The UTruePay Blog

Problems with Accepting Credit Cards, Fraud, and Card-Not-Present Transactions

Quite simply, I hate taking credit cards in card-not-present transactions (any purchase where the cardholder is not present at the physical location of the point of sale – mail order purchases, phone purchases, Internet purchases etc.) Here’s why:

Let’s say that you own a small but well-established company that supplies goods to customers all over your country and all over the world. Your website is your storefront. You operate in a small specialised niche, supplying higher value deliverable items, and are one of the very few known ports of call when it comes to supplying the goods that you are reasonably well known for. You ship everywhere, business is good and life is decent.

Then one day, as is usual practice, someone in a different part of the world contacts you, does a deal, and gives you his credit card details. You charge the customer’s card, and you then ship the goods and wait (perhaps for a long time) for the money to land in the bank. It’s all as smooth as clockwork, right?

Wrong. Two weeks later, you receive a letter or e-mail from your merchant services provider saying that the goods were bought on a stolen credit card. Your account is stopped and the money is either taken out of your account or you’re asked to send the card services provider a cheque for the same amount, or they’ll take action against you.

In the meantime, your account is still on stop, preventing you from getting paid by other bona fide customers, and your previous “customer” has disappeared completely. The goods are long gone, and now, the money too.

It happens all the time. The chargeback to suspended account to stopped payment gateway sequence is a routine part of the retail landscape and should be, to be honest, totally unacceptable. Merchants pay absolutely extortionate fees, which run as high as six percent, to accept certain credit card payments. If the card companies’ own fraud protection measures fail to protect you, well, they simply just take their money back.

The reality is that you, as a merchant, run a huge risk every single time you process a card-not-present transaction, and there’s nothing you can do about it. Worse still, you’re completely at the mercy of your customer.

Consider that it may not even be a case of stolen/fraudulent credit card usage. Your customer can simply “change his mind.” He calls his card company and tells them that your goods were unsuitable/unfit for purpose, and that he wants all/some of his money back. They make you dance to their tune (e.g. “I want a retrospective discount”). So begins the same sad story of chargebacks etc ad infinitum. And all the while, you’ve only ever been honest and practiced good business integrity.

The provision of credit card payment facilities all over the Western world (especially online) has become an incredibility oligopolistic marketplace and a cash cow for the banks and payment processors. Only businesses putting through millions of dollars in card turnover every year get half-decent card-processing rates. The rest of us pay extortionate rates for minimal protection, and frankly disgraceful settlement times whilst being utterly at the mercy of our customers.

I remember clearly that when I first started my first import and distribution business, I was told by the payment processor that I would need to deposit a very large sum of money with them if I wanted anything other than 30 days’ settlement terms. I couldn’t believe what I was hearing. All I wanted was to get paid – why was that so hard?

Well how do you deal with it? Simple: minimise card acceptance, or the risks of it going wrong when you do have to accept a credit card.

Here are some practical suggestions I put to regular use in my own businesses:

• No large sales by credit card. Period. I’d rather lose the sale than sell the goods and get nothing.
• Suggest a wire transfer.
• Get a feel for your customer. A bona fide customer will understand your concerns. If he refuses to pay by any other means than a credit card, then alarm bells should start ringing. Why is he so insistent? Ask yourself if the customer may later “make you dance” by threatening to call his credit card company.
• Incentivise the customer with a small discount if he agrees to pay by wire transfer (as you’re no longer paying the credit card acceptance fee).
• How about a partial credit card amount as gesture of goodwill and the balance as a wire transfer?
• Try to find other payment services which may limit the risk for both parties. UTruePay is one such service. Escrow companies may also work but they can be an obstacle to a company’s cash flow when the company needs the customer’s funds to supply goods, such as with special order non-stock items or very large orders.
• In general, build trust. Show your customer your company’s credit rating. Refer other customers during the enquiry process so that he feels comfortable wiring the money to you.
• During the delivery process, keep regular contact with your customers so that they don’t get nervous (that’s just old-fashioned good service).
• Set up retail finance facilities which lend money to consumers to purchase products (especially when selling high value items). This is important in scenarios where the customers actually require credit to fund the purchase of the product, but is useless for international transactions.

Ultimately, it’s down to individual business owners to assess the risks relating to accepting credit cards from customer to customer, but it’s worth remembering that:

• You get no protection when you take a credit card in a card-not-present transaction. Every single transaction is a gamble. The larger the sum, the larger the risk and cost.
• If you work hard enough, you’ll build the trust with your customers and they will transfer the funds to you if they are genuine.
• There are alternatives out there, or half-way measures to reduce risk – find them!

The cardinal rule: just don’t do it if it’s money that you can’t afford to lose. It’s not a sale if you don’t get the money and your business isn’t in gambling.