Tag Archives: AVS

Interchange Downgrades: What They Are And How To Avoid Them

Interchange downgrades are a pretty complex subject to grasp. But, if you don’t take the time to learn how they work, you could be throwing a massive amount of your money down the drain each year.

Though many are avoidable, they are unfortunately quite common. Some providers intentionally allow customers to continue to experience downgrades because they make money in the margins based on their pricing strategies. In this article, we will be going over the fundamentals of an interchangeable downgrade, why they occur, and the things you can do to avoid them.

What Is An Interchangeable Downgrade?

Although you may not be familiar with this, interchangeable downgrades can happen anywhere and at any time. You may already be familiar with the term “interchange,” which is the cost card brands charge to conduct a credit or debit card transaction.

So, each time you process a credit or signature debit card, it gets assigned to an interchange category. Each category differs depending on their rates and fees, which processors calculate the transaction’s cost. If everything runs smoothly, then each of the transactions will reach their target interchange category, which is a category that has the lowest possible rate and fee given the type of transaction.

However, things can go wrong during this process. Whether this is because there wasn’t enough information provided or there were particular requirements that weren’t met, it allows transactions to jump from one category to another. This re-categorization can cause a transaction to be placed in an interchange category priced higher than the target category.

When something like this happens, the rate increases, resulting in a more expensive transactional cost, and therefore the transaction has “downgraded.”

Why Do Interchangeable Downgrades Happen?

Unfortunately, downgrades are not uncommon to experience nowadays, and there are even specific situations that will immediately set off an interchangeable downgrade. The payment software, equipment, and processes that run the transactions play a massive role in ensuring everything goes according to plan.

Not only that, but the more significant number of downgrades is because of how the business processes each transaction, or in other words, how it settles and authorizes transactions. Since these businesses tend to be the root of their downgrades, it welcomes the opportunity to look at the processing behavior to remove or reduce these downgrades.

What Are The Most Common Causes Of Downgrades?

Before you learn the ways, you can avoid these downgrades. It is essential to understand some of the common causes behind them, which are listed below:

Delayed Authorization

A “stale” authorization is another term for this situation. It happens when the interval between the first authorization and the credit card settlement is too long, usually exceeding 48 hours.

Authorizations must be settled for a business to receive money from a transaction. Cardholders must allow enough time to pass between authorizations and settlement. This will make sure they get their money in full in a timely way.

Many of them state the authorization needs to be settled within the first 24 hours, so you should make sure your batch settles at least once a day to avoid reductions due to stale approvals. If you don’t settle your transactions quickly enough, the authorization will expire, and the transaction will most likely downgrade.

Mismatched Authorization

It occurs when authorization and settlement amounts differ when they must always match.

For a better understanding, let me give you an example:

Let’s say you are working as a cashier at a grocery store, and one of your customers just purchased $300 worth of items. You’ve swiped their card, but your customer decides they don’t want to buy a product.

When this change of heart happens, it brings their total down to $275. So now, the settlement amount is at $300 while the settlement amount has lowered to $275. You have to cancel the transaction and do it again; otherwise, you risk a downgrade.

Failing To Use AVS

AVS stands for address verification system, a customer address verification tool that provides an extra layer of security for customers while at the same time simplifying the process for our payment gateway. The customer’s five-digit zip code, which stands for their address information, is necessary for card-not-present transactions to target their interchange categories. If a customer fails to enter their zip code, the transaction will downgrade.

How Can You Avoid Interchangeable Downgrades?

Although downgrades can’t always be avoided, you can make sure it doesn’t become a casual occurrence by following the measures listed below:

Pay special attention to the provider you are using, check that they offer different pricing programs that meet your needs, and provide all the information necessary about the practices you should follow.
Make sure AVS is required on any keyed transaction. Any trusted provider should make sure this feature is a requirement to avoid a breach in security and therefore downgrades.
Always enter your sales tax and tip amounts separately from the total of your transaction. With a trusted provider, the system you are using for your transactions should have, without exception, separate fields for each amount to avoid mismatched authorizations.
Schedule your daily credit card batches to avoid stalling authorizations. You can even set up most POS systems, so your batches are settled automatically at a specific time every day.

