can you relate?

Confidential and Proprietary Fifth Third Bank | All Rights Reserved

Robert Day 1-800-884-0353 Sept 2007

Using Credit Cards in B2B Transactions:

Presented by:

Robert L. Day

Assistant Vice President

Commercial Interchange

What Every Credit Manager Needs to Know

The information presented in this seminar is for information purposes only, and is not intended as legal or financial advice. The information does not amend or alter your obligations under your agreement with Fifth Third Bank, or under

the Operating Regulations of any credit card or debit card association.

2

Confidential and Proprietary © Fifth Third Bank All Rights Reserved Robert Day 1-800-884--0353

Can you relate?

Your Profit

AgendaAgenda• What is Interchange?• Why is everything downgrading?• What are you really paying ????• Statements: From Best to Worst • Convenience Fees• Risk & PCI • Fraud Protection• Choosing a business partner versus a processor

4


What is Interchange?

Interchange makes us the largest cost component for merchant transactions.

— Does not include Dues & Assessments, Access Fees, etc.

Fee collected by Acquirer from the merchant for every Visa and MasterCard transaction.

The Fee is then passed through Visa and MasterCard to the issuing bank.

Depending on detail that is passed with the transaction (Level I, II or III), the transaction may qualify for lower interchange rates.

5


Networks Provides systems/operations Develops products Provides risk management Provides advertising

and promotions Sets standards and rules

Issuers Issue cards Assume buyer’s credit risk Generate reports Provide customer service

Acquirers Sign up suppliers Underwrite supplier risk Provide processing

—Authorization—Capture—Settlement

Generate reports Provider customer service

Three key entities manage the payment system

6


Breakdown of Cost

Interchange represents 92% of the cost of this transaction.*Based on Average Ticket currently qualifying for the Visa Credit Retail Rate, 1.54% + 0.10

$50 Visa Credit Card Transaction

$0.87$0.0150

$0.0017

$0.0463$0.001

$0.005 Interchange (1.54% + $0.10)

Base II Fee

Tran Fee

Access Fee

Assessment Fee

Risk Fee

Total Cost = $0.94

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Evaluate payment strategies within a framework that closely considers your unique customer demographics as well as your overall business strategies

Minimize the overall impact to your bottom line by monitoring the interchange qualifications affecting your transactions

Understand how interchange downgrades and surcharges increase your effective rates.

Interchange Management

Electronic payments continue to grow rapidly and at the same time the cost per transaction is increasing

due to payment industry evolution

Why is everything Why is everything downgrading?downgrading?

Consumer CardsConsumer Cards

Some interchange surcharges are unavoidable •International, Rewards, World etc..

Most can be avoided.

This should be your focus!!!!

9


Visa Consumer Card Not Present

• Transactions originating from a Visa Corporate or Purchasing card do not require AVS. Business Cards do require and AVS attempt for interchange qualification.

• Recurring payment transactions do not require AVS as long as the transaction is not the first payment and the time between payments is less than a year.

No

CPS Card Not Present

Yes

Yes Cleared within two

days?

No

Yes

One authorization per clearing message?

Yes

No

AVS performed?*

Electronically authorized?

No

Yes

EIRF

No

Shipped within 7 days and transaction

includes order number and MOTO/ECI

Indicator?

YesNo

Authorized through Intl. Automated

Referral Service?

Standard

No

Cleared within three

days?

Yes

Consumer card transaction where card/ cardholder are not present

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Consumer card

transaction where card/ cardholder

are not present

Authorized?

MCC in auth and settle match?

YesCleared within three days?

Yes Merit I

No

Yes

NoNo

Standard

• For MasterCard MO/TO transactions, the authorization and settlement amounts MUST match unless the MCC is a Direct Marketing MCC.

• If the transaction is properly identified as E-Commerce, auth and settlement do not have to match

MasterCard Consumer Card Not Present

Why is everything Why is everything downgrading?downgrading?

Commercial CardsCommercial Cards

Level II and Level III Processing

12


• Commercial payment solutions are emerging as the most efficient way to manage corporate payments and receivables.

• With the recent increase for MasterCard Data Rate 2, merchants need to re-evaluate the cost/benefit of transmitting Level III data!

