• Your customer, the “Cardholder,” obtains his/her MasterCard or Visa credit card from an “Issuing Bank” (the bank that issued the card to the Cardholder.)

• You, the Merchant, obtain your “Merchant Account” from a “Sponsoring Bank” or an “Acquiring Bank” (both referred to as “Merchant Banks”). Merchant banks “sponsor” you as a business qualified to accept credit cards.

• “Processors” are companies that process the credit card transactions through the bank system for you.

• The “Net Settlement Amount” is the amount deposited into your account after a sale. It’s the transaction amount less the “Discount Amount.” Part of the discount amount is your “Discount Rate,” a small percentage of each credit card sale set by the processor is taking out and usually is in the ballpark of 1.6% on up.

• “Pass-through fees” are occasionally a nasty fact of life. They’re the fees added on to your basic discount rate by Visa and MasterCard whenever a transaction didn’t meet certain requirements for your basic transaction (such as failure to use the Address Verification
System). These “pass through” these are charged at the end of the month, not every day, so your daily reconcilement is easier and
you have “float time.”

• In general, credit cards are processed as “magnetic” transactions or “non-magnetic.” Magnetic means that the card is swiped through a POS terminal in a face-to-face transaction. It is the safest and cheapest processing option. On the other hand, non-magnetic transactions (aka “keyentered”) are those used in mail order/telephone order, Internet, or telephone processing, where cards aren’t present and usually yield a higher discount rate because of risk issues and fraudulency.

2. We electronically links to the Visa/MasterCard network to transmit the authorization request to the issuing bank.

3. The bank verifies that the account number is valid and that the transaction amount does not exceed the cardholder’s credit limit.
The authorization also puts a “hold” for the funds on the cardholder’s credit limit.

4. You transmit a deposit transaction. Note: If you operate face-to-face with customers and deliver the merchandise or service immediately, the authorization and deposit occur simultaneously as a “sale” transaction.

5. The money is deposited as a net settlement amount into your bank account at your sponsoring bank.

• Built-in Protections

• Trust

• Merchants

When you accept a credit card (and the transaction is authorized) you can be sure you’ll receive the funds. (Later, we’ll discuss disputes where funds go back to the consumer.)

• Banks

The credit card system protects issuing banks from unscrupulous merchants. When you submit a deposit, you are promising the issuing bank that you have delivered the goods and services promised to the cardholder. If you don’t, the issuing bank has the right to charge back the transaction.

• Consumers

Cardholders are protected from merchants who fail to keep their promises. They’re not liable for payment if a merchant fails to deliver as expected.

If a cardholder believes a charge isn’t legitimate, or that her expectations weren’t met, she could come to you for a refund. But she has another, more troublesome, option: Chargebacks.

Here’s how chargebacks work: Regardless of merit, the issuing bank is obligated to investigate complaints from cardholders, including:

• You never delivered the goods and services you promised her.

• She received the goods and services, but they didn’t meet her expectations, so she wants a refund.

In these circumstances, the issuing bank initiates a Retrieval Request and/or a Chargeback to resolve the matter.

1. The issuing bank sends a Retrieval Request (often called simply a “Retrieval”) to the processor Sometimes, they start with a chargeback and skip the Retrieval Request altogether.

2. The retrieval asks for proof that you delivered the disputed goods or services to the cardholder.

3. When you provide proof that you delivered the goods or services to the cardholder it is forwarded to the issuing bank that informs the cardholder. The proof is usually a document (delivery receipt, credit card receipt and/or your store receipt) signed by the cardholder.

TIP: Reply PROMPTLY to these requests. Late responses almost always result in chargebacks.

4. At this point, the complaint is usually dropped (but not always).

1. The issuing bank submits a chargeback to your processor through the Visa/MasterCard network.

2. Visa/MasterCard debits the original transaction amount from your bank account. (Or, it is deducted from your most recent deposit
transactions).

3. Your sponsoring bank records the chargeback on your account record. Besides the obvious financial loss to you, chargebacks are
also bad because of that final step. Here’s why. Everyone in the credit card system knows that eventually a few transactions will
result in chargebacks. They’re a cost of doing business. But, if you cause too many chargebacks, the credit card system will start
to doubt you and your standing as a credit card merchant. When chargebacks become too prevalent, your merchant account may be
terminated by your sponsoring bank. Then you may find it impossible to find another sponsoring bank. In other words, no more credit card acceptance. Ouch!

• If you have a “no refund
policy,” the customer must acknowledge this with a signature. The
words “No Refunds” must be printed at least 1/4″ high and be
within 1/4″ from the signature space.

• Do not submit a deposit
transaction until you deliver the goods or services.