Final Thoughts

You need to understand every aspect of your credit card processing fees, and learning about interchange downgrades is an excellent way to start. Although they aren’t usually discussed, they are a widespread incident and can put you at a considerable disadvantage. However, now that you know all about them and the ways you can prevent them, this situation is bound to become a rare occurrence in your life.

We hope you found the information valuable and exciting. Let us know in the comments other vital things you think we should know about our credit cards and processing fees. We would be glad to provide you with any extra information you need.

Address Verification Service (AVS) Prevents Chargebacks

Chargebacks are among the scariest concerns you might come across when running an online business. Chargebacks can keep you from earning the money you deserve. They can hurt your company’s credit rating. The added chargeback fees some merchant service providers might charge will make matters worse. The fact that you don’t have physical access to someone’s credit card is a problem, as anyone could potentially pose as someone else, increasing the risk of a chargeback.

The good news is that you can use an Address Verification Service or AVS system to reduce the risk of chargebacks. An AVS provides a better approach to work that entails ensuring the customer’s address is the correct one. The effort flags potentially fraudulent transactions and ensures they won’t move forward, reducing the risk of a chargeback.

Understanding the Concerns of Chargebacks

Chargebacks can be dangerous in that you’re losing the funds from a prior transaction due to a cardholder disputing the charge. You will be responsible for a chargeback because your business is supposed to prevent unauthorized card purchases. A customer who feels a purchase isn’t legitimate has the right to dispute the charge with you.

These chargebacks can occur for many reasons. Someone could use a card without the holder’s consent. The customer could also claim the product or service was not delivered or provided as one wished.

You can prevent these issues by using an Address Verification Service setup. An AVS is especially critical if you accept card-not-present or CNP transactions where you cannot access the customer’s physical card. These CNP deals are more likely to produce chargebacks.

The AVS Process

AVS entails reviewing the order’s billing address versus the cardholder’s address that is on file with the card issuer. The analysis ensures the person buying something with a card is sending something to the proper location.

Here’s a look at how the AVS process works:

The cardholder provides an address in the payment gateway. This address is the one that will receive the product or service.
An AVS system compares the numeric parts of the address the customer submitted with what the address on the bank’s file says.

The cardholder’s name, street name, and other non-numerical factors will not be a concern. These features are obscured for security and privacy purposes.

The AVS system then generates a code. The code states if the match is complete or if there are issues.
The merchant can use the code to decide whether the transaction should go forward.

Your payment gateway may set up automatic rules where transactions can go forward if the proper AVS code appears.

What AVS Codes Are There?

You’ll find a distinct AVS code with each transaction that goes through a system. The code will entail one of many points surrounding whatever the system can confirm:

Y – The address and the five-digit ZIP match. This point is for Visa, MasterCard, and American Express orders.
A – The address matches, but the ZIP does not. This code is not valid for Discover orders.
N – Neither the address nor ZIP matches.
B – The address matches the report, but the ZIP is not verified. This note is only valid for Visa orders.
M – The address and ZIP match for international transactions.
F – The address and ZIP match for UK orders.

There are many other AVS codes available, with each card network having different rules for what works. For example, the A code says that the address matches for most card networks. But the A code for the Discover network says that the address and ZIP both match.

Where Does the AVS Work?

The AVS system works throughout the United States, the United Kingdom, and Canada. There’s always a possibility it could move into other markets soon.

Is There Still a Risk?

An AVS will prevent chargebacks by keeping fraudsters from trying to complete a payment. Someone who might have acquired a credit card number might not have access to the customer’s address. Since that person cannot enter that address, it becomes impossible for the order to go through. The AVS will see the fraudster is trying to send something to a place outside whatever the client wants to use.

But there’s always a risk that a chargeback could still happen. A fraudster could use social media to try and piece together details on whoever holds a card, for example. The potential for some retailers to disobey PCI DSS standards and improperly secure credit card data could also be a threat.

