, you do not want anyone else having that.  This helps to prevent those phishing e-mails.

Establishing a Business Relationship

By accepting money from someone, you are establishing a business relationship with that person which helps to bypass any of the laws that are in place to help prevent some types of spam, junk mail, and junk faxes.

So before accepting that one cent, ask yourself how much is your e-mail address and / or business relationship is worth?

Merchandise Not Received

Thursday, October 04, 2007

This chargeback is one of the more common reasons.  Consumers order a product and then call the issuing bank to inform them and hopefully get the money back.  The issuing back will start the process for you, and usually will credit your account immediately while informing the acquiring bank and the merchant account provider to start the retrieval request and possibly charging you, the merchant, a retrieval request fee.

The easiest way to respond to this chargeback code 30 is to provide the merchant account provider with a signature stating the merchandise was delivered.  This is what the issuing bank will be looking for.  If you do not have this, it is very difficult to prove the product was received.  Some companies require a signature only over a certain amount - this might be something to consider as well.

Specifying a Date of Delivery

This is very popular with a lot of merchants, they want their customers to know when to expect the merchandise.  However, this can work against you.  If you tell the consumer the merchandise will be delivered on Wednesday but it was actually delivered on Thursday, the consumer has a reason for a chargeback. 

The issuing bank will not be looking for proof of delivery but looking for some type of an agreement from the consumer saying it is OK to be received a day later.  Send the consumer an email and get his / her response.  Maybe even consider a fax with a signature stating that it will be OK for the goods to be delivered one day late.

If the consumer keeps the merchandise, you have a case against the consumer.  You can contact the consumer informing them that you are going to sell the chargeback.  If you need help writing your Terms of Service to protect yourself and business and to have the ability to charge fees when you get a fraudulent chargeback by a merchant, contact Jeffrey Cohen.

Merchant Direct Access Service

Thursday, September 27, 2007

Visa offers merchants a service called the Merchant Direct Access Service (MDAS) which allows merchants access to address verification service (AVS) by a toll-free number, using a touch-tone phone. The service is specifically targeted to small mail order / telephone order (MO/TO) or Internet merchants for whom AVS may not be cost-effective.  Merchants using MDAS are charged on a per-transaction basis.

To use the MDAS, you need access to a touch-tone telephone and your Merchant Access Code (MAC) which you can obtain from your merchant account provider.  To request an address verification, call the MDAS toll-free number, 1-800-VISA-AVS (1-800-847-2287). An automated voice unit guides you through the process of submitting a customer’s account number and address, and gives you the results of the verification.

MDAS responses are similar to AVS, but do not include a single-letter response code.  There are currently five responses that can be obtained from the MDAS:

1. Exact Match: Street address and zip code match
2. Partial Match: Street address matches, but not zip code or zip code matches, but not street address
3. No Match: Neither the street address nor zip code matches
4. Retry Later: Card issuer system is not available at the present time
5. Global: International address; cannot be verified

This system might be useful if you need to verify the address prior to running a credit card transaction.

Merchant Accounts and Cash Advances

Friday, September 07, 2007

By now, you probably have seen a few companies offering you an advance on your credit card processing volume.  Some companies might not be eligible for this cash advance based on their volume, time processing with their merchant account provider, or services that they offer.

Merchant Cash Advance

This service is known as a Merchant Cash Advance (MCA) and involves the purchase of the portion of a business' future card sales at a discount.  The purchase price paid by an Merchant Cash Advance provider is a lump sum of cash delivered to the business for its use as working capital:

• Advertising
• Equipment
• Renovations
• Equipment
• Expansion
• Inventory
• Taxes
• Working Capital
• Emergencies

A Merchant Cash Advance is not a loan - it is the purchase of specified amount of card sales (that has yet to come).  The Merchant Cash Advance provider usually contracts with a Merchant Account Provider to collect the purchased sales.  This means that the dollar amount received by the Merchant Cash Advance provider on a given processing day is based on the merchant's net card sales volume (post-chargebacks, reserves, and other processors related charges.

Merchant Cash Advance Provider

Usually the the Merchant Cash Advance Provider will contract with the Merchant Account Provider to receive payments from the merchant.  One way is known as Automated Clearing House (ACH) and another is "batch-splitting". 

In the ACH method, debits in the amount equal to the agreed percentage of the covered card sales are instituted by the processor from the merchant's bank account (i.e. Demand Deposit Account (DDA)) though ACH transactions.  In the batch-splitting method, the merchant allows the Merchant Account Provider to forward the agreed upon percentage directly to the Merchant Cash Advance Provider's account.  The rest of the money is then deposited into the merchant's bank account.

