1. I hear it is risky to accept checks but a lot of people do not use credit cards and prefer to write checks. Should I accept checks?
You should absolutely accept checks from your customers. You do not want to lose a sale because you do not accept checks. Checks are still widely used by a large portion of the population and many people are over their limits on their credit cards. There are several services you can take advantage of when accepting checks both in person or over the phone or via the internet.
The first is check guarantee. Check Guarantee companies will reimburse you if a customer writes you a check and it bounces for any reason. Your terminal or online software will allow you to enter some basic information about the check writer, usually their driver’s license number. Check guarantee companies compile large databases of bad check writers and process this information quickly. If the check writer has written bad checks to other merchants before you, they will usually decline the transaction and you should not accept the check from this check writer. Ask for another form of payment such as a credit card or cash. Now assume the check receives an approval code from the check guarantee company. This does not mean there is money in the checking account of your customer. It just means the check writer does not have a history of writing bad checks. The check can still bounce but the check guarantee company will reimburse you and they will pursue the bad check writer. Consider it insurance for checks. This service costs approximately 1-3% of the sale and is very comparable to your discount rate for credit card transactions.
Another method is called Check Verification. This is not a guarantee but still verifies through the same databases to see if the check writer has a history of writing bad checks. The difference between check guarantee and check verification is if you use the verification system and the check bounces the check verification company will not reimburse you for the bad check. Some merchants prefer the verification system because it is less expensive but riskier if you do get a bad check. This service usually cost less than 50 cents per transaction.
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2. What else do I need to know about accepting checks?
There a few fees associated with either service but consider the consequences of having a check bounce with no recourse. It is worth the investment. Here are the fees.
- Equipment cost - The price varies depending on the quality of the check conversion equipment offered but will be at least several hundred dollars. Most merchants do not use a separate piece of equipment; rather they have a software program downloaded into their terminal or online software. This is less expensive and your ISO can do the programming for you usually for free.
- Cost per transaction - When it comes to processing checks, industries are classified according to risk. Rates should be comparable to credit card processing fees for Check Guarantee and significantly less for Check Verification only. Your ISO can identify your exact rate for your type of business.
- Monthly service fee - Regardless of the terminology, you will incur a monthly expense when you use check processing. This is similar to a customer service fee and is usually $10 to $20 per month. You should also be aware that you may have to pay a little extra on the application/set-up fee, and the monthly rates (e.g., statement fee, customer service fee, etc.) to process both credit cards and checks as opposed to just credit cards. However, it still makes prudent business sense to offer both payment options.
- Monthly minimum - Check processing company need to make your account profitable to pay for customer service, technology etc., so they set a minimum they want to make from your account. This is not an additional fee but rather the transaction or a set dollar amount whichever is greater. The minimum can vary greatly by industry but range from $0 to over $100. Again, your ISO can identify your minimum.
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3. Will I also be able to accept check payments on my web site?
Yes, make sure that the merchant service provider knows your interest to offer this important payment option to your customers, and can accommodate this service. On the web page order form, you can have one section where the customer may put in his/her credit card information and another section where the customer may put in the check information required (e.g., routing number, account number, etc.). The merchant service provider can tell you all the checking information that is necessary to collect from your customers. The checking information goes through the payment gateway just like the credit card information travels.
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4. Is it safe to process credit cards over the Internet?
Yes, it is safe for you and for your customers. However, the following precautions can reduce the risk.
Use the state-of-the-art Secure Socket Layer (SSL) systems that requires that credit card data be transmitted from your (or your ISP's) secure server in encrypted form. This ensures that no one can intercept the transaction and obtain sensitive information.
Use all other preventive tools to reduce fraud including AVS and CVV2. Now that you see the basic steps of a real-time Internet credit card transaction, you are then in position to understand what you need to implement it. You must have the following:
- Secure server with certification - When your customer enters his/her credit card information, it is sent in plain, unencrypted text form to the server hosting the website. As it is possible to intercept this data, you must use SSL encryption (typically 128-bit) ensuring individuals do not intercept this information. A secure server utilizing this SSL encryption must reflect this with a certificate. (The certificate also ensures the authenticity of the website including who owns it and the site owner’s physical location.)
- Order Form - Obviously, your customers need a place where they can input their personal information and either banking or credit card information. The order form is the place to do it, and the form – as you should remember – must be on a secure server.
