February 2007 - Backend Business

Payment Processing: 4 Rules for Survival

By Ross Federgreen

One of the most vulnerable components of business is the electronic payment relationship. If you can’t get paid, you can’t survive! There are four important factors that apply to an effective payment process: compliance, chargebacks, track and the do not game.

Under the current Payment Card Industry Data Security Standard (PCI DSS v 1.1) all merchants must comply with a set of requirements driven by the number and the types of transactions that they accept. No company, which in any way handles, accepts or transfers credit card data is immune from these requirements. The requirements fall into two broad categories: penetration scans and policy. The policy requirements are known as the PCI dozen and consist of multiple issues related to both the electronic and physical security of the data.

Chargebacks are the Achilles heel of many businesses. Chargeback reduction and defense cross all areas of a business from the initial offer to fulfillment to customer service. Anytime that you have an opportunity to interact with a client you are at risk of causing a chargeback, as well as having the opportunity to prevent a chargeback.

Chargebacks fall into several broad categories, but the group that the merchant needs to be concerned with are called substantial chargebacks. These are the chargebacks that are initiated by cardholders when they contact the bank that issued them the credit card that they used. Many merchants are aware of the 1-percent rule, but they do not understand how it is calculated. This can be based on transaction volume or by dollar value. Remember that in all cases, the percentage of chargebacks calculated by any manner is always a reflection of previous events, as it takes time for a cardholder to file a complaint.

It is very important that every merchant understands his or her processing patterns. If you do not know what normal is, how will you notice abnormal, including fraud?

How much do you process by dollars, card type and transaction counts? What percentage of chargebacks, disputes and credits is expected? How do you perform against the 1-3-7 standard? Can you predict an expected rise in any of these three parameters? What are the seasonal variations that effect performance?

Simply stated, the do not game includes:

  • Do not have multiple merchant accounts
  • Do not issue credits after a chargeback has been received
  • Do not factor
  • Do not misrepresent on merchant service applications
  • Do not utilize aggregators
  • Do not pay for “boarding” your account

Always seek highly qualified help so that you can maintain the lifeblood of your business.

Ross Federgreen is founder of CSRSI, a consultancy for electronic payments focused exclusively on merchants. He can be reached at (866) 462-7774, or via e-mail at [email protected].


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