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Table of Contents

Lead Story

Payment fraud, rising to the challenge

Patti Murphy
The Takoma Group

News

Industry Update

Did hackers gain insight into RSA's methodology?

Comodo compromise draws swift response

PCI SSC dials up call center compliance

Fifth Third seeks innovation through open platform

Trade Association News

Features

Do Tell

Innovations in check scanners

David Peterson
RemoteDepositCapture.com

ISOMetrics:
B2B payment fraud

Integrating your marketing efforts

Selling Prepaid

Prepaid in brief

Momentum builds for maritime cards

Providing prepaid self-serve for global markets

Views

PII and merchant portfolio acquisition

Daniel Federgreen
Analyst

Social redemption at the POS

Paul Rasori
VeriFone Inc.

Education

Street SmartsSM:
Straight talk on professional certification

Bill Pirtle
MPCT Publishing Co.

Leads, leads, leads - Part 3: Lead nurturing

Peggy Bekavac Olson
Strategic Marketing

Coach your way to a stronger organization

Vicki M. Daughdrill
Small Business Resources LLC

Projecting confidence, inspiring trust

Jeff Fortney
Clearant LLC

How to reboot a stalled PCI program

Tim Cranny
Panoptic Security Inc.

A brief on prospecting

Jeffrey Shavitz
Charge Card Systems Inc.

Company Profile

Merchant Implementation Services

New Products

A CRM solution for MLSs

Powerhouse Sales Agent CRM
Powerhouse Payments LLC

Inspiration

Stick with the truth

Departments

10 Years ago in
The Green Sheet

Forum

Resource Guide

Datebook

Miscellaneous

2011 Calendar of events

A Bigger Thing

The Green Sheet Online Edition

April 11, 2011  •  Issue 11:04:01

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Forum

Holding deposits until services are rendered

I am an ISO for a credit card processor, and I have a question that has come up a couple of times. I haven't received a straight answer from either Visa or MasterCard. I am told that a merchant can accept a deposit 30 days prior to services being rendered, and this is a Visa/MC regulation. I cannot find it anywhere, although it is tough, considering the hundreds of pages of info from the card companies.

Could you help point me in the right direction for the correct info on merchants accepting deposits prior to services being rendered?

Ryan Kenny
Rocky Mountain Credit Card

Ryan,

I referred your question to Linda Grimm, a bankcard consultant, who provided the following answer:

The question of the timing of settlement and delayed delivery comes up quite often, as there are many misconceptions out there. The answer to your question is that Visa Inc. and MasterCard Worldwide require a merchant to deposit a transaction receipt only when the merchant has:

As with all things Visa and MasterCard, there are exceptions. Visa and MasterCard allow for merchants to have delayed delivery transactions. These occur when there is an initial deposit, say, for a custom ordered product like furniture, and a final payment when the goods are completed and delivered. In this case the requirement is to deposit the transaction within three business days of the transaction date of the "deposit" and of the "final payment," respectively. Neither card brand stipulates how much time can transpire between the deposit and the final payment; that is up to the merchant and the circumstances around the transaction.

The 30-day rule you referenced may be from MasterCard's requirement for a merchant with multiple locations using a central facility to accumulate and present records to the acquirer; the maximum time allowed for presentment is 30 calendar days from the transaction date (Visa allows 21 calendar days).

The real question around delayed delivery, however, is the risk tolerance of the bank. While the regulations allow for it, the bank may not be willing to accept the extended liability that this type of transaction activity presents. The longer it is between the transaction and when the customer receives the goods/services, the greater the risk of something going wrong.

Take, for example, a furniture store that takes orders for custom furniture. When everything is going well, the merchant can pay the suppliers for the custom furniture with the money received from that customer. Let's say business starts to slow down, and the merchant needs to use some of the deposit money for rent or utilities, hoping business will pick back up so the merchant can pay the supplier for the custom furniture.

The economy is tough; business does not pick up. But the merchant, in desperation, continues to take orders using the deposit from customer B to pay for the furniture for customer A. Eventually, this causes the merchant to collapse; the supplier demands payment, but the merchant doesn't have enough new business to pay for the old orders. Now the customers want their furniture or their money back, and the merchant is out of business. Guess who has to pay for those chargebacks: the acquiring bank.

This type of extended liability is a major risk concern for acquiring banks and is why banks often require reserves and/or are unwilling to accept merchants with delayed delivery beyond 60 to 90 days.

You'll find the regulations around transaction acceptance and delayed delivery in Chapter 6 of the latest Visa International Operating Regulations released October 2010 and available on Visa's website http://usa.visa.com/merchants/operations/op_regulations.html, as well as in MasterCard Rules, Section 5.9.2., available at www.mastercard.com/us/merchant/pdf/BM-Entire_Manual_public.pdf.

Thank you, Linda, for such a thorough response. I hope this provides exactly the information you need, Ryan. Best of luck to you.

Editor

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