How to decrease transaction decline rate in recurring billing?

How to reduce the number of credit card transaction declines in recurring billing environment?

There are many common reasons behind soft declines and hard declines. Many payment declines result from the fact that either expiration date or credit card number specified during the initial transaction submission is invalid. Respective transaction decline codes (“invalid expiration date” or “invalid credit card number”) are generated by the host payment system. In case of “invalid card number” the specific reason behind the decline must be verified with the cardholder. “Invalid expiration date” response means that either the card really expired, or the expiration date specified during transaction submission and the expiration date on the card are not the same.

In some cases usage of recurring indicator might increase approval rates.

What is a ‘recurring’ indicator?

A recurring indicator is a special ‘flag’, which marks the transaction as a recurring one.

If a processed transaction is a recurring one, it should be marked with a recurring indicator. If a recurring transaction is marked with the indicator, most issuers might still approve it even if card\account expiration date is in the past.

In other words, if during some billing period the ‘invalid expiration date’ response is received by the submitter, but it is recorded that recurring payments from the card were successfully coming through during previous recurrence periods (there is a previous processing history), the transaction, bearing the ‘recurring’ indicator, might still be processed.

What is an account updater? How can credit card account updater improve approval rates?

Account updater is a service offered by issuing banks through acquirers, which allows to get updated information on a particular card of the issuer. The information can include updated holder name (if there’s been a name change), updated expiration date, updated account number (if account number has been changed due to fraud, or because card has been lost\stolen).

Account updater is a handy tool in recurring billing environment, where usage of the most up-to-date payment information can eliminate potential declines caused by invalid card numbers, or expired credit cards.

What is payment aggregation?

What is payment aggregation?

Payment aggregation is a processing arrangement when a large business (called the aggregator) is processing transactions on behalf of many smaller businesses belonging to its portfolio.

How can payment aggregation be practically implemented?

Payment aggregation can be implemented in one of the two ways.
In case of so-called straight aggregation, the aggregator (payment service provider) gets underwritten by credit card payment processor and processes transactions of all of its sub-merchants using the same merchant ID (MID).
In case of sub-merchant aggregation (sub-merchant funding) the aggregator processes transactions of the smaller businesses under different MIDs, remits the funds to sub-merchants and withholds the fees but still bears financial responsibility for all the accounts.
Due to increased possibility of fraud with the straight aggregation model, sub-merchant aggregation is a preferred way to organize processing.
In respective articles you can find some more detailed information on payment aggregation model and sub-merchant funding.

Who can benefit from payment aggregation?

One of the categories of merchant services industry players, frequently using payment aggregation, includes software and service companies, customers of which need to accept payments from their respective customers. Payment aggregation model allows software providers to function as payment service providers using either payment processor integration or some white label payment gateway offering, which they use under their own brands.

What are the risks associated with payment aggregation?

In these types of arrangements the payment aggregator usually gets the preferred processing rate from the underlying payment processor or bank. In return, it, generally, assumes the risk (financial liability) for its entire portfolio. Consequently, aggregator becomes responsible for any transaction fraud or chargeback associated with its sub-merchants.

What is a credit card descriptor?

What is a credit card descriptor (soft descriptor)?

A credit card descriptor is a text, rendered on a cardholder’s statement, describing a particular product or service, purchased by the cardholder. Descriptors are intended to help the cardholder identify the products or services purchased. More information on credit card descriptors can be found here.

What is the difference between static and dynamic descriptors?

Depending on the acquirer and the underlying technology, used to process transactions, it may or may not be possible to specify a description for each transaction, as it is processed. The term “dynamic descriptor” is used to signify, that the underlying system is able to describe transactions on per-transaction level at the time of processing, so that each transaction can have its own descriptor. When “static descriptor” term is used, it is implied that the descriptor for all transactions, processed through a given MID, is specified at the MID level, and, therefore, description of individual transactions is not possible.

Are descriptors available for both credit card and ACH transactions?

