Credit Card Processing Risk Management

As the head of Risk Management for a large credit card processing company, this is a question that I am posed with by merchants who accept credit cards every single day. With the current economic climate, fraud claims are on the rise and pose a complex challenge to more and more merchants on a daily basis.

As a merchant, how do you protect yourself? Following these simple steps will certainly help:

Verify address and CVV code – Sounds simple, but this is a step that is often ignored. A CVV Code or CARD VERIFICATION VALUE code is a three or four digit code located on the credit card itself and is a security feature to help verify that the card is on hand for “card not present” transactions. Verifying the address and CVV code provides the confidence that the credit card is in the possession of the cardholder your dealing with and a positive address match should mean that your are shipping the product to an address recognized by the issuing bank.

Be wary of suspicious International Sales – Now I’m not saying that all International Sales are fraudulent; however, it is important to realize the risks. Address verification cannot be performed and it is difficult for your merchant processor to verify the sale in question. Ask yourself does the sale make sense? Why does this individual have to buy the product from you and not someone closer geographically?

Stay abreast of fraud trends/scenarios – More and more, we see merchants being approached for”humanitarian” causes with large purchases needed for orphanages, churches, etc. These are uncommon for the business and are usually sent via e-mail. Merchants are provided with multiple credit cards and are asked to split the sales to get them through. These sales are often invalid. Take the extra step if approached on a Teletypewriter (TTY) line. Unfortunately, another popular method for taking advantage of a merchant is using this device to shield one’s identity. Look for the warning signs and take the proper steps to verify the sale.

NEVER, EVER send money to the cardholder – A self-explanatory red flag, there should never be a reason why you would need to refund money via bank or other wire service. If the cardholder even broaches this subject, WALK AWAY!

NEVER hesitate to contact your merchant provider and request a Code 10 – A Code 10 authorization request is to be utilized if a merchant is attempting to process a credit card and suspects fraud or suspicious activity. This request is forwarded to the card issuing bank from the merchant processor so information can be verified before the sale is processed.

Remember, we’re here to help. Your risk is our risk and we only want you to process valid sales. Call us and we can recommend the best course of action.

Ultimately, the last bit of advice I can provide is this: FOLLOW YOUR INSTINCTS

Unfortunately, I have received emails and calls from hundreds of merchants who have been victimized stating that they “knew it didn’t sound right” OR “it was too good to be true” yet still completed the transaction against their better judgment.

No one knows your business and the types of sales you process better then you do. If you are approached for a sale that doesn’t feel or sound right, walk away. Seek a different form of payment or at the very least, contact your risk department and have them take steps to offer you an opportunity to make an informed decision.

In the end, ask yourself this question: “Is this sale really worth the hardship of associated fees, chargebacks, and lost product?”

Rich Placa is the Manager of Underwriting and Risk Management for Federated Payments. He has over 8 years experience supporting revenue growth by minimizing losses and approving new business in creative ways weighing the risk versus reward factors. He provides leadership within his department creating and implementing re-engineered risk management policies while creating procedures to work with merchants to maximize their processing while protecting Federated Payments. Rich received his BA from New York University.

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