U.S. Segment for Corporate and Purchasing Cards (billions)

$-

$100

$200

$300

$400

$500

$600

$700

$800

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Purchasing

Corporate (T&E)

Source: Packaged Facts – the US Market for Corporate an Purchasing Cards, January 2005

Commercial Card TrendsCommercial Card Trends

13


Visa – CNP & E-Commerce Interchange Transaction Date must be within 7 days of the

Authorization Date Transaction Date should equal the Shipment Date Transaction must be settled / cleared to your

Processor within 2 days of the Transaction Date

1 2 3 4 5 6 7 8 9

Ship on Day 7Tran Date = Day 7

As Visa has the stricter requirements of the 2 networks, it is As Visa has the stricter requirements of the 2 networks, it is best to follow the Visa requirements as Best Practicesbest to follow the Visa requirements as Best Practices..

As Visa has the stricter requirements of the 2 networks, it is As Visa has the stricter requirements of the 2 networks, it is best to follow the Visa requirements as Best Practicesbest to follow the Visa requirements as Best Practices..

Auth on Day 1 Settle/Clear transactionto Processor by Day 9

Authorization/Settlement Time FramesAuthorization/Settlement Time Frames

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Depending on your Industry and MCC Code, the variance varies from 0-25%

MasterCard MOTO: Tran amount have a 0% Auth/Settlement tolerance and all transactions not matching will go to Standard if not set-up with the MCC codes below.

Visa MOTO: Tran amount may be different than the original auth amount. As long as the auth amount in settlement matches the original auth amount (and all other requirements are met), the transaction should qualify for the optimal rate.

MOTO (Mail Order Telephone Order) MMC Codes 4816,5960,5962,5964,5965,5966,5967,5968,5969,6531

Authorization/Settlement Variance Authorization/Settlement Variance

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MasterCard Commercial CardMasterCard Commercial Card

Level I Must include merchant zip code, location, description, Tax ID

Level II Must include merchant zip code, location, description, Tax ID

AND

Must include Sales Tax and Customer Code

Sales tax must be between 0.1% and 22%

Customer Code must be sent if provided by customer

Effective April 2008: Tax Exempt transactions must be properly identified as such or they cannot qualify for Data Rate 2 (Level II)

Level III Must include Level I and Level II data

AND

Line Item Detail

Unlike Visa, MasterCard’s Business, Corporate and Purchasing Cards are eligible for the Level III rate - Data Rate III

Large Ticket Requirements: Transactions > $7,272, Level II and Level III, no registration required.

NOTE:

Dial Terminal and Host Capture

applications cannot support Level III

data transmission.

The greater the amount of data provided…the better the interchange rate.

This is not a complete description of all

required data elements, but a high level

overview

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MC Commercial Card ChangesMC Commercial Card Changes

2.70%+ $0.10

2.20%+ $0.10

2.20%+ $0.102.20%+ $0.102.10%+ $0.102.00%+ $0.10

U.S. COMMERCIAL CARDS BUSINESS CARD

Commercial Standard 2.70% + 0.10$ 2.95% + 0.10$ Commercial Data Rate 2 2.05% + -$ 2.32% + 0.10$

- Commercial Face-To-Face 2.05% + -$ 2.32% + 0.10$

CORPORATE CARD, CORPORATE WORLD, and CORPORATE WORLD ELITE



-

-

- -

- PURCHASING CARD



- BUSINESS WORLD and BUSINESS WORLD ELITE

Commercial Standard 2.85% + 0.10$ 2.95% + 0.10$ Commercial Data Rate 1 2.80% + 0.10$ 2.65% + 0.10$ Commercial Data Rate 2 2.20% + -$ 2.32% + 0.10$

2.20% + -$ Commercial Data Rate 3 1.90% + -$ 1.75% + -$ Commercial Face-To-Face 2.20% + -$ 2.32% + 0.10$

-

Current October 2007

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Visa Commercial CardVisa Commercial Card

Level II Must include merchant zip code, location, description, Tax ID, and Sales Tax.

Sales Tax amount must be between 0.1% and 22% of the amount of the transaction.