Generally, some form of descriptor is always used on all credit card transactions. In the ACH world per-transaction description is not really possible. However, NACHA file format (used for ACH processing) allows merchants to include item descriptions for groups of ACH transactions. Therefore, it is possible to have both name of the merchant, and description of the item, i.e., group of related ACH transactions. The concept is, thus, similar to the one of dynamic descriptors.

How can billing descriptors reduce credit card chargebacks?

Billing descriptors reduce the risk of erroneous credit card chargebacks. If a billing descriptor is informative enough, it will remind the customer\cardholder of a previous purchase. In case of poor billing descriptor (if there is no descriptor, or if a descriptor is not informative) the customer might not remember a specific transaction and request a chargeback, which the merchant will have to deal with.

What are the best practices for descriptors?

At the very least, a billing descriptor should contain merchant name and customer service phone number. In the ideal case, if a customer copies your descriptor and does an online search (in Google or Bin), your company should come in as the first page on the list.

What is a recurring billing?

What is the difference between committed and uncommitted recurring billing?

Recurring billing is a process when a merchant charges a customer’s account at regular time intervals for purchases of goods and services. Uncommitted recurring billing does not involve any minimum number of required payments, while under committed billing a customer is required to do a specific number of payments. Under committed billing, if a payment is missed, and account becomes delinquent, the creditor (a subscription-based business using recurring billing system) generally attempts to collect any past dues.

What payment schedule types are available for subscription-based businesses?

The three recurring billing schedule (or payment plan) types are:
• fixed plan (when a limited number of payments are charged at regular time intervals),
• unlimited plan (when the number of payments is unlimited, and they recur until being cancelled by the customer),
• hybrid plan (when after a certain period of time a fixed plan becomes an unlimited one). More information on the subject can be found here.

What is the difference between repeat billing and recurring billing?

Under repeat billing no outstanding balances and past dues are accumulated, while under recurring billing the amounts owed by the customer are accumulated and stored in order to facilitate further collections attempts. An online dating web-site subscription is a typical example of repeat billing, while a typical example of recurring billing is a two-year-commitment on a cell phone plan. Consequently, the second approach is more complex in terms of recurring payment processing. More information on the subject can be found here.

How is credit card data handled during recurring payment processing?

If a business, using some recurring billing solutions, stores the actual credit card data, it falls within PCI scope and has to undergo the costly PCI audit procedure. The two techniques, allowing merchants to reduce their PCI scope or even get out of it, are credit card tokenization and profiling. More information on the subject can be found here.

Visit the UniPayGateway website if you are interested in the diagram illustrating this topic

What is payment gateway software?

What is payment gateway software?

Payment gateway software is a server application facilitating exchange of payment related data (cardholder and transaction information) between a merchant and a payment processor or an acquiring bank. For example, payment gateway software can provide connectivity between merchants’ POS systems and a legacy processing platform used by some bank; often it also handles PCI-compliance-related issues, such as credit card tokenization, reducing merchants’ PCI scope exposure.

What is a licensed payment gateway solution?

In case of licensed payment gateway solution a company (a merchant or a payment service provider) licenses, either in a binary form, or in the form of software code, a payment gateway software from another company and deploys it within its own PCI-compliant infrastructure.
It allows the licensee to have greater control of payment gateway infrastructure. Licensed payment gateway cost is more significant upfront, but subsequent use of the payment gateway solution doesn’t impose any per-transaction processing fees.

What is a hosted payment gateway solution?

In case of hosted payment gateway solution a merchant (payment service provider) uses (“white-labels”) an existing solution that resides within a PCI-compliant environment of the hosted payment gateway provider. This payment gateway solution does not require merchants to incur any gateway maintenance costs or to have their own PCI-compliant environments, but merchants do have to pay per-transaction processing fees. In case of hosted solution the merchant might be required to go through payment gateway integration before transaction processing is possible. More information on hosted and licensed payment gateway solutions can be found here.

What is a white label payment gateway?

