Here is a picture of the components involved in an online purchase:
A standard online shop will have an online catalogue and a shopping cart that you can get by purchasing an e-commerce product to suit your business Your Electronic payments solution will then be ‘plugged-in’ to this shop.
Sometimes a customer is not actually present in a shop or at the point of sale for a credit card transaction. This may sound strange but some card transactions, like placing an order over a phone or by mail-order do not need the customer to be present at the point of sale.
This situation is known as a Customer Not Present transaction. Acquiring Banksmake a distinction between customer present and Customer Not Present transactions, as there is a potential increase in fraud when the customer does not present the card or sign a sales voucher at the point of sale.
Customer Not Present transactions take place everyday over the phone and with mail-order firms across the globe so there is no need to worry unduly about these risks. When you apply for your Merchant Service the Acquiring Bank will ask what percentage of your transactions will be to customers who are not physically present. They will use this
to calculate the cost of your service and to issue a Merchant Service ID that allows you to conduct Customer Not Present sales.
Taking orders over the Internet means the customer is again not present. Understand the distinction the Acquiring Bank makes so you can prepare your business appropriately and get the right Merchant Service for your operation.
Most people have bought a product from a high street shop and used their credit or debit-card to pay for the product. The shop uses their till to add all the goods you have purchased and then asks to pay for you goods. If you are paying by credit or debit card you hand over your card so that the shop can collect your card number and card expiry date.
Up until a few years ago shops commonly used a paper sales voucher that was placed over your card before a manual imprinter was rolled over the card to collect the details. A shop assistant filled in the sales total and asked you to sign the voucher. These vouchers are still used by some shops.
Recently most shops have moved to electronic machines linked by telephone directly to a bank. Card details are collected from the magnetic strip when the card is ‘swiped’
through the machine. The shop assistant types in the sales amount and details are passed to the bank for approval.
This simple process involves three main elements with specific names:
1. The bank that card details are passed to is the ACQUIRING BANK;
2. The shop has a unique ID to identify themselves to the ACQUIRING BANK and this is given to them as part of a MERCHANT SERVICE provided by the ACQUIRING BANK;
3. The MERCHANT SERVICE will also provide the PDQ Machine that the cards are swiped through.
Not all businesses have a Merchant Service with a bank so don’t worry if this is new to you. A charge-back , or cancellation of puchase, is when a customer demands a refund from their credit-card company. The rights of the consumer are quite powerful in this area as card providers like Visa and Mastercard have set an international standard period for charge-backs that currently stands at six months.
Banks protect themselves against charge-backs and the Merchant Service agreement you have with your bank allows them to transfer liability for payments of charge-backs to
sends data provides
you. As an additional security measure, the bank may retain the payment from the customer for a period of time (e.g. 30 days) before crediting your account with the funds.
Many Merchant Services also need you to lodge a bond to cover any charges incurred through fraud and charge-backs. This sum will vary depending upon your average transaction value and monthly turnover as well as less tangible features like the time it takes your business to fulfil orders and consequently the exposure to risk of charge-back or fraud. (More detail on exposure to risk in the next section). You can estimate the size of bond by discussing this with your acquiring bank. When you come to use the free online payments comparison tool, you will find that you can adjust the size of the bond on the "Acquiring costs" page. The tool will then assume that you have to pay interest on this sum in its calculations. This will give you a true cost comparison between the PSP solutions that use merchant services and the other types of solution that do not need acquiring services.
As Internet transactions fall under the banner of Customer Not Present and because many Internet sales are carried out ‘cross-border’ (potentially increasing the risk of fraud) there is no way to reduce the six -month window in which a charge- back could occur.
Even the processes of Authorisation and Capture (where the Acquiring Bank approves the card transaction) do not provide protection against charge-back, although insurance against loss can be arranged separately through a trade body or sometimes the Payment Gateway. Outstanding customer service is the best protection.
Having good terms and conditions on your website can limit the charge-backs you experience but nothing beats good service. Note that your