Overview

As criminals become more sophisticated in their attempts to commit online credit card fraud, new technologies are required to discourage and detect fraud before it occurs. Risk of fraud is a potential barrier to online purchases. It can also be costly to merchants, since they must bear costs of successfully disputed purchases. In addition, too many “charge-backs” can cause merchants to have their merchant account status downgraded or revoked, thereby negatively impacting their business. A number of technologies are emerging to both secure sensitive data and reduce amount of successful fraud at various stages of order cycle.

Input-Based Methods

Several technologies exist that verify data input by purchasers at time an order is placed on a merchant’s website.

AVS (Address Verification Service) matches street number and zip code that is entered by a purchaser with address information on file with credit card companies. A message is then sent back to payment gateway indicating degree to which address information matches (e.g. “Address matches, zip code does not”). Based on AVS settings or "filters" merchant has set within payment gateway, merchant can then make a decision about how they wish to proceed with transaction when there are mismatches. One key drawback to AVS processing is that checking occurs only after a valid authorization is returned. This means that there will be a hold on customer’s account for amount of transaction, even though merchant may decide to decline based upon AVS results. This method is widely used, however.

EasyPay123’s AVS tool (powered by Skipjack Transaction Network) enables merchants to control how closely numeric address information must match in order for transaction to be allowed to settle.

Another technology supported by credit card companies is called CVV2 (Card Verification Value) by VISA, and CVC2/CID by MasterCard and AMEX respectively. These technologies use codes that are embossed on back or front of VISA, MasterCard and AMEX cards. CVV2 and its counterparts require a card holder to enter codes at transaction time to verify that they are in physical possession of card. Since these values are not stored in transaction databases with other credit card information, hackers cannot gain access to them if they somehow acquire credit card numbers from a database. During authorization process, card issuing bank verifies CVV2 value that was entered with credit card number.

Communication-Based Methods

The primary technology for securing transactions as they are transmitted over Internet is Secure Sockets Layer (SSL). SSL “encrypts” confidential data (i.e. converts it into an unreadable form) to ensure that unauthorized individuals are not able to view or modify it as it is being passed between customer, merchant’s website and EasyPay123. The merchant’s order form must be secured with a “digital certificate” to establish an SSL connection with customer. Customers can be confident that their payment session is secured using SSL when they see “closed lock” at bottom of their browser.

Internet Payment Options

There has been much talk about how Internet is becoming an important channel for buying and selling products and services. Companies are looking to exploit Internet in a variety of ways to increase sales to both existing customers and to customers in new markets.

To make these initiatives work in practice requires application of a range of technologies, from servers to software. An increasingly-critical piece of e-commerce equation is ability to pay for goods and services using Internet-based applications.

Internet-based payments offer benefit of convenience to customers who can pay for their products or services and receive immediate feedback on status of their payment. Well thought-out payment interfaces will address payment needs of bulk of your customers, and offer them valuable features such as electronic receipts, recurring billing options and more. For merchants, online payments can mean that bad debts are reduced and cash flow is improved, improving bottom line of your business.

The type of payment that you choose will be dependent on your customers’ needs and type of business that you operate.

E-Commerce Payment Types

Many types of payments can be used in online transactions (here we refer to those transactions that use Internet as communications channel). The major types include:

EFT: Electronic Funds Transfer (EFT) is a system of transferring money from one bank account directly to another without any paper money changing hands. It provides a means of transferring funds to and from customers and business partners. Electronic cheques: Different types of electronic cheque services are available, but all essentially provide a mechanism for paying over Internet by enabling purchasers to use their existing chequing accounts to transfer funds to another party. A secure infrastructure ensures that confidential information is not compromised in transit.

Debit cards: Wildly popular for “bricks and mortar” purchases, they have not caught on as a mechanism for Internet purchases because banks and payment processors have only certified a limited number of devices for transmitting PIN Number associated with a debit card over internet. Limited pilots are underway using wireless debit card devices for applications such as pizza deliveries and taxis.

Credit cards: Still dominant online payment type, it is popular because of its ubiquity and familiarity that customers have in using them in a variety of settings.

Internet banking: Some businesses (typically large ones such as telephone companies) enable customers to transfer funds from their bank account to pay bills. Online bill payments are usually facilitated by major banks where you can log on and pay your bills at your convenience.

Alternative payment types: A large number of niche payment types have arisen over past few years (typically with minimal or no success). These include stored value cards, Internet (digital) cash, pseudo-currencies (e.g. Flooz) and others. No doubt at some point one or more of these payment types will gain a foothold, but none have sufficient critical mass at this time to be a viable alternative for most merchants.

For purposes of rest of this article, we will focus on credit card payments, which represent a substantial amount (95%+) of payments being processed over Internet today.

Getting Started with Credit Card Processing

If you are a merchant that is looking to accept credit card payments, there are a few steps that you should follow to ensure a successful implementation. None of them are difficult, but some can take time to complete. It is recommended that you follow each of steps in sequence to avoid compatibility issues between your application and financial network.

Let’s examine each step in order:

1. Determine Right Payment Interface

The payment interface is application that you are going to use to process credit card payments. There are many options available to you, and right choice will be dictated by type of business you have and requirements of your customers. Some of more popular interface options include:

Shopping cart _______

Useful When …Your customers may be purchasing multiple items from you in a single purchase Make Sure That … You understand features that you need and that you purchase from a reputable vendor ________

A shopping cart enables merchants to accept payment for multiple items in a single transaction. Most online retailers that offer a variety of products use some type of shopping cart application. Shopping carts typically provide customers with a number of convenient features, such as an electronic “shopping basket” to “hold” their goods until purchase.

Shopping carts offer a wide range of possible advantages to merchants as well, such as automated shipping and tax calculation; “back-office” tools for payment and inventory management; reporting tools; coupons and discount functions and control over individual and store-wide sales.

Shopping cart software can be purchased and “hosted” by merchant on a server of their choice, but most merchants choose to use services of a shopping cart service provider. Costs typically include set-up fees and monthly fees, in addition to your payment gateway fees. Many shopping cart providers offer different levels of feature packages, with fees based on chosen feature level. Before you invest in a shopping cart application, understand what features are important to you and to your customers. Make sure that service provider is reputable and is going to be around for a while. Switching service providers can be expensive, time consuming and frustrating. Your research will pay off in long run.

“Buy Button” ___________

Useful When … You only have a few products to sell or your customers only purchase one product or service at a time Make Sure That … The customer buying experience is “seamless” and secure ___________

A “buy button” is similar to a shopping cart, but typically facilitates purchase of only one product (or service). It generally consists of simple html code that you insert into your site that displays an order form with associated product information. Customers click on buy button, and an order form appears with relevant order information in it. Customers enter their shipping and credit card information in form, press “submit”, and their order is processed.

Be aware that some buy button applications force customers to be “transported” to another page that has a different look and feel from your site. Some customers are uncomfortable with this, and may abandon sale if this happens. Again, shop around. Talk to your payment gateway provider. It will pay off.

Virtual Point of Sale (VPOS) ___________