White label payment gateway is a hosted payment gateway solution, which is sold by a company under its own brand, while the actual service provided by one of its vendors on sub-contractual basis. The white label payment gateway concept allows the company to bolster its image in the eyes of its customers by providing a new critical service under its own brand. More information on the subject can be found here.

What is an ACH payment gateway?

What is an ACH payment gateway?

An ACH payment gateway is a kind of payment gateway that allows to process ACH transactions. Usually it connects to various banks or ACH processing networks to provide access to all of its financial institutions for its merchants.

What is the difference between ACH and credit card transaction processing?

ACH transactions do not involve payment cards – just bank accounts, so credit card transaction processing is usually performed by credit card processors/acquirers, while ACH transaction processing is, mostly, handled by banks. However, in today’s merchant services industry there are payment gateways, allowing merchants to process both credit card and ACH transactions through one and the same API.

What is a lifetime of an ACH transaction?

ACH transaction file is submitted to the bank, which, usually, forwards it to Federal Reserve, which funds a 1005 of transactions in the file. Subsequently the Federal Reserve will dispatch a request to respective banks to complete money transfers.

What is an ACH return and how should it be handled?

An ACH return is a rejection of an ACH transaction due to insufficient funds on the account or for some other reasons (complete list of ACH return codes can be found here). If at the stage, when Federal Reserve requests money from the bank, it turns out that the transaction cannot be processed, since Federal Reserve has already funded the respective merchant, it takes the money back from the bank, while the bank takes it back from the merchant. Verification of availability of funds on the account can take up to two months, during which ACH fraud can occur. Consequently, the best way to deal with ACH returns is to avoid them, i.e. check whether all the information necessary for ACH payment processing is up-to-date, whether account is not included into some blacklist, whether the account (or IP) does not come from some high-risk location, etc.

What is the role of ACH reserves in ACH payment processing?

ACH reserves represent one of the ACH fraud protection mechanisms. ACH reserve is a certain amount withheld by a PSP\underwriter from deposit of a merchant (fixed amount or percentage of ACH transactions, processed by its sub-merchants) to protect its business from potential ACH-returns. More information can be found here.

What is a credit card chargeback?

What is a credit card chargeback?

A credit card chargeback is one of the customer protection means. Credit card chargeback is a dispute between a cardholder and a merchant over a certain amount of money, happening when the cardholder believes that the money has been charged illegitimately or by mistake (for products or services he or she did not purchase).
Credit card chargebacks are an important issue to be considered by all merchant services industry players. A merchant should remember that if more than 1% of processed transactions result in chargebacks, the merchant account is terminated. An underwriter should remember, that it bears financial liability for its sub-merchants, so, in this case, it is the underwriter who carries the burden of chargebacks, issued by sub-merchants’ customers.

How can merchants deal with credit card chargebacks?

The merchant company needs to get chargeback information delivered to it as soon as possible, identify the chargeback, and dispute it, if necessary. If the volume of transactions processed by a particular merchant is large, it makes sense to automate the whole process of credit card chargeback handling. More information on credit card chargeback handling can be found here.

What is credit card chargeback fraud and how can businesses prevent it?

Customer fraud related to credit card chargebacks involves fraudsters who use stolen credit card numbers to purchase products and services. Merchant chargeback fraud happens when a fraudster (who has a merchant account) obtains multiple account numbers (for instance, from some database), processes transactions using these stolen cards, and disappears, once his bank account gets funded.
Mechanisms, generally used for credit card chargeback fraud protection, include verification of account-related data, such as geographical location, address, card code, and others. Underwriters can hold special chargeback reserves to cover chargebacks, issued by their sub-merchants’ customers.
More information on chargeback fraud protection can be found here.

What is credit card tokenization?

What is credit card tokenization and payment tokenization?

