Peanut Butter Jelly Time...for fraud?

Peanut Butter Jelly Time...for fraud?

By Jason Solano

The Directade Business Rules Series is taking a look at the practices, processes, and settings that help to power Direct-To-Consumer and Subscription businesses. Each week we’ll cover new questions related to Business Rules best practices that can help companies optimize their sales funnel and increase customer lifetime value.

This week we’re focusing on three tough questions related to credit card processing. We suggest you discuss these questions with your Finance and Marketing teams, your credit card processor, and industry experts like us.

1. Should you require the CVV (Card Verification Value) in your shopping cart?

Card security codes, commonly known as CVV codes, vary differently by each credit card brand.

Requiring the security code in your shopping cart can increase authorizations, reduce chargebacks, and help block many types of fraud.

The downside is the potential decrease in your conversion rates. The fast, seamless checkout flow you desire is affected by the amount of information you require. Plus, some consumers may not want to provide their security code.

If you do require the security code, it’s ideal to display a card-specific graphic for your customers. Having this in your cart will help them locate the code. Another important tip for subscription companies - DON’T store the security code. It’s against PCI standards and you will be penalized.

2. Do you allow gift cards, both reloadable and un-reloadable?

If you’re engaging in simple one-off e-commerce, your risk is low and you should take both kinds of gift cards.

However, the answer may not be that simple. If you’re running a subscription business with your profitability dependent on recurring revenue, gift cards can pose some serious challenges. For example, a gift card can be used by some customers who really want to try your product at a low price, but absolutely don’t want to risk being charged for their first full-priced recurring shipment.

Gift cards are the peanut butter to a fraudster’s jelly. I’ve seen individuals build staggeringly large businesses on Amazon and Ebay by re-selling products purchased with stacks of gift cards.

If your brand offers low introductory prices and payment plans, you should seriously consider prohibiting (at the very least) un-reloadable gift cards for your subscription membership offers.

3. Do you force deposits for some credit card authorization declines?

Some companies utilize a practice called a forced deposit or forced settlement when an authorization can’t be obtained or the charge failed due to an authorization decline.

Many of these transactions may have failed due to a technical issue or a temporary lack of funds from the customer. However, the practice is heavily discouraged by payment processors and often carry transactional fines. The likelihood of chargeback also increases with forced deposits.

It’s very difficult to justify this practice as customer friendly despite disruption caused by a failed transaction.

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