Lecture 18: Lesson 7: Payment Systems

VeriSign's New Weapon Against Digital Shoplifting

Looking to fight what it calls "digital shoplifting," VeriSign, Inc.(Quote, Company Info) Wednesday launched its Fraud Protection Services. The initiative is designed to help protect online merchants from losses such as the use of stolen or bogus credit card numbers. Mountain View, Calif.-based VeriSign has a vested interest since it offers products for network security and online payment processing, while its Network Solutions subsidiary handles domain name registration for the .com and .net top-level domain. Click here to read the rest of this news story.

Notes from The Lesson Plan

The learning objectives of lesson 7 include:

• Understand how electronic cash systems are implemented.
• Understand the future of electronic payment systems.

The SET protocol and how it protects credit card transactions

Secure Socket Layers (SSL) is a protocol that transmits payment data and other sensitive information securely between merchants and consumers; however, it is not capable of authenticating the identity of the cardholder. Secure Electronic Transactions (SET) is a protocol designed by MasterCard and Visa with the backing of Microsoft, IBM and other companies to establish a single method for consumers and merchants to conduct secure payment transactions. SET is gaining acceptance and may be positioned to become the credit card security protocol of choice.

What You Should Know About Fraud

Credit card fraud can be a significant problem for customers, merchants, and credit card issuers. Liability for fraudulent transactions belongs to the credit card issuer for a card-present, in-store transaction, but shifts to the merchant for "card not present" transactions, including transactions conducted online. This means that the merchant does not receive payment for a fraudulent online transaction. Fortunately, there are steps you can take to significantly limit your risk as an online merchant.

Important Fraud Prevention Steps:

Choose a payment services provider that is well established and credible. Your provider should also have in-depth experience in and a strong track record for transaction security.

Make sure your payment gateway provider offers real-time credit card authorization results. This will ensure that the credit card has not been reported as lost or stolen and that it is a valid card number. One of the simplest ways to reduce the risk of a fraudulent transaction is to use Address Verification Service (AVS). This matches the card holder billing address on file with the billing address submitted to ensure that the card holder is the card owner.

Use Card Security Codes, known as CVV2 for Visa, CVVC for MasterCard, and CID for American Express®. For American Express, the code is a four digit number that appears on the front of the card above the account number. For Visa and MasterCard, the code is a three-digit number that appears at the end of the account number on the back of the card. The code is not printed on any receipts and provides additional assurance that the actual card is in possession of the person submitting the transaction. As a merchant, you can ask for this code on your online order form. Even if you do not use this for processing, simply asking for it acts as a strong deterrent against fraud.

Watch for multiple orders for easily resold items such as electronic goods purchased on the same credit card. Develop a negative card and shipping address list and crosscheck transactions against it. Many perpetrators will go back to the same merchant again and again to make fraudulent transactions.

What to Look for in a Payment Processing Solution

Finding a reliable, secure, and flexible payment processing solution for your business is critical, so it's important to take the time to investigate and assess the options available to you. A payment processing solution should:

• Reliably and cost-effectively accept and process a variety of payment types, including credit cards and electronic checks. Not only does this reduce lost sales, but it also enhances the quality of your site by allowing your customers the freedom and flexibility to pay you quickly and conveniently.
  
• Provide real-time credit card authorization results allowing you to accept or reject orders immediately and reduce the risk of fraudulent transactions.
  
• Easily track and manage payments from multiple payment types or processors so you can spend more time on your business, not on managing transactions.
  
• Provide recurring billing payment services, allowing you to set up scheduled payment charges to your customers. For example, you can set up automatically recurring charges for items such as membership dues or for installment payments. Recurring billing is an important feature that provides added convenience for both you and your customer.
  
• Be able to act as a virtual terminal to allow for processing offline transactions. This gives you the flexibility to process orders received via telephone, fax, e-mail, or in person.
  
• Provide and store transaction records letting you to easily search for transactions and create transaction reports.
  
• Scale rapidly and seamlessly to accommodate increased transaction volumes so your systems grow as your business grows.
  
• Provide flexible, easy integration with the Merchant's Web site. The sooner you can start accepting payments, the sooner you start generating revenue from your site.
  
• Be able to work with all the leading Internet Merchant Accounts, which allows you to switch your banking relationship and not have to worry about installing new software or performing new integrations.
  
• Be provided by a well-established and trustworthy company. This ensures that your payment service provider will continue to provide reliable payment services as well as new features.
  

Have a good weekend!