A merchant with a brick and mortar store can easily process the payment of a customer that walks in their store and hands them a credit or debit card to pay for goods or services. This type of transaction takes place all over the world.
What if the merchant mentioned above wants to expand online? Or what about the businesses with no physical store at all, or those with catalogs? All must be able to accept payment from individuals that want to pay with their card, but cannot physically present it at the time of sale. These circumstances, called card not present transactions, raise the risk of fraud considerably, but are vital for many businesses to expand or even function at all.
The Risk
The risk of fraud in card not present transactions weighs heavily on businesses due to the cost of chargebacks in the future. In the USA alone, fraudulent use of cards costs $8 billion each year, and small businesses can little afford their share of that burden. The decision to expand online, which could bring in the new customers that are vital for growth, becomes fraught with indecision and worry as a result.
How To Reduce The Risk
Credit card companies offer a number of methods of validation in card not present transactions. The most common in the United States is address verification, where certain parts of the card holder?s address are questioned and confirmed, usually the zip code. Another method is the security code, most often a 3 digit code on the back of the card. Merchants can require this number at the point of sale to confirm the customer?s identity, thus reducing the possibility of a fraudulent transaction.
In the end, the best way to prevent the use of a stolen card is to require as much information as possible. Good examples of information to require from each customer are the name as it appears on the card, the address and security code, shipping and billing address, and the card number and expiration date. Furthermore, it is a good idea to obtain proof of delivery.
With all the risk involved and the hassle of reducing that risk, it is no wonder many merchants simply go through a gateway provider. If all of the issues and solutions sound like too much trouble, especially when the risk is not eliminated entirely, perhaps you should start researching one today.