Customer Code is no longer required for Level II on Purchasing Cards at non-fuel locations. Customer Code is required for Purchasing Cards at fuel locations

Level III Available to Purchasing Cards ONLY

Must include merchant zip code, location, description, Tax ID, and Message Identifier/Line Item Detail

NOTE: Level II Data (specifically Sales Tax and Customer Code) is no longer required for Level III on Purchasing Cards at non-fuel locations

Additional Info

Tax Exempt transactions can no longer qualify for Level II rates. They may get Level III on P-Cards if Level III data is provided

GSA and Large Ticket requirements have NOT changed (Sales Tax, Customer Code and Line Item Detail still required)

Large Ticket Requirements: Level II and Level III data required, registration required, $1,000 set-up fee, transactions > $4,105

This is not a complete

description of all required data

elements, but a high level overview

NOTE:

Dial Terminal and Host Capture applications

cannot support Level III data transmission.

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Visa Commercial Card ChangesVisa Commercial Card Changes April 2007 April 2007 (Non-T&E Merchants)(Non-T&E Merchants)

FeeProgram Current New Current New Current New

Standard 2.70% + $0.10 2.70%+ $0.10 2.70%+ $0.10 2.70%+ $0.10 2.70%+ $0.10 2.70%+ $0.10Electronic 2.20% + $0.10 2.45%+ $0.10 2.20%+ $0.10 2.40%+ $0.10 2.20%+ $0.10 2.20%+ $0.10CNP N/A 2.40%+ $0.10 N/A 2.25%+ $0.10 N/A 2.20%+ $0.10Retail N/A 2.20%+ $0.10 N/A 2.20%+ $0.10 N/A 2.20%+ $0.10B2B N/A 2.10%+ $0.10 N/A 2.10%+ $0.10 N/A 2.10%+ $0.10Level 2 2.00% + $0.10 2.00%+ $0.10 2.00% + $0.10 2.00%+ $0.10 1.90% + $0.10 2.00%+ $0.10Level 3 1.70% + $0.10 1.80% + $0.10 N/A N/A N/A N/A

Purchasing Business Corporate

• Visa Business, Corporate, and Purchasing transactions that are CPS qualified, however do not meet Level 2 data requirements, will no longer receive the Commercial Electronic rates.

• These transactions will be eligible for the new Commercial Card CNP, Commercial Card Retail, or Commercial Card B2B rates.

• Fleet Purchasing card fuel transactions will now be eligible for the new Purchasing Retail rate under certain conditions.

• These changes to the Commercial card interchange fee structure should benefit a number of tax-exempt merchants currently receiving the Commercial Electronic rates.

NOTE – Increases in Electronic, Level II and Level III

.20.25

.10

.10

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Sample Transaction Costs:Interchange Expense

Purchasing B2B Rate (Level I): $10.60

Purchasing Level II Rate: $10.10

Purchasing Level III Rate: $ 9.10

Visa Purchasing Card: $500 transaction

MasterCard Purchasing Card: $500 transaction

14% reduction in cost by processing Level III versus Level I data

Purchasing Data Rate I (Level I): $13.35

Purchasing Data Rate II (Level II): $11.75

Purchasing Data Rate III (Level III): $ 8.75

34% reduction in cost by processing Level III versus Level I data

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• Visa: 15% Purchasing, 16% Corporate, 69% Business• MasterCard: 11% Purchasing, 89% Corporate/Business• Merchant does Level I, but not Level II or III

Case Study Case Study Case Study Case Study

Visa Commercial Card• $10,000,000 sales• 100,000 transactions• $100 average ticketMasterCard Commercial Card• $7,500,000 sales• 75,000 transactions• $100 average ticket

Visa Commercial CardsCorporate/Business Level II – 2.00% + $.10

Purchasing Level III – 1.80% + $.10

MasterCard Commercial CardsCorporate/Business Data Rate III – 1.75%

Purchasing Data Rate III – 1.75%

Visa Fees MC Fees

MC Purchasing $22,688(Data Rate I: 2.65% + $.10)

Visa Purchasing $34,500(Purchasing Retail: 2.20% + $.10)

Visa Corporate $36,800(Corporate Retail: 2.20% + $.10)

V/MC Business $158,700 $183,563(Business Retail/Data Rate I)(Visa: 2.20% + $.10, MC: 2.65% + $.10)

TOTAL $230,000 $206,250

Current Effective Interchange 2.30% 2.75%

*Optimal Effective Interchange 2.07% 1.75%

Interchange Improvement % 0.23% 1.00%

Interchange SavingsInterchange Savings = $98,000

Level III Incentive Interchange RatesLevel III Incentive Interchange Rates

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Why Upgrade to Level III Support?

