Mail & Telephone Credit Card Processing
MOTO (mail order/telephone order) is the industry abbreviation for a type of credit card transaction where the customer isn’t present when the card number is run. They may be on the other end of a phone line or a mail order customer. Because they are not present, there is a higher risk for fraud.
Transactions are generally divided into two types for credit card processing – card present and card not present. Face to face transactions, where the card is swiped by the cardholder and a signature obtained, are called card present. MOTO transactions fall into the other group – card not present.
Without a card in hand to look at, and no customer in front of you to sign so you can compare with the signature on the back of the credit card, the risk for theft is greater. Someone could obtain a credit card’s number by fraudulent means and either telephone or mail in an order without the cardholder’s permission.
There are a couple of consequences of MOTO transactions because of this greater risk.
Difference Between Card Present and Card Not Present Sales
Credit card processing companies charge more per transaction for MOTO sales. They also charge more to businesses operating in an area with statistically higher fraud and chargeback rates. MOTO is considered medium risk already, but other types of businesses are high risk and some companies will not approve a merchant account for them at all: Online gambling, prepaid phone cards, travel agencies and others fall into this group. If you intend to sell in these areas, you may still have an option:
- A reserve account – This is an account with money held in it to cover chargebacks or “preventable” fraud. Preventable in this case means that you have taken a false charge without following all the required procedures. The reserve account is meant to protect the banks by keeping money available they can draw from. In some cases, if you agree to a reserve account, you can get a better rate on your processing, regardless of the type of business you have.
- Industry specific credit processing – Because of the problems associated with getting a merchant account for a “troubled area” of business, some groups have set up their own processing to meet the demand. For example, the American Society of Travel Agents offers their own merchant accounts with higher approval ratings for membership in the organization.
- Additional data or restrictions – It is possible to delay payment on high chargeback types of businesses to protect the bank. This is also sometimes used when there is suspicious activity on an account. The bank holds back payments long enough so that the cardholder has received a statement with the charge on it. If they do not dispute at that time, the money goes through to the merchant.
One point worth mentioning is that outgoing telephone sales are considered a higher risk than inbound sales. If you are cold calling to gain business, instead of the normal flow where a customer calls you for a telephone order, this is considered a higher risk.
How are Mail and Telephone Orders Processed?
Once a merchant account and processing company have been obtained, businesses enter credit card information in much the same way as with other card sales. Since there is no card to swipe, the data is entered manually and sent to the credit card processor.
The main difference between MOTO and other sales types is the information collected. Not only will the credit card number be collected, but other relevant customer data will be required as well. Again, this is to minimize opportunities for fraud. Some of the items that might be required are:
- Card Security Code (CSC) – this is a three digit number that appears on the back of a credit card. It is not recorded when a card is scanned through a reader, so entering it constitutes a double check. The idea is that someone who isn’t actually in possession of the physical card would not have this number.
- Address information – This is collected as another type of ID verification. It also comes up when shipping items – items that are not shipped to the same address as the one on record for the cardholder are considered more risky and may have a higher fee to the merchant. Items shipped to a post office box are more suspect than to a home address.
- Telephone number – best if it is a landline rather than a mobile phone. Verification can be augmented when a phone number and address match.
Reducing Chargebacks and Fraud
It is in both your interest and everyone else’s interest to reduce chargebacks and fraud. For this reason, MOTO sales that are of an unusually large quantity, multiple repeat sales of the same item, and multiple credit cards (either after the first is declined or several that differ only in the last four numbers) are all red flags. You are responsible to prevent chargebacks and make all attempts to reduce fraud.
Some companies will restrict which originating countries or which “ship to” countries you can take credit cards for. Notably, Eastern European countries, Indonesia and Nigeria – but this list changes often. If you intend to do international telephone or mail order sales, you need to bring this up with your processing company and make your customers aware of any restrictions.
If you exceed some minimal level of chargebacks, you may be penalized or your merchant account cancelled. This is extremely important, and to prevent it, merchants often repeat card numbers back to customers on the phone and obtain an authorization while the customer waits. For mail order, when there is any suspicion, calling the customer might be worthwhile to verify legitimacy.
The most common reasons for chargebacks are:
- Cardholder claims they did not make the purchase at all
- A recurring charge (subscription) that isn’t wanted
- Goods were defective or not as advertized
- Exceeding merchant floor limits without authorization. A floor limit is an amount above which you must obtain an electronic authorization. This usually only comes up when your system is down and you take cards and issue goods without getting an approval. It is becoming much more rare for this to happen.
- Customer complains that merchandise or services were not received.
Many of these same issues arise whether the MOTO purchase is done through a credit card, check or any other form of payment. They are part of the landscape for mail order and telephone orders. Your best overall protection is to clearly communicate with your customers and meet their expectations.
Some businesses take mail, phone, and Internet orders along with having a physical retail outlet. This is becoming much more common as small businesses realize they can extend their reach inexpensively. If your business is one of these combination types, the rates you pay for credit card transactions will still depend partially on whether the card is present or not. But your merchant account type will depend on how much of each type of sales you do.
The general rule is that your business will be classified based on whether you do 80% or more as card present sales. In that case, you are a regular retail business. If you fall below that by doing more than 20% MOTO sales, you will have to pay the higher fees. Do not make the mistake of lying about it. Credit card processors are quite careful about merchant fraud and will monitor customer locations if they suspect you are trying to abuse their system. The black mark that results is not worth the savings.