• If you rent equipment or
sporting goods, do not attempt to cover damage to your products by
charging the customer’s credit card without doing the following:
You must run a separate transaction for the damage after swiping
the card again and having the customer sign a separate sales draft
and invoice for the damage claim. You must never attempt to charge
for damage or loss using only the credit

card draft obtained when performing your rental transaction . . .
NEVER.

This translates into four requirements:

• Fulfill your shipment dates and commitments to your customers.

• Promptly respond to requests
for refunds according to your policy AND submit the appropriate
credit transactions to your processor. Do not refund a customer
with a check or cash.

• Prevent fraud

• Only charge cardholders
after delivery of the goods or services.

800-

E-mail Customer Support at .

Rule No. 2: Always note the
Authorization Code. An Authorization Code indicates that the
cardholder has the credit to pay for the purchase. This assures
you of payment, as long as:

• A valid card was used by the
authorized cardholder.

• The cardholder (not someone
else) has signed a sales draft.

• The signature on the sales
draft was matched against the signature on the back of the card.

• You have proof that the card
was present (a receipt created by your printer as the result of a
magnetic stripe read, or an imprint of the card created by your
imprinter.) You won’t have this for mail order, telephone order,
etc., increasing the risk.

• The transaction is not
disputed later by the cardholder. (If this happens, you’ll have to
fight for your money through the chargeback process.)

When the goods or services are provided at the time of the sale,
the authorization and deposit are simultaneous. However, if the
customer is paying hours or days before she’ll receive the goods
or services, transact the authorization first: this reserves the
amount from the cardholder’s credit balance for you. Perform the
deposit transaction when the goods or services are delivered.

TIP: To avoid a pass-through fee on the transaction, make sure you
deposit as soon as possible after the goods are delivered. After
three days, the pass-through will be applied, but that’s no excuse
to make the deposit before the goods are shipped. Do not wait
longer than 30 days, or you’ll need to obtain a new authorization.

REMEMBER: In mail order or telephone order businesses, the deposit must not be run until the goods are shipped

When Are Funds Available? We thought you’d ask. Visa/MasterCard funds are posted to accounts at the sponsoring bank two business-days after the date of the transaction. There’s one additional business day if you are eligible to have funds deposited to your local bank.

TIP: Keep the white copy of
all receipts: they photocopy better. Also, handle carbonless paper
and carbon/silverback paper carefully. Pressure on the paper
during handling causes black blotches that make your documents
illegible.

TIP: You will be asked to find
chargeback documentation based on the card number, transaction
date, and amount of the transaction. Therefore, filing your
retrievals by cardholder name will make your research process more
difficult unless you also have a cross-reference system.

• Don’t share, sell, purchase
or exchange cardholder names and account numbers in any form.

• Secure all records,
electronic or otherwise, that include cardholder names, account
information, transaction information etc. to prevent access by
anyone other than your processor.

• Never store magnetic stripe
data. In the electronic commerce arena, a number of best practices
to help protect data from unauthorized access include:

• Encrypt cardholder data and
only store that data in encrypted form.

• Back up files only in
encrypted form.

• Secure encryption and
communication keys in a secure hardware device or tamper-resistant
security module.

• Limit personnel access to
computers.

• Encrypt and decrypt within a
secure hardware device. This isolates the encryption keys and
minimizes their exposure.

• Manage all keys using split
knowledge and dual control so no one person can have access to
data in the absence of other employees.

• Protect access to file
servers.

can then be re-injected onto a magnetic stripe on a fraudulent
card.

While skimming is often a high-tech endeavor, it has a low-tech
angle as well. Simply put, an employee who gathers credit card
information and writes it down is just as much of a threat as his
tech-savvy counterpart. Prevent this from happening. MasterCard
will assess fines on merchants who are determined to be a “point
of weakness” in preventing employee fraud.

Meanwhile, Visa pays a reward of $1,000 to anyone who provides
information leading to the arrest of a “skimmer,” so it can
literally pay to be vigilant about employee fraud.

You should review your credit card drafts at the end of each day or the beginning of the following day. No matter how reliable your processor (and we ARE reliable), you want to make sure that each transaction was properly processed. This can save you lots of grief at the end of the month, and help ensure you’re getting proper credit for your sales.

Compare the total dollar amount of the drafts to the total amount you processed for the day. If you have a POS terminal printer, you can print both detail and summary reports of your day’s transactions.

Each day’s VISA/Master Card transaction total will appear on your bank
statement. Since your VISA/MasterCard discount fee is deducted daily, the deposit shown is your net deposit. Discover and American Express deposits are listed separately. Your processing agreements with these companies control the payment of your funds.