• Retain current customers requiring Level III detail

– Fortune 500 companies

– Government

– Universities

• Gain new customers with competitive edge

• Realize interchange savings opportunity

– For MasterCard, Data Rate III (Level III) interchange is 58 basis points lower than Data Rate II (Level II) interchange and up to 90 basis points lower than Data Rate I (Level I) interchange!

• Significant interchange savings opportunity available on Large Ticket commercial card transactions greater than $4,105 (Visa) & $7,272 (MasterCard)

22


Purchasing Card Usage:Buyer Benefits

Streamlines the Purchasing Power

Eliminates Paperwork

Reduces Costs

Increases Employee Productivity

Provides Automated Controls

Offers Customized Reporting

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Card Acceptance:Supplier Benefits

Increased Sales Volume

Improved Cash Flow

Fewer Credit Approvalsand Collection Activities

Increased Productivity

New Sales Channel

Less Paperwork to Process

Customer Acquisitionand Retention

Reduced Costs

Enhanced CompetitivePosition

Improved CustomerService

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Common myths to dispel...

Level-3 is hard for a supplier to implement

It’s expensive - the supplier will have to pay more to the banks and will just pass the cost along to buyer

Level-3 requires significant volumes to be worthwhile

The supplier has to write an interface directly to the processing bank OR, the related...

The supplier has to purchase expensive software in order to provide Level-3 data

The supplier only has limited need for this...

There are misperceptions and misunderstandings about Level III enhanced line item detail information for Commercial Cards...

Historically, there was some truth to these generalizations.

For the last several years they have not been accurate and yet their persistence holds back many organizations from participating with

enhanced data.

Credit Card Fees:Credit Card Fees:

What are you really What are you really paying ????????????paying ????????????

26


Effective Rate Calculations

Per Item Effective Rate:

• To convert a Per Item Fee into a %…

1) Take the total Per Item Fee and divide it by the Average Ticket

2) Multiply the result by 100

• This will assist in determining the effective rate for a transaction or converting from a “rate + transaction fee” model to a model “rate only”

Example 1:

Discount Rate: 1.95% + $0.25

Average Ticket: $75

Effective Rate:

$0.25/$75 X 100 = .33%

1.95% + .33% = 2.28%

Effective Rate 2.28%

Example 2:

Discount Rate: 1.95% + $0.25

Auth Fee: $0.20

Average Ticket: $75

Effective Rate:

$0.45/$75 X 100 = .60%

1.95% + .60% = 2.55%

Effective Rate 2.70%

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What is Padding?

Processor A Processor B (re-seller/ ISO)Swiped Transaction 1.75% Swiped Transaction 1.55%Keyed Transaction .31% Keyed Transaction .61%Total Total

Processor A Processor B (re-seller/ ISO)

Swiped Transaction 1.75% Swiped Transaction 1.55%EIRF Transaction .76% EIRF Transaction 1.20%Total Total 2.75%2.51%

2.16%2.06% .30% Pad

.44% Pad

• Some processors do not charge interchange fees as “pass through”, meaning that in addition to paying the surcharge on a downgraded transaction, they mark-up or “pad” the surcharge

• Be on the look out for “hidden” or “padded” fees on your processing statement

From Best to Worst

Sometimes things are not as they appear

StatementsStatements

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Best

This one requires a little work. It does not show the downgrade rate, only the base rate; however, it gives all the information needed to calculate your rate as well as manage your Interchange. While it is not misleading, it could be improved by giving the downgrade rates as long as partial rates are not located in several places. This one is an overall favorite for the novice (98% fall into the novice category). We call this one a “Factual Statement” while it could give more facts, it does give all the necessary information without becoming the dangerous “Lawyer’s Statement”.