Credit card tokenization is an approach used by businesses, which process credit card payments, to reduce their PCI scope. In order to ensure cardholder data protection, PCI requires credit card numbers to be handled in a special way. Basically, the more contact with actual credit card numbers your payment system has, the higher your PCI scope is, and, consequently, you have undergo the more extensive annual PCI audit. Credit card tokenization service allows merchants to reduce their PCI scope by replacing real credit card numbers with tokens, which are generated using special hashing (and other) algorithms. The actual card numbers card numbers are stored by tokenization service provider, and not by the merchant, so if the merchant’s the system is ever compromised, the card numbers cannot be stolen. The term “credit card tokenization” is more accurate than “payment tokenization”, because it is card number that is actually replaced by a token.

How can credit card tokenization be implemented?

From conceptual viewpoint, there are two approaches to credit card tokenization. They can be called pure tokenization and customer profiling. Under the first credit card tokenization approach only the customer’s credit card number is tokenized when a transaction is processed. Under the second approach the whole profile of a customer is maintained and when a transaction is processed, all the data (card expiration date, billing address) which is necessary for the transaction to come through, is “pulled” from that profile.
From hardware viewpoint, there are also two approaches to credit card tokenization implementation. They are: tokenization through appliance and tokenization as service. Under the first approach the company needs a special PCI-compliant hardware device, to perform tokenization. Under the second approach credit card tokenization service is delegated to the payment gateway, credit card processor, or some third party. The second approach (credit card tokenization as service) can actually get the merchant out of PCI scope, although it requires more integration-related efforts. More information on credit card tokenization and its implementation can be found here .

What is a payment service provider?

What is a payment service provider or PSP?

A payment service provider (or PSP) is a company facilitating different types of payment processing for other companies, usually through its own payment system.

What is the difference between a payment service provider and a merchant services provider?

Some people use the two terms (PSP and MSP) interchangeably. All payment service providers are, in fact, merchant service providers as well. However, in case of payment service providers, payment aggregation model is often used. When merchant accounts are issued by merchant services providers, they are issued in the name of the underlying merchant that goes through the underwriting process with the acquirer the MSP works with (the acquirer can be a merchant services provider as well).
In contrast to merchant services provider, a payment service provider is often an aggregator in relation to merchants in its portfolio. Services of payment service providers are more popular in industries, where it is more difficult for merchants to get merchant accounts directly (high-risk).

How can an entity become a payment service provider?

There are two things that a company needs to become a PSP: its own infrastructure and banking\acquirer relationships. Basically, the company will need its own payment gateway solution, a PCI-compliant hosting and integrations with banks and acquirers. More detailed information on how to become a payment service provider can be found in respective article in our blog.

What is the role of payment service providers in merchant services industry?

Payment service providers allow merchants they are servicing to avoid the bureaucracy of large financial institutions (acquirers, banks and processors), gain access to better technology and customer service and save on integration-related efforts.

What is a credit card BIN?

What is a credit card BIN?

CC BIN abbreviation stands for credit card bank identification number. Card BIN includes the first 6 to 9 digits of credit card number. Values of particular digits in BIN of a credit card define various information about the type of the card and its issuing bank. For instance, particular numbers in credit card BINs indicate card association, issuing bank, country of issue, and card type. More detailed information on credit card BIN numbers can be found here.

How can my business take advantage of credit card BINs?

In general, the key advantage of card BINs is that, based on credit card BIN numbers, a business can gain better insights into its customer portfolio. Particularly, a merchant business can find out, which types of cards are used by its customers (credit cards, debit cards, gift or reward cards) and which countries these customers come from. Consequently, for example, most frequently used foreign cards, and issuing banks, whose card transactions result in numerous declines and chargebacks, can be identified. Based on information, “extracted” from credit card BINs, businesses can prevent credit card fraud, plan their credit card processing strategies, and, thus, optimize the process, in order to achieve higher profitability.

How can a business obtain the listing of BIN numbers for credit and debit cards?

There are two ways to get card BIN numbers. Card BIN databases can be purchased online, from various web-sites. However, new card BIN ranges become utilized fairly often, so there is a common practice of getting those from the acquirers that a business uses for its merchant services. For example, First Data has a file that it can deliver to its respective merchants to get updated card BINs on weekly basis.