Businesses depend on sales revenue to survive and any problem with sales can affect not only the bottom line, but also the business’ ability to survive and continue to operate. Some issues affecting business sales include returns, chargebacks, and charge offs. Some of these issues are caused by fraudulent transactions on credit and debit cards.
Card Statistics
The majority of consumers pay for purchases and other sales using plastic – either debit or credit cards. In fact, according to a Federal Reserve report on the economic climate, as of the first quarter of 2013, more than half of all adults held a balance on their credit cards, and just as many paid off balances entirely each month.
The state of card debt across the United States tells an interesting story where consumers are concerned. In fact, consumer debt is extremely high and growing at an exponential rate.
In fact, according to a consumer website that keeps track of the voluntary statistics reported by card companies reports that:
- As of April 2012, 55 percent of men and 60 percent of women carried a credit card balance
- As of May 2013, the total U.S. debt outstanding (revolving) is $853.6 billion
- As of June 2013, the total U.S. consumer debt is $2.8 trillion outstanding
- Every adult holds an average of $4,878.43 in card debt (major cards, not zero balance or store cards) over an average of 3.7 cards as of the end of 2009
- Average balance carrying card has $: $8,220.44 in debt
The 2013 Federal Reserve report also showed that as of the end of the first quarter of 2013, the top 100 banks reported a charge back rate of 3.87 percent on average – an increase over the previous two years.
Paying for Card Fraud
One thing about credit and debit cards that many consumers do not know is that fraudulent transitions cause a large percentage of charge offs and chargebacks.
While fraudulent card activity affects consumers, and the banks that protect them, fraud affects business owners even more so. While consumers pay a small fee to cover the inconvenience, businesses shoulder most of the risk. This means that businesses typically lose the product and payment, fees originally paid to the card company, and any fees incurred by the chargeback.
How to Reduce Fraudulent Activity
Chargebacks take money from businesses, and can prevent the chances for future funding to keep the business alive, among other things. For this reason, business owners try to prevent fraud from happening. Business owners can do this in a number of ways. For example:
- Require ID for card transactions, and keep the card until the transaction is complete. Reject purchases if the ID doesn’t match, and reject the card if the other information is off in any way
- Always swipe the card, and never process a manually if the card is declined
- Never submit a duplicate transaction for settlement
- Make sure your return policy is clear, and visible to the consumer on the receipt
- Use all available fraud services offered by the card company including the AVS, CVV2, CVC2, and CID
Another way to stop fraud from happening includes using technology that allows the business owner to check the Bank Identifications Number (BIN), which is comprised of the first six numbers that appear on the front of a card. The numbers correspond to the card’s bank information including the phone number and location, among other details not readily present on the card, or by using the security features mentioned above.
Service Objects BIN verification uses an API that reads the information from the card reader and then returns that information, which business owners can use to cross check with card and consumer info. This is especially useful in cases in which the presented card or consumer is suspect, or in cases in which a prepaid card is used.
First, having the issuing bank’s phone number makes it easier on the person conducting the security check since they can call the bank faster. Additionally, most card issuers print their phone number on the back of the card, which can be matched to the number that the API returns. Many fake cards often use the wrong phone number.
Another point of usefulness includes the issuing bank location. For instance, if the consumer’s ID states that he or she lives in the U.S., but a European bank issued the card, then chances are that the card is a problem.
Although it is possible that the card is legitimate along with the person presenting the card, refusing the transaction could prevent a chargeback and would be only a slight inconvenience to a legitimate person with a legitimate card.
Following these tips or using a verification service can help prevent the majority of fraudulent transactions, leading to fewer chargebacks. Fewer chargebacks means more income from sales, which is what business is all about.