30


The transaction volume is $10.00 the adjustment amount .11 is the surcharge from MC and passed on to the merchant. To calculate your percentage, divide the fee by the transaction volume 0.11 divided by 10.00 This shows the merchant the percentage they are paying for the Data Rate I downgrade .11%

Best

31


Like the best statement it shows the number and volume of transactions which is crucial in managing your cost as well as your Interchange. What’s very dangerous is, at first glance, it looks like the merchant is only paying 1.95% + a ten cent transaction fee. After further review; the merchant is also paying a sales discount of .002200 as well as a Dues and Assessment fee of .000950 (on second page of statement not shown). Not counting the transaction fee can be a crucial oversight. The effective rate of 2.27% versus 1.95% is very misleading. This one is nicknamed the “Lawyer’s Statement” because they data dump to the point you can’t find the truth buried in the pile of evidence. This one is a favorite for those highly skilled in Interchange

Good

32


This one is nicknamed the “Political Statement”. It says a lot while saying nothing. It shows a ton of data while leaving out one key element - the downgrade transaction volume. With this missing you have no way to calculate your rate. Yes, it shows the base (contract) rate which is usually a lowball rate. Seeing how it is the only rate disclosed they typically give you a very low rate while making up their losses (and a whole lot more) in the non-disclosed rates on the downgrades (which usually make up the bulk of the merchants transactions).

Transaction Volume

Bad

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This statement shows your rate but does not show the Interchange category (QUAL, MID-QUAL and NON-QUAL are not Interchange categories). In other words, you know how much you’re paying; you just don’t know for what.This is especially dangerous because you have no knowledge of how your transactions are qualifying (keeping in mind that Interchange makes up 92% of your cost). You can not improve when you don’t know what’s wrong. We call this the “No Comment Statement” because it tells you nothing.

Worst

34


Merchants and processors have historically “enhanced” some of the commercial card data obtain better rates

The networks have the ability to edit on certain fields such as Customer Code, Sales Tax Indicator, Sales Tax Amount and Line Item Data

The Networks have begun active compliance efforts to ensure the integrity and validity of the data

Merchants must insure that data submitted is valid and accurate.

Commercial Card ComplianceCommercial Card Compliance

35


Manage You Cost of Acceptance!

Many processors will surcharge or “pad” downgraded transactions and charge you higher fees!

Many processors do not have Level III solutions!

Keep an eye on your rates and fees and ensure your locations are properly configured on your processor’s system!

Watch for hidden or padded fees in your processing proposals.

Ensure you take advantage of the best interchange rates by processing Level III data.

Review your merchant statements!

Convenience Fees Convenience Fees Rules of Engagement

37


Convenience Fee Definition

Charged for a bona fide convenience in the form of an alternative payment channel outside the merchant’s customary payment channels.

— Example: A face-to-face merchant allows customers the convenience of paying by phone or Internet.

Disclosed to the cardholder as a charge for the alternative payment channel convenience.

— The fee must not be disclosed as a processing fee or fee to cover merchant costs associated with card acceptance.

Added only to a non face-to-face transaction.

— Merchants who only operate exclusively in a MO/TO or Internet environment may not assess a convenience fee, as there is not an added convenience to pay through the current payment channel.

General Visa rules as they tend to be the strictest

38


Convenience Fee Definition (cont.)

Added as a flat or fixed amount, regardless of the value of the payment due.

— The fee may not be assessed as a percentage of the transaction amount.

— There are certain exceptions to this rule for specific pilots in specific industries (e.g. tax, government, schools)

Applicable to all forms of payment accepted in the alternative payment channel.

— The fee may not be assessed only to customers paying by debit or credit card through the alternative payment channel, but rather to any kind of payment accepted through that channel.

Disclosed prior to the completion of the transaction and the cardholder is given the opportunity to cancel.

Included as part of the total transaction amount, with the exception of certain industries like utilities and tax pilot

General Visa rules as they tend to be the strictest

39


Convenience Fee Usage

Regulated Industries

— Typically Utilities, not allowed to pass the cost of Interchange through normal costing methodologies

— Convenience Fee often broken out separately

Un-Regulated Industries

— Typically government, education, or other businesses who offer a non-traditional payment channel

— Typical alternative channels include IVR, Website, etc.