Still, the risk of the chargeback will be minimal. The AVS process adds a firm barrier that ensures the transaction isn’t as easy to complete as one might wish.

What Does It Cost?

An AVS process will cost extra for each transaction, although the added cost won’t be worth as much. A credit card network will provide an extra charge of about 5 to 25 cents per deal. But the cost will be minimal when you consider the other charges you might spend in processing your transactions.

Works With Other Methods

Your AVS can work alongside other methods you utilize to prevent chargebacks. These include such methods as:

Ensuring you only ship to the billing address
Reviewing the CVV alongside the address; the CVV is inaccessible if a person doesn’t have a physical card on hand
Provide full terms with your customers surrounding how you can resolve disputes or other issues with these purchases
Watch for whether there is something unusual with a transaction; you can plan an automatic flag or stop on high-value transactions to ensure they don’t go forward without a thorough review

It takes time to get these features working. But it won’t be tough to get your business working when you see what fits in any case.

An AVS will be critical for keeping your business up and running. Look at how an AVS will work and how you prevent chargebacks from occurring through this convenient solution for your work needs.

Eleven-letter Dirty Word: Chargebacks

Avoiding Chargebacks

Depending on what type of merchant you are, there are simple steps you can take to greatly reduce the risk of having chargebacks. Let’s explore some different scenarios.

Brick and Mortar Merchants

Typically if you are a retail merchant with a physical location your risk of chargebacks is relatively low. The customer is receiving the good or service right at the time of payment and if the merchant has good business processes the customer should be happy with the quality. Also, your staff should be aware that whenever possible to swipe the physical card to ensure the lowest possible rate. Common practice is also to get a signature on the receipt and keep copies on file for 18 months in case of disputes. If you must key in the transaction by hand, be sure to make an imprint of the card with a signature as well.

Internet & Mail/Telephone Order

With the absence of a face-to-face transaction there are a number of added hurdles that need to be cleared in order to ensure a successful transaction. One first step is to make sure that your processor includes your customer service number along with your DBA (doing business as) name to be displayed on the customer’s statement. This will eliminate any confusion as to where the charges are coming from.

Online sellers should take advantage of fraud prevention tools that are available by the processing bank. These include AVS and CVV2. Address Verification System (AVS) compares the billing address with what is on file with the card issuer. Now while AVS does not approve or decline a transaction, a merchant can use the resulting code that is returned to pre-screen the transaction before committing to the sale. Card Verification Value 2 (CVV2) is the three-digit number that is printed on the back side of the card to the right of the signature panel. In a card-not-present environment this is just one more step to help protect the merchant. For more information read the VISA card-not-present tools.

What to do when…

When you find yourself facing a chargeback claim, a compliance allegation, or an arbitration request the biggest thing to keep in mind is to pay attention to the deadlines presented, act quickly, and provide as much supporting documentation as possible. The more documentation you gather over the process of doing business, the more ammunition you will have to support your claim. Also, failure to abide by the timelines for response means the loss of the transaction amount. In addition, the business may also be fined for non-compliance.

Industry Terms: AVS

Industry Terms: Virtual Terminal

Virtual Terminal

A Virtual Terminal is a form of secure online payment processing. Using these web-based applications to create a virtual terminal, a merchant can access over an interject connection all the needed credit card processing capabilities from any computer through a secure, password-protected login.

After logging into the environment, a merchant can manually enter credit card details and perform any credit card processing transaction that a Point-of-Sale Terminal would perform, including authorization, capture and refund.

The process looks a lot like going to a secure web site. It’s flexible and can be used from a variety of locations allowing a merchant to either replace their standard terminals or use this as an option for when they’re out in the field. Virtual Terminals are very easy to use, accessed via Secure Socket Layer Encryption (SSL), enable separate authorization and settlement transactions, connect to Address Verification System (AVS) and Card Verification Value (CVV) fraud tests and support multi-user access with multiple permissions. In short, you can run your entire payment processing protocol through a virtual terminal safely and securely.

For more information, you can review how the process works at this link.

You can also find out more about the virtual terminals Host Merchant Services offers at this link.