Fidelity's Best Practices of Credit Card Processing
If you need to return a transaction to the cardholder, voiding is a better option as it is much faster than refunding. A void essentially cancels the pending transaction, thus removing the hold on the funds and releasing them back to the cardholder’s account. In contrast, when a refund is processed, it takes several days for the money to return to the cardholder’s account.
It’s important to note that voids can only be made before the transaction batch is closed out (note that batch out times vary depending on your platform). Once the transaction has been batched out, your only option to undo the charge is to process a refund.
If a transaction is declined, don’t retry the card unless the customer confirms with their issuing bank that it can be retried. If you excessively retry a card and the transaction eventually goes through, the authorization may be invalid since this practice goes against bank card association rules. Additionally, in such an instance the issuer has the right to dispute the transaction since valid authorization was not obtained.
Disputes with these reason codes have no recourse, and merchants cannot respond to them.
Thus, if a transaction is declined, the best response is to ask your customer to provide an alternative form of payment.
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If bank fees or withdrawals are rejected due to insufficient funds, your account may be sent to collections and you could incur collections fees. Additionally, the processing bank may flag your account for risk assessment out of concern that you’d be unable to cover future debits or return funds to cardholders when refunds are processed.
Discrepancies may occur for a variety of reasons (e.g., usage of multiple devices with varying batch out times, a hardware or software error, or debits to the account). The earlier such discrepancies are noticed, the faster they will be resolved.
When your processing account was approved by the processing bank, it was set up as either card-present or card-not-present, and it was configured with specific velocity limits (which are often determined based on your previous processing trends, expected transaction volumes, average ticket amount, and high ticket amount). If you are anticipating any changes to your processing patterns, such as a drastic increase in transaction volumes or a new processing method, please proactively notify us so that we can work with you to avoid potential funding issues.
It is imperative that you stay in compliance with the Payment Card Industry’s Data Security Standards (PCI DSS), as noncompliance results in unnecessary fines and could put your processing account at risk. We encourage you to read Fidelity’s PCI Data Security Standard Requirements guide, available here. For further assistance, Fidelity’s PCI Team is always here to help.
Chargebacks are customer-filed disputes on credit card transactions. Chargebacks can occur for a variety of reasons, such as when the customer claims the transaction was fraudulent or unauthorized, or when there is an issue regarding the product or service.
When a chargeback is filed, the card associations give merchants a limited amount of time to respond with supporting documentation. It is essential that you respond before the deadline, as failure to do so may cause you to lose the case. For further guidance on how to effectively respond to chargebacks, we highly recommend that you read Fidelity’s Chargebacks 101 guide with important information on various types of chargebacks and tips to best manage them. We also recommend that you reach out to your Account Executive to discuss the various options available for receiving and managing chargeback notifications.
When fraudsters obtain stolen card information, they will test to see which cards are active and which have available funds by making many small purchases online. To do so, they will target payment gateways and websites. This practice, known as card testing fraud, is a huge threat to your bottom line — it could put you on the hook for many fees and incur chargebacks.
To protect your business, it’s essential that you’re familiar with the signs of card testing fraud and that you implement the right tools and procedures to stop it in its tracks. For more information, click here to read Fidelity’s How to Prevent Card Testing Fraud guide.
With the ever-increasing rates of card-not-present fraud and chargebacks, it’s recommended that merchants utilize customizable gateway fraud filters. Fraud filters allow you to block transactions based on a variety of data points, such as the transaction’s IP address or Address Verification Service (AVS) status.
Click here to learn more about Cardknox’s fraud filters and how they work. If you’d like to set up fraud filters for the Cardknox gateway, please reach out to your Account Executive or Cardknox Customer Service. For assistance with setting up filters on any other gateway, please reach out to Fidelity Customer Service.
Processing banks are constantly monitoring processing activity to detect any signs of high-risk transactions or behaviors. If you deviate from what’s expected for your account, or if you engage in practices that are suspicious (or outright forbidden), the bank will flag your account for review.
Risk concerns can be, at minimum, a hassle for your business — resulting in delayed funding or disruption to your processing account. In more severe cases, though, your account could be terminated.
Here are some things you can do to prevent risk concerns:
Only Process Credit Card Payments for the Exchange of Goods and Services
Credit card processing accounts can only be used for the exchange of goods and services, and every transaction must be a legitimate sale. The following practices are in complete violation of the rules and regulations of credit card associations:
- Cash Advancing
It is forbidden to process cards as a form of cash flow to fund your business. Doing so will result in immediate termination of your account.
Because the banks carefully monitor for any indications that merchants are engaging in cash advancing, they may flag your account if you use a corporate or personal card that belongs to you, a family member, or business partner. Even if you have a legitimate reason for using the card — such as authorizing a sale from one of your businesses to the other — your account may be flagged.
- Loan Collection
If someone owes you money on a loan, never accept payment by charging their card. Credit cards are to be used for current purchases only, and loan payback is never allowed.
Engaging in either of the above practices or any other activity prohibited by the processing bank may result in immediate termination of your account, and you could even be blacklisted from opening another processing account in the future.
Avoid Processing Third-Party Cards
Purchases should be paid for by the entity named on the invoice. You should only accept the customer’s credit card or their company’s card and never accept a “borrowed” card that does not belong to the customer. The processing banks prohibit the acceptance of third-party cards, and if you accept a third-party card and the cardholder initiates a chargeback, you will not be protected.
Ensure That Transactions Accurately Reflect Invoices
Discrepancies between invoice totals and credit card transaction amounts may cause the bank to worry that you are using your processing account inappropriately. The following are some important ways to keep everything consistent:
- Invoice Amounts Should Match Transaction Amounts
Banks expect every transaction to have the same exact amount as what is listed on the corresponding invoice. Accordingly, one should avoid processing payments that do not match transactions or rounding up or down transaction amounts to even numbers that don’t match invoices.
There are some exceptions in which one can process a payment that doesn’t exactly match the invoice without causing the bank to be concerned. For example, while generally invoices should not be split into multiple charges, there is no issue in doing so if the invoice specifies an installment plan. Additionally, combining multiple consecutive invoices into a single payment is an accepted practice.
- Adhere to the Terms of the Invoice
Do not charge the customer beyond the timeframe that’s delineated in the invoice. This is because, once the timeline has passed, the transaction is considered to be debt collection. It is advised that you always process payments within a reasonable timeframe of the invoice’s terms.