January 2006 | Vol. V - No. 1
|Fraudulent activity in e-commerce will have resulted in loss reaching $2.8 billion this year.|
“A merchant can reduce their debit card processing costs by simply switching processing equipment,” said Nick Ward, a Pivotal Payments expert in providing payment solutions for the toy industry. “Instead of running a debit card off-line or as a check card and incur the full costs of credit card processing, merchants can simply add an inexpensive PIN pad to their existing terminal, which will reduce processing costs by 30 to 40 percent,” said Ward.
Fraud & Chargeback Management
Fraudulent activity in e-commerce will have resulted in loss reaching $2.8 billion this year, which is staying relatively constant at 1.6 percent of revenue, according to CyberSource, the popular gateway. And alarmingly, international fraud this year is three times as high.
For online toy retailers, “properly activating the appropriate fraud settings will minimize fraud in the gateway where credit card transactions are captured and authorized.” In one important setting, the Card Verification Value, consumers during check-out must enter the three digit number printed on the back of their card, in an effort to confirm the cardholder has a genuine card in his presence.
A second important setting is the Address Verification System, which verifies the customer's billing address against the address on file with their credit card company, which 75 percent of online retailers now use. The transaction is only authorized if the addresses match.
"An important tool being adopted by businesses that sell on the Internet is cardholder authentication, a service that validates a cardholder's account ownership in real-time during the online transaction. All major credit cards offer this type of program among others, such as Verified by Visa or MasterCard Secure Code," said Lucy McGarr, VP of Marketing, with Pivotal Payments. "If the information provided does not match records on file for that cardholder, the transaction is rejected, thereby helping to reduce fraud."
The most common reason for chargebacks is that customers claim the transaction was unauthorized. And according to Cyberspace, chargeback rates may underestimate actual fraud rates by up to 50 percent. "Merchants accepting online transactions should keep accurate and complete transaction data on file,” McGarr said. “The most important data to record are the authorization code and AVS response code."
Responsible business ethics will also result in a reduction of chargebacks. "Always set clear expectations for the customer as to what they are buying, since over-inflating features and benefits may lead to customer frustration," said Lucy McGarr. "It is also important to have clear contact information and a clear refund policy on your Web site, and that you process refunds in a timely fashion. Another best practice for businesses is to keep your customers updated on any delays in delivering or back orders.”
New technologies are constantly evolving and emerging in the payment industry. "Wireless Technology is applicable to the toy industry, for those merchants selling at trade shows and hobby shows or at flea markets," said Ward. “With a cell phone device, which is compatible with most cell phone networks, you can swipe credit cards while obtaining real time authorizations. You benefit from the lowest swipe rates possible, and are assured approval, which is not the case when using the traditional 'knuckle buster' to generate an imprint.”
Pivotal Payments is a distinguished provider of payment processing solutions, enabling nationwide credit and debit card processing, clearing and settlement, gift and loyalty programs, terminal and gateway solutions and electronic check processing to point-of-sale, e-commerce and mail order/telephone order business.
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