- Gateway - As mentioned previously, this is the “tunnel” that allows for the authorization, processing and management of your credit card payments. The mechanism transfers your customer’s vital information to the processor resulting in you receiving funds. If you intend to or already have a shopping cart – software that enables you to have an e-commerce, online store where purchases calculated for you – make sure that the gateway you use is compatible with the shopping cart. Fortunately, most gateways work well with the great majority of shopping carts. How do they work together? The total dollar amount is calculated once the customer has completed the order by the shopping cart. Your web site order form receives this information. When the customer inputs his/her personal and banking information, the order form submits data via SSL (secure server) to the gateway for sales processing. If you do not have a shopping cart, the customer can enter his/her purchase on the order form by using SSL technology.
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5. I hear so much about fraud and merchants losing money by accepting bad credit cards. What can I do to reduce the risk to me?
Below, I have listed some things to do to reduce fraud but understand one important fact. Just because you received an approval code on a credit card sale that does not guarantee you will receive those funds. The system is set up to verify the credit card has available credit, is in good standing and has not been REPORTED stolen. If I stole your credit card and you did not know it, I can use it and receive approvals on purchases until you REPORT it stolen. Unfortunately, the only one who loses is the merchant. The merchant will lose both his/her merchandise and the funds from the sale. Here are some good things to remember to help you prevent credit card fraud:
- Imprint the credit card - This is a physical impression you make from a customer's card, which appears on a sales draft. This proves that the card was present during the sale. A merchant should imprint a credit card if the card is unreadable when slid through your electronic terminal. This proves that the merchant physically had the card in his possession and if there is ever an issue about fraud concerning the sale, the merchant will typically win the dispute. Processing credit cards electronically results in an imprint of the credit card if you use a magnetic-stripe-reading terminal that includes the correct point-of-sale (POS) entry code.
- Ask for identification - It is a good idea to compare signatures on the receipt with another form of I.D. Do not accept credit card sales where the customer cannot provide identification or if the signatures do not match. It is not illegal to ask for a Drivers License when accepting credit cards. It is only illegal to write a credit card number on the face of a check when accepting checks. Many merchants are confused about this rule.
- Use your common sense - If a customer acts suspicious or buys an unusual amount of items or does not seem to care about prices, do not assume everything is O.K. Ask questions. Ultimately you are responsible for fraud.
- CVV2 technology - MasterCard and Visa implemented the CVC2 and CVV2 verification methods respectively to provide greater security to merchants who process transactions where the credit card is not present. Mail/phone order or Internet merchants are ideal in using this system. CVC2 and CVV2 are three-digit codes used to confirm that customers possess genuine credit cards, and that their account numbers are legitimate. The codes are indent printed in the signature panel on the back of every MasterCard and Visa card, following the 16-digit account number. The magnetic strip does not contain these values and the receipt will not contain this information. This makes it more difficult for unauthorized use of the credit card. Initiating a transaction with CVC2 or CVV2 verification is easy. Then simply submit the following information: credit card number, expiration date, CVC2 or CVV2 value and transaction dollar amount either during a purchase online or when asked by the merchant during a phone order. The card-issuing bank then checks the CVC2 or CVV2 value against its account records. The terminal will receive a code that will identify either a match or no match. Although this response does not directly affect the authorization of the transaction, it can warn you if something is out of the ordinary and help you decide whether or not to continue with the sale. Continuing with the sale is the decision of the merchant and cancellation is not required.
- AVS (ADDRESS VERIFICATION SERVICE) Many credit card processors offer address verification service. This service will match shipping information with the cardholder's billing address. There are different AVS codes that will indicate complete or partial match. When addresses do not match, merchants should discuss the discrepancies with their customers before shipping orders. For example, the street address may match but the zip code does not. The merchant must then decide to either ship or contact the customer for verification. Using AVS lowers fees but is not a requirement to either ship or not. To reduce confusion merchants should clarify that billing information is required regardless of the shipping address. AVS works with cards issued in the United States. AVS is a service used by merchants who take orders over the phone or the Internet and is an extremely useful tool to reduce fraud.
- Use a shipping service that requires a signature such as UPS or FedEx - This will help provide proof of delivery in the event there is a charge back issue.
- Verify - Compare the credit card number printed on the receipt with the number embossed on the credit card. People can replace the magnetic stripe on the back of a credit card with another stripe that they know will receive an approval.
- IP address tracking - Log IP addresses that come to your web site. Examine email addresses of your customers before shipment, and cast a cautious eye to those who use free email accounts. If an order seems suspicious, (e.g., a great number of products are ordered or the amount of the payment is extremely large) connect with that client to ensure the authenticity of that order. Your careful assessment of orders will also greatly reduce your frequency of chargebacks.
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