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General Merchant Account Questions
A chargeback is the return of a transaction from the cardholder’s bank. This may occur if the cardholder is disputing the transaction or if the authorization process was not followed properly. Some common reasons for chargebacks include:
- The authorized owner of the account number used claims that he/she did not engage in or authorize the transaction.
- The cardholder claims that the merchandise or services for which they are being charged have not been received.
- The cardholder claims that the merchandise or services received were not as initially described or were received in defective condition.
- The cardholder claims that the transaction was cancelled and/or the merchandise was returned.
- A valid authorization number was not obtained for the transaction in question.
If the chargeback enters arbitration period and the merchant loses, the merchant is charged $25.
AVS provides you with valuable address and zip code lookup on the cardholder (your customer), and as a result of the information provided, helps reduce fraud. AVS is mandatory by Visa and MasterCard on all keyed accounts where cards are not going to be swiped.
A request by the cardholder’s bank to the merchant for a copy/documentation of the actual ticket of a transaction. Retrieval requests are generated for a variety of reasons, including cardholder disputes, point-of-sale errors or fraud inquiries. It is the initial step that the issuer takes in the event that either the issuer or the cardholder disputes a transaction.
Credit card transactions generally take about one business day to deposit into your checking account. This process can be delayed if you settle your transactions after normal banking hours.
The Card Code Verification (CV2, or CVV2) security feature provides an extra measure of security against fraudulent credit card transactions. The Card Code Verification is a security code that is printed on a credit card’s signature panel in reverse italics, or following the full card number on the front of the card.
Many merchants and merchant services providers are confused by interchange and its impact on the fees that merchants pay to accept credit and debit card payments. Many have heard the term “interchange” but are not quite sure what it is. In addition to interchange, the card associations – Visa, MasterCard and Discover – assess other fees to cover the costs of maintaining their payment networks and systems.
What is Interchange?
Interchange refers to fees paid by the merchant’s bank to the issuing bank for selling a good or service to their customer. Interchange covers the cost to convert a charge on an account holder’s card to a cash deposit at the merchant’s bank account, including billing services, credit risk, fraud risk, and float. Interchange fees account for the vast majority of merchants’ costs for accepting card-based payments, regardless of how the merchant is priced.
What Determines Interchange for a Transaction?
Interchange is determined for each transaction based on the industry of the merchant, the type of card, the way the card is accepted, the transaction size, and other factors. Here are some common examples of factors that drive interchange costs:
- Manually entered and e-commerce transactions have higher interchange costs because without the swipe data, there is a greater risk that the transaction may be fraudulent. (Address verification mitigates this risk.)
- Rewards cards have higher interchange costs to fund the reward programs to the cardholders.
- Debit cards have lower interchange than credit cards because of the lower credit risk. (Debit card transactions are deducted directly from the cardholder’s bank account.)
- Merchants with small ticket sizes can qualify for interchange rates that have lower transaction fees to reduce their costs.
- Commercial cards have higher interchange rates to fund corporate and purchasing card programs that include rewards, spending controls and detailed reporting.
How can Merchants Lower Interchange Costs?
Merchants can follow best practices for card acceptance to obtain the lowest possible interchange rates for their business. For example:
- Swipe the card whenever the card is present.
- When it is necessary to manually enter a transaction because the terminal is having trouble reading the card, verify the cardholder’s address using the Address Verification Service.
- Settle (batch out) your terminal or point-of-sale software every day to avoid downgrades and higher interchange rates.
- Make sure you obtain a valid authorization for every transaction.
- Restaurants should properly enter tip adjustments before the batch is settled.
- Hotels should enter the check-in/check-out dates and folio numbers.
- Enter the invoice number when prompted.
- Enter the tax amount when prompted.
What Other Fees do Associations Charge?
In addition to interchange, which goes directly to the card issuing banks, the card associations assess other fees for the use of their networks and systems. It can be difficult to keep up with the list of these fees because the card associations have introduced several fees in recent years. Association fees include:
- Network fees
- Foreign card fees (for cards issued outside of the U.S.)
- MasterCard Network Access and Brand Usage Fee (NABU)
- Visa Acquirer Processing Fee (APF)
- Visa Fixed Acquirer Network Fee (FANF)
- Visa Transaction Integrity Fee (TIF)
- Visa Authorization Misuse Fee
- Visa Zero Floor Limit Fee
How Often Do Interchange Rates Change?
The card associations regularly update their interchange programs to promote more card issuance and acceptance. They add new interchange programs and change rates and fees to do so. It is most common for the associations to implement changes in April and October each year, but changes may also occur at other times.
A payment gateway is the service that processes credit card transactions for you. When your customers are buying something from your online store they enter their credit card numbers during the checkout process on your website in your shopping cart. Your e-commerce site sends that credit card information to your payment gateway to authorize the transaction and process the payment. If the credit card information submitted to the payment gateway matches the information on file with the credit card company and the charge is approved, the payment gateway will then transfer the money from your customers credit card into your merchant account.
The merchant account is basically an online bank account that will temporarily hold your money (you are the merchant) until it is moved into your actual bank account. After a successful sale, money will be transferred into your merchant account and it will sit there for a few days, usually 2 days, then, in most cases, it will automatically be transferred into your bank account – the one that you actually think of as your bank account where you deposit checks and so forth. You can sort of think of your merchant account as a temporary holding tank for the money that comes in from online sales.