Pros and Cons Using a Merchant Cash Advance

Since the re-payment plan is based on a percentage of the future sales, the Merchant Cash Advance Provider will receive their money usually on a daily basis.  However, if you have to pay more than your "Safe Retrieval Percentage", you run the risk of going out of business.  For example, if your agreed upon retrieval percentage rate is 10%, you should make sure your mark-up is higher than this rate to cover this additional expense.

Merchant Cash Advance Providers usually require less paperwork than traditional capital sources and can often go from the application to completed funding in a week or less.  Some Merchant Cash Advance Providers do not require personal collateral to secure the merchant's obligations. 

Some Merchant Cash Advance Providers will also require the merchant not to switch Merchant Account Providers and other terms.  They will usually require the merchants to provider guarantees of performance as well.

Retrieval Fee Changes

Most Merchant Account Providers have a relationship with a Merchant Cash Advance Provider.  Usually it is better to do business with these companies since this industry is still growing and is self-regulated.  Some Merchant Cash Advance Providers might increase the retrieval percentage without the merchant's expressed consent if the merchant's sales slow down and the Merchant Cash Advance Provider is not getting their money back in a timely manner (if your sales slow down).  Verify with the Merchant Account Provider what their regulations are when it comes to this as well as the Merchant Cash Advance Provider.

Yahoo Merchant Solutions

Thursday, August 09, 2007

Yahoo!® Merchant Solutions helps to provides businesses an easy way to start up their e-commerce website.  While at first glance, their prices might seem pretty inexpensive, but they are actually a bit more expensive than other electronic payment gateways.  That's right - they are an electronic payment gateway, just like LinkPoint, Payflow, Authorize.net/Cybersource.

Yahoo!® provides merchants three different plans which includes a monthly fee.  

A monthly fee that covers the web hosting services that support your store, including: hosting your store and products on our secure, reliable servers; using our powerful software platform; and conducting business on the Yahoo!® Merchant Solutions infrastructure.

This monthly fee can be compared to a hosting provider, such as TechEvolution and an electronic payment gateway.  And unlike the LinkPoint Gateway, Yahoo!® charges a transaction fee for using their gateway: .75% (Professional), 1.25% (Standard), or 1.5%(Starter).  This monthly fee is $39.95, $99.95, or $299.95 a month. 

The Pros of Using Yahoo!® Small Business

The benefits of using Yahoo!® Small Businesses can be considerable.  If you want a company to handle and maintain the hosting, want one company to call, Yahoo!® might be the best solution.  If you would like to have discounts on Yahoo!® paid searches, Yahoo!® might be the company to call.

The Cons of Using Yahoo!® Small Business

The costs would be the one thing to consider.  For an e-commerce store to start out, you need a Secure Sockets Layer (SSL) certificate, a hosting company, an electronic payment gateways, a merchant account, and of course your own domain name.  Purchasing these items through another company would be cheaper, both in set-up costs and monthly costs.

Yahoo!® Small Business Solution Costs

 Yahoo!® partners with Chase / Paymentech and uses the First Data Nashville Platform to help process the transactions.  The basic costs of this account is:

• Setup/application fee: none
• Monthly fee: $22.95
• Transaction fee: $0.20 cents per transaction, and 2.69% for Visa and MasterCard (2.58% for debit cards)

With LoudCommerce, your charges would be more along the lines of:

• No Set-up Fee
• Discount Rate: 2.19%
• Transaction Rate: $.25
• Address Verification Service: $.05
• Monthly Account Fee: $15.00
• Monthly Minimum: $0.00
• Batch Fee: $.25

So using a transaction of $100, the approximate costs of using Chase / Paymentech and Yahoo!®, the cost would be $4.39 with the Professional Package and $3.64 with the Starter Package.  Using LoudCommerce, your approximate costs would be $3.24 with the Professional Package and $3.99 using the Starter Package.  (Remember, that Yahoo!®  is still charging you a transaction cost.)

Using Another Service

You could use LoudCommerce's special and the approximate costs for the same transaction above would be $2.49.  This special uses the LinkPoint Gateway.

If you review the prices, you will see there is no termination fee, it is a month-to-month contract, and there is no monthly minimum.

Do your ROI when considering using Yahoo!® as your service provider.  Look at what your competition is charging as well and make sure that your business will make money.