Taxing Authorities

— The networks have created special “pilot” programs for tax payments that allow percentage based convenience fees

Risk and PCI Risk and PCI Payment Card Industry Standards…

What Is It?

41


Types of Risk

Systemic Risk

— Primarily Risk associated with large scale data breaches

— Increasingly sensitive due to PR impact and potential for civil litigation

— Often associated with organized crime and sophisticated IT “break ins”

— PCI ( Payment Card Industry Data Security Standards) meant to address major challenges

Operational Risk

— Normal fraud risk associated with individual transactions

— Can often be prevented by operational best practices

42


PCI – Merchant Levels

Merchant Level 1

— Any merchant processing 6,000,000 Visa or MasterCard transactions per year, or identified by another card brand as Level 1, or compromised in the last year

Merchant Level 2

— Any merchant processing 1 million to 6 million Visa or MC transactions per year

Merchant Level 3

— Any merchant processing 20,000 to 1 million Visa or MC E-Commerce transactions per year

Merchant Level 4

— Any merchant processing less than 20,000 Visa or MC E-Commerce transactions per year, and all other merchants processing up to 1 million Visa transactions per year.

43


PCI ComplianceMerchant Compliance Validation

Level Validation Actions Scope Validated By

1 Annual On-Site Security Audit

And

Quarterly Network Scans

Authorization and Settlement Systems

Internet facing perimeter systems

Independent Assessor or internal auditor if signed by officer of company

Qualified Independent Scan Vendor

2 and 3 Annual Self-Assessment Questionnaire

And

Quarterly Network Scan

Any systems storing, processing, or transmitting cardholder data

Internet-facing perimeter systems

Merchant


4 Annual Self – Assessment Questionnaire Recommended

Network Scan Recommended

Any systems storing, processing, or transmitting cardholder data

Internet facing perimeter systems

Merchant


44


Key PCI Considerations

Do not store magnetic-stripe data after transaction authorization

— Merchants must not retain full-track magnetic-stripe data on any of their systems once a transaction has been authorized.

— Per PCI DSS requirements, merchants can retain only cardholder names, account numbers, and expiration dates.

Do not store PIN blocks after transaction authorization

— Merchants should examine all transaction journals and logs to verify that their payment systems do not retain PIN block data – even if it is encrypted – after transaction authorization.

Avoid CVV2 Storage

— When requesting cardholder CVV2 online or in mail order/telephone orders, merchants should not document this information on paper or store it in their databases after transaction authorization.

45


Guard against SQL injection attacks caused by insecure shopping carts (primarily an E-Commerce phenomenon)

— Test SQL vulnerability using automated tools or manual techniques

— Ensure that all payment applications were developed using secure coding practices that included independent code reviews

— Validate that all merchant payment software includes all applicable up-to-date security patches

Protect against remote access vulnerabilities

— Implement a policy prohibiting group-shared passwords

— Determine from your software vendor how to securely configure your payment application.

Never use vendor-supplied defaults

— Visa encourages merchants to change vendor-supplied defaults – remove or disable features, set specific parameters, etc. – before installing payment application systems in your networks.

Key PCI Considerations (cont.)

Fraud Fraud Best Practices for Merchant

Protection

(Card Present)

47


Quick Steps to Card Acceptance

1. Check the card security features. • Hologram, matching 4 digits under embossed 4 digits, CVV2 value, etc. • Make sure that the card has not been altered.

2. Swipe the stripe. • Swipe the card through the terminal in one direction only to obtain authorization.

3. Check the authorization response. • Take appropriate action for the specific response:

Approved Ask the customer to sign the sales receipt

Declined Return the card to customer and ask for another Visa card

Call or Call Center

Call your voice authorization center and tell the operator that you have a “Call” or “Call Center” response. Follow the operator instructions.

Note: In most cases, a “Call” or “Call Center” message just means the card Issuer needs some additional information before the transaction can be approved.

Pick Up Keep the card if you can do so peacefully

No Match Swipe the card and re-key the last four digits. If “no match” response appears again, keep the card if you can do so peacefully. Request a Code 10 authorization.

48


4. Match the numbers.

– Check the embossed number on the card against the four digits of the account number displayed on the terminal.

5. Request a signature.

– Have the cardholder sign the transaction receipt.

