Wednesday, May 14, 2014

Chips on the Cards, EMV, Shifting Liability

I'd like to thank Wikipedia for this info.

What is EMV? EMV stands for EuropayMasterCard and Visa, a global standard for inter-operation of integrated circuit cards (IC cards or "chip cards") and IC card capable point of sale (POS) terminals and automated teller machines (ATMs), for authenticating credit and debit card transactions.

What about EMV in Card Not Present Situations?  Visa and MasterCard have developed standards for using EMV cards in devices to support card-not-present transactions over the telephone and Internet. MasterCard has the Chip Authentication Program (CAP) for secure e-commerce. Its implementation is known as EMV-CAP and supports a number of modes. Visa has the Dynamic Password Authentication (DPA) scheme, which is their implementation of CAP using different default values.

Why should I, an online merchant, care about EMV?  The supposed increased protection from fraud from EMV has allowed banks and credit card issuers to push through a 'liability shift' such that merchants are now liable  for any fraud that results from transactions on systems that are not EMV capable. This is true as 1 January 2005 in the EU region and it is supposedly coming to the US in "two years", ie 2016. (Note,  I don't have a source for this.)

Credit Card Processing for Monthly Recurring Billing

We have used the same vendor for ten years and we are sick of him. He has never really helped us understand the industry,  how things work, or helped us with improving operations. Service is intermittent. Problems are frequent. There are three areas that we ought to be able to really improve our situation.

1. Declines processing.  On any day, X% of our monthly subscribers are declined.  They are declined conceptually for a few reasons:
A.  insufficient funds
B.  expired credit card
C.  updated credit card due to security
D.  credit card account closed

Our vendors returns a few different pieces of information on the credit card declines:
1.  Call a 1 800 number to get the sale approved. The number is our own credit card processor who then gives us a phone number and the credit card number so that we can get a voice authorization. This is time consuming and results nine times out of ten in a failure.
2.  Invalid account number. Does this cover B, C, & D?
3.  Expired.
4.  Declined. This is the vast majority but they do come with a code: 0700540009  (BTW, if you google that code you get a fair number of people asking about what that decline code means).

Our traditional system of handling declines is to try again every ten days:
D1 - The first decline. We ignore it.
D2 - Second decline. If they are an active user, we send them an email
D3 - Third decline. If they are an active user, we send them an email and turn off their account with a message
D4 - If they are an active user, we send them an email and turn off their account with a message.
Also, we notify those with credit cards that are going to decline in the next 60 days that they need to update their credit card.
Recently, we've tried some robocalling to notify our users about declines and that has been surprisingly successful.  No numbers yet. We used to try to call ourselves and never found a way for it to be effective.

Questions - Ideally by A, B, C, & D above...

1.  Overall percent of D1s of billings?
2.  Overall number of D1s that become D2s?
3.  Overall number of D2s that become D3s?
4.  Overall number of D3s that become D4s?
5.   Credit card updates by users because we notify them that their credit card is expiring?
6.  Percent of each type of decline that our vendor returns to us?
7.  Updates between D2/D3, D3/D4?

Overall, our real questions are:

- What's the best method for avoiding declines with updaters and submission of AVS data and whatever.
- Once declined, how best to proceed in terms of trying again, contacting user, using technology to update?
BTW, all of this is focused on recurring billing cancellation, what about initial cancellations?

2. Costs. We are still in a system of tiered pricing which is confusing. There are costs and credits. Overall, we are paying ~4% to the gateway, processor, and credit card vendors. A lot!  Just getting this down by a percent will save us a lot of money per year.

3.  Reliability and reports. Compliance too.

Card Not Present Expo

The Card Not Present Expo is coming up and is conveniently located for us. Also, it's a hot topic. Nevertheless, the agenda seems a little too deep for me, the part that I'm interested in is the three hour bootcamp which is 2-5pm,  Monday, May 19th, $648 for the whole four day expo. It's in Orlando.  I wonder if there is a price just for the Boot Camp?

Intro: What Every CNP Merchant Should Know: 
Navigating Today's Challenging Payments Eco-System
  • The State of The Payments Union; 2014 Threats Update
  • Effective Payment Processing; Getting Set Up For Success
  • Protecting Your Sales Process From Fraud; Pre-Sales Trends and Tools
  • Post-Sale Challenges/Considerations; Effective Chargeback Management
  • Maximizing Your Billing and Customer Retention Efforts
  • Mobile and Emerging Payments
The CNP Boot Camp has been specially programmed for attendees to learn as much as possible—as quickly as possible—about accepting card-not-present transactions and the complex issues surrounding them. The Boot Camp was developed in response to feedback from merchants and industry executives and will provide campers a knowledge base enabling them to optimize their timeand get the most they can out of the rest of the Expo.

The Next Step: 
Profit from New Markets and New Realities
  • Evolving business models: ISO to PSP
  • Expanding from the US to global markets
  • Landing in Europe: a regulatory approach
  • Fraud challenges for international expansion
  • Mobile Payments: business models around the world
  • Navigating Alternative Payments in three dimensions
Reg TodayBased on the phenomenal success last year of our Boot Camp workshop, this year we are serving the other end of the spectrum. We will be offering a Grad School program, designed for veteran payments professionals, that will offer a more sophisticated look at the issues under debate in CNP payments and what challenges and opportunities lie ahead. This session will be will be offered free of charge to all registered attendees, and will run simultaneously with the Boot Camp Workshop.

Thursday, May 1, 2014

Merchant Account Credit Card Consulting

We have searched around for a number of years to improve our credit card processing and so far, haven't been able to make a decision. Our problems:

  • Our current processor works, we have ten people trained on using it, it's integrated with us technically and in our accounting system. As a small company, it seems like an overwhelming project to change processors
  • The costs are bad but whose to say how bad? Overall, Visa/MC/ processing add up to around 3.9% of revenue with the average transaction at ~$24 on over $5M of business.  Will they definitely go down if we switch?
  • Sometimes, our current processor does something good about fixing a problem or providing us info so we like him.
  • Other vendors sound like they are full of it saying all sorts of silly things about reduced costs (which they won't guarantee) and pooh pooing how difficult it will be to switch.
So we've finally made a decision. We've decided to hire a consultant to help us figure out what to do. Enter Paul Larsen consulting. We might work with Mr. John Sullivan. Stay tuned....