Chargeback Ratios

Sunday, July 22, 2007

To determine the chargeback ratio, a number of factors are usually considered.  Of course, you want to do all you can to prevent chargebacks, but they do happen from time to time.  Most providers will provide an online solution for your to respond to chargebacks in a timely manner.  Always respond to chargebacks in a timely manner.

Time Limit to File a Chargeback

Most issuing banks have a time limit for consumers to file a chargeback.  This varies per issuing bank if the card is a debit or credit card.  A good rule of thumb is 180 days from the date of the transaction.  With a signature debit card, Regulation E of the Federal Law states the consumer has 60 days from the statement date to notify the issuing bank of an error.  Most issuers will return an erroneous transaction for as long as they are permitted under applicable network rules (120 to 180 days).  Regulation Z governs the credit card issuers and states consumers should notify the issuing bank within 60 days of the receiving the statement.  Issuers will generally leverage the chargeback procedures of the associations and assist consumers who discover an error for as long as they are permitted American Express seems to be the most lenient with chargebacks, almost always favoring the consumer with the time limit sometimes going over 180 days.  This can sometimes be a deciding factor for a merchant to accept American Express or not.

The Numbers

Let's assume you have a product that you sell for $50.00.  And you have 200 transactions that month, totaling $10,000.  If you have one consumer call their issuing bank to do a chargeback, your chargeback ratio would be .5%.  Most merchant account providers would like you to stay under one per cent. 

When a chargeback happens, always make sure you respond in a timely manner and send the information the provider asks for.

Subscription Based Websites

Saturday, December 02, 2006

A lot of websites are based on subscriptions. Charging a consumer for anything is very risky and charging them monthly just makes it riskier. You run the risk of chargebacks and fraud. A lot of times, these go hand in hand. Someone might want to see what you have to offer and will use a credit card number that does not belong to them. By the time that you find out, they could potentially have used your services for a couple of months. You are now out your subscription fee(s) as well as chargeback fee(s). A few of these can potentially ruin a merchant.

You have a number of options available to you and choices to consider. The first, of course, is do you really want to get involved with something like this? Once you realize you do, you will want to protect your merchant account. You might even consider using a third party processor to process your transactions. Using a third party processor will help with a lot of the "scrubbing". Scrubbing basically means that the transaction will go through a few fraud prevention tools to help verify the transaction.

Once this is completed and the transaction is deemed OK by the processor, the consumer will be allowed access to your site. A lot of times, chargebacks will happen in days of the transaction. The consumer might not have thought it was worth their money. And instead of calling you, they contact their issuing bank. A good rule of thumb for this is to always send out an email maybe a couple of hours later even asking them about the service, etc. This way you open the communication with them.

Depending on the issuing bank, the consumer can have months to potentially request their money back. Usually with a debit card (with a Visa or MasterCard logo on it), the time frame is less than a credit card (with a Visa or MasterCard logo on it). With American Express, the time frame increases to almost forever. I have seen merchants complaining of chargebacks from over 18 months. This is why you should always keep records.

There are pros and cons to a subscription website. Whenever you are dealing with consumers, the word chargeback always lurks around. Increasing your business unfortunately increases your risks. You will want to do everything possible to scrub the transaction to prevent a chargeback.

Microsoft Frontpage MVP

Tuesday, October 03, 2006

Corey Bryant was nominated this year for the Microsoft Frontpage Most Valuable Professional and they actually accepted me. I have added my profile to their list but I do need to update it some.

Ways to Prevent Spam

Thursday, April 06, 2006

A good way to reduce spam is to have unique email addresses for each website.  Most web hosting companies offer unlimited amount of email aliases.  Take advantage of this feature.  Use this instead of using a catch-all.  Using a catch-all email address causes problems because a lot of companies just send emails out to dummy email addresses but addresses in which you will have something set up, like sales@example.com.

For example, if you sign up on a message board that is at the URL www.forum-example.com and your domain name is www.example.com, then your email address to use would be forum-example@example.com.  And then you create an email alias in the control panel. (You might create this email alias first just in case they send you a confirmation email.)

This way if you receive an email addressed to forum-example@example.com but it is not from www.forum-example.com, you know they might have sold your email address, traded it, or maybe they were hacked.  You can easily sign into your webmail and block forum-example@example.com.  Of course you might need to update your email address with www.forum-example.com to another unique email address (forum-example1@example.com).

Doing this won't prevent spam, but it will cut back on a lot of spam.