6. Check the signature.

– Be sure that the signature on the card matches the one on the transaction receipt.

Quick Steps to Card Acceptance (cont.)

If you suspect fraud, immediately make a Code 10 call to your voice authorization center.

Fraud Fraud Best Practices for Merchant

Protection

(Card Not-Present)

50


CNP Payment Acceptance

Take these steps to accept Card Not Present payments:

— Obtain an authorization

— Verify the card’s legitimacy:

– Ask the customer for the card expiration date, and include it in you authorization request. An invalid or missing expiration date might indicate that the customer does not have the actual card in hand.

– Use fraud prevention tools such as Address Verification Services (AVS), Card Verification Value 2 (CW2)

— Look for general warning signs of fraud

— If you receive an authorization, but still suspect fraud:

– Ask for additional information during the transaction (e.g., request the financial institution name on the front of the card)

– Contact the cardholder with any questions

– Confirm the order separately by sending a note via the customer’s billing address rather than the “ship to” address.

51


12 Potential Signs of CNP Fraud

1. First-time shopper: Criminals are always looking for new victims.

2. Larger-than-normal orders: Because stolen cards or account numbers have a limited life span, crooks need to maximize the size of their purchase.

3. Orders that include several of the same item: Having multiples of the same item increases a criminal’s profit

4. Orders made up a “big-ticket” items: These items have maximum resale value and therefore maximum profit potential.

5. “Rush” or “overnight” shipping: Crooks want these fraudulently obtained items as soon as possible for the quickest possible resale, and aren’t concerned about extra delivery charges.

6. Shipping to an international address: A significant number of fraudulent transactions are shipped to fraudulent cardholders outside of the U.S. Visa AVS can’t validate non-U.S., except in Canada and the United Kingdom.

Keep your eyes open for the following indicators!

When more than one is true during a card-not-present transaction, fraud might be involved.

52


7. Transactions with similar account numbers: Particularly useful in the account numbers used have been generated using software available on the internet (e.g., CreditMaster)

8. Shipping to a single address, but transactions placed on multiple cards: Could involve an account number generated using special software, or even a batch of stolen cards.

9. Multiple transactions on one card over a very short period of time: Could be an attempt to “run a card” until the account is closed.

10. Multiple transactions on one card or a similar card with a single billing address, but multiple shipping addresses: Could represent organized activity, rather than one individual at work.

11. In online transactions, multiple cards used from a single IP (Internet Protocol) address: More than one or two cards could definitely indicate a fraud scheme.

12. Orders from Internet addresses that make use of free e-mail services: These e-mail services involve no billing relationships, and often neither an audit trail nor verification that a legitimate cardholder has opened the account.

12 Potential Signs of CNP Fraud (cont.)

53


Handling Key-Entered Transactions

1. Check the terminal. Be sure your terminal is working properly. If the terminal is okay and the problem appears to be with the magnetic stripe, continue to step 2.

2. Match the account number. Check to see that the embossed account number on the front of the card matches the number indent-printed on the back.

3. Check the expiration date. Look at the “good thru” or “valid thru” date to be sure the card hasn’t expired. If the card has a “valid from” date, be sure the card isn’t being used before it is valid.

4. Make an imprint. Get a manual imprint of the card.

5. Get a signature. Ask the customer to sign the imprinted sales draft.

6. Check the signature. Be sure that the signature on the card matches the one on the sales draft. Do not accept an unsigned card.

If a card cannot be swiped, you must key-enter the card account data into your POS terminal…

When you key-enter a transaction, you run the risk of accepting a counterfeit card because the magnetic stripe information is unavailable.

You can also do a Zip Code check for additional protection.

For Visa, if the Zip Code matches, it will also allow you to qualify for a

lower interchange rate.

Choosing a Choosing a Business PartnerBusiness Partner Versus a ProcessorVersus a Processor

Find a partner that will help you manage the evolving payment landscape and “navigate the networks” for you!

Has expertise in the Business to Business market segment

Promotes Proactive Interchange Program

Shares Industry Best Practices

Supports Level II and Level III Data Transmission

The Evolution of Credit Cards in B2B Transactions Presented by:

Robert L. Day, AVP Commercial Interchange

1-800-884-0353

??

can you relate?

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