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Tips on Fraud Prevention for Your Merchants

By David H. Press

For the holiday season, which is also a slow season for new merchant applications, I thought it would be timely to provide you with some tips for preventing fraud and chargebacks to share with your retail merchant customers.

Whenever I use a credit card to make a purchase, I see that most merchants do not follow all of the proper procedures to protect themselves from fraud and the potential of needless chargebacks.

Following are steps that merchants should take whenever they accept a credit card:

  1. If a photograph of the cardholder is present on the card, merchants should compare the photograph on the card with the person presenting the card.
  2. Merchants should check cards for the hologram. A hologram is a three-dimensional symbol in either gold or silver foil that is designed to help deter counterfeiting.

    The image should reflect light and appear to move when you tilt the card. (Note: The Visa hologram is an image of a dove; the MasterCard hologram is an image of a world map.)
  3. Merchants should check cards (including the signature panel) to see if they have been altered.
  4. Merchants should check the valid date (some cards have this feature, where the card is not valid until the date shown) and the expiration date on the face of the card.

    If the card is not yet valid or expired, the card acceptor should not accept the card and should instead ask for another form of payment. (Note: Cards are valid through the last date of the month.)
  5. For each card type, merchants should be aware of the first four digits and the total number of characters. (Note: A Visa-branded card number begins with a "4" and has 13 or 16 digits; a MasterCard-branded card number begins with a "5" and has 16 digits.)

    Merchants should check the first four digits of a card. For Visa and MasterCard cards, the first four digits of the embossed card number must match the four digits printed above or below that number on the front of the card.
  6. The account number on the front of the card should match the number printed on the back of the card in the signature panel.

    For Visa, American Express and Discover, merchants should compare the entire account number imprinted in the signature panel with the embossed account number on the face of the card.

    For MasterCard, merchants should compare the four-digit truncated account number imprinted in the signature panel with the last four digits of the embossed account number on the face of the card.

    For example, MasterCard rules dictate that merchants must contact their acquirer for instructions if:

    1. Merchants believe there is a discrepancy in the signature;
    2. The last four digits of the embossed account number do not match the four-digit truncated account number on the signature panel or displayed on the terminal; or
    3. The photographic identification is uncertain.

    If any MasterCard-branded card does not have a MasterCard hologram on the lower right corner of the card face, merchants must confiscate the card and contact their acquirer's Code Ten operator for instructions on card pick-up and mailing.
  7. Merchants should attempt to swipe every card through a POS terminal. If the terminal cannot read the card, merchants should take a manual imprint of the card. When using a manual imprinter, merchants should check the draft for a clear impression of the card.

    This will ensure that they have captured the embossed card account number. Merchants should complete the draft with the date, description of merchandise/service, sales tax, total dollar amount and authorization number, and get a signature.
  8. Merchants should never allow customers to tell them how to "get the transaction to go through" (i.e. by doing a ticket only transaction without getting an authorization). This will result in a chargeback, and these customers will have "stolen" or obtained items for free.
  9. Merchants must obtain customers' signatures. The signature on the draft must match the signature on the back of the card.
  10. If a customer's card is unsigned, merchants should request another form of identification with a photo and signature. Merchants should request that customers sign their cards and then compare the two signatures.

    If customers refuse to sign, merchants should inform them that they are unable to accept an unsigned card for payment and then request another form of payment. The rules dictate that card acceptors must not complete the transaction if cardholders refuse to sign the card.

Both Visa's and MasterCard's Web sites provide materials designed for merchant use and offer tips on what merchants can do to prevent fraud:

These sites also serve as a valuable resource for finding answers to questions asked by your merchants.

You should be familiar with the information on these sites, refer your merchant customers to them, or use the information provided to walk merchants through the process.

Best holiday wishes to all of The Green Sheet's readers.

David H. Press is Principal and President of Integrity Bankcard Consultants Inc. Reach him by phone at 630-637-4010; e-mail; or visit .

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