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Essential Tips for Reducing Restaurant Payment Fraud

The past several years have been a complete paradigm shift for the restaurant industry. Although noncash payments were always a norm among restaurant clientele, it became an absolute necessity, with most activity shifting to online and remote overnight. Based on the 2021 Diary of Consumer Payment Choice by the Federal Reserve Bank of San Francisco, the number of consumers conducting in-person payments fell by nearly 21% year over year, even as not-in-person spending at restaurants “increased substantially.”

Restaurants cannot ignore these trends, given the numerous challenges in their adoption and the subsequent threats of payments fraud. As more and more restaurants start processing an increasing volume of noncash payments, payment fraud at restaurants has also increased significantly.

These percentages and patterns are anything but small. In fact, they’re seismic as they are accelerating trends already in motion with the advent of smart devices and improving internet speeds. Consumers have been altering their spending away from cash at an ever-faster rate for the better part of a decade. The focal point of all human activity is growingly centered around their smartphones, and spending habits are no exception. Even physical rather than digital currencies are seen as sovereign existential threats.

In this article, we’ll explore the many different forms of payments processed and how restaurant payments fraud is becoming rampant. There is also the case of the changing legal liability and what security precautions the industry can implement in response to nip restaurant payments fraud in the bud once and for all.

Types of payments

Gone are the simple days of paying by cash, credit cards, or debit cards. Now, they’re a myriad of payment options, and consumers not only wish they could use to pay by but rather demand it. There are options such as Payment Service Providers such as PayPal, Zelle, Venmo, Cash App, and a multitude of digital wallets, including Apple Pay, Google Pay, and Samsung Pay, among a host of others.

The threat of losing customers by not offering that ease of payment is very real. The pendulum has swung such that restaurants unable to cater to such payment options face ubiquitous competition from those that can. Below is a more in-depth account of some of the standard payment types being adopted.

Swipe – this is the traditional way in which consumers have been accustomed to using credit cards over the past couple of decades. The merchant would swipe the credit card through a card reader that scans the black-colored magnetic stripe on the lower backside of the credit card.

Dip – a relatively new and more secure way of processing a card transaction. With the new EMV chip, the merchant dips the card into a particular reader that captures the data stored on the golden-metallic colored chip. This payment method has proven to be less prone to fraud as the EMV chip is almost impossible to duplicate, unlike a

Tap – this is the latest method of payment in which smart devices such as a smartphone, tablet, or smartwatch exchange payment details stored on those devices with near-field communication (NFC) enabled point of sale terminal by either touching it or placing the device very near the machine.

The Growing Risks of Restaurant Payment Fraud

There has been a growing chorus within the industry sounding the alarm on an increase in payments fraud targeting the restaurant activity. One specific activity is the root cause of restaurant payment fraud. It all stems from something known as chargebacks but can vary in the different ways that fraud manifests itself.

Chargebacks are disputed payments that consumers raise once they see unfamiliar charges on their account statement. Once a cardholder files a chargeback, their issuing bank withholds disbursement of funds intended for the merchant to investigate the transaction. Chargebacks can be classified as ”friendly fraud” or true fraud.

Chargebacks arising from true frauds are a result of stolen card information being used to process the transaction. There has been a substantial increase in true frauds at restaurants as the industry has started taking in more digital orders and delivery requests in which the physical card isn’t present.

Friendly fraud (do not be fooled by the name) occurs when the rightful owner of a card uses it to pay for a meal at a restaurant and then later disputes the charge on the card. This is often due to dissatisfaction with the service, food quality, or actual malintent. However, friendly fraud can also arise due to the customer not recognizing the transaction based on the descriptors used by the merchant. It can also be that there is no contact information to reach out to the merchant directly, so the cardholder instead simply calls the bank.

The main driver of this increased level of restaurant payments fraud has been driven by payments by card in which the cardholder is not physically present for the transaction, also known as Card Not Present.

The EMV Liability

Earlier, we discussed Dip as one of the payment methods used where the restaurant would dip the EMV chip-enabled card into a special EMV chip card reader. That is presently the most secure method of payment as an EMV chip stores all cardholder data in an encrypted format and transfers cardholder data via a process called tokenization. EMV cards still have the older magnetic stripes at the back of the card, so merchants can still use the older swipe technology.

The EMV liability shift is that if a merchant swipes an EMV card instead of using the dip option for any reason whatsoever, it is the merchant who will be liable for any fraudulent charges exceeding $25. Hence the term liability shift explains that the liability has shifted from the issuing bank to the merchant, in this case, the restaurant.

Safety measures

Considering the prevalent frauds and the changing liability landscape, it helps to understand what safety precautions are available to minimize restaurant payments fraud. Below are some examples of what measures restaurants must implement immediately.

EMV readers – to avoid the liability shifting to restaurants, all POS equipment, and card readers must have EMV capabilities. EMV-enabled cards have a nano computer installed into them that stores all the cardholder information, which cannot be duplicated or tampered with and is additionally protected by encryption and tokenization.

Point to Point Encryption (P2PE) – If POS equipment is P2PE enabled, it employs additional security measures in which cardholder data is encrypted at the point of capture and is decrypted at the endpoint, i.e., the bank receiving the data to process the payment.

3D Secure – During the authorization process of accepting a card payment, the industry is increasingly adopting the 3D secure option that is employed by all major card networks. 3D secure creates a code for a single-time use and sends it to the consumer to enter into the payments gateway to verify their customers’ identity and that it matches all internal contact information on record. This is another security layer considered to be very effective in authenticating customer identity by payment processors worldwide.

PCI Compliance – all these mechanisms, along with additional measures such as tokenization, Address Verification Systems (AVS), Card Code Verification service (CVV2), and AI-powered fraud detection and monitoring, are all security measures codified in the Payment Card Industry Security Standards Council (PCI SSC) guidelines. PCI Compliance can help in reducing restaurant payments fraud down to zero.

Employee Training – One of the best ways to minimize restaurant payments fraud is to increase the awareness of the various fraudulent activities among your employees. Your staff is on the front lines of your restaurant operations, and they will be your best defense in ensuring that there are limited occurrences of fraudulent activity.

Restaurants are making a form of investment when they train their employees in not just detection of payments fraud but good customer service. A great customer support experience can mask fraud detection protocol, given the intrusive nature of requiring additional personal information to authenticate a transaction.

Furthermore, staff should have appropriate training on common inquiries versus payments fraud activity versus customers calling in to verify a charge they see on their account statement. Employees should know the differences between these scenarios and understand the process of how to escalate them with management.

Billing Descriptors – Last but not least, billing descriptors are an essential defense to avoid restaurant payments fraud. Effectively using billing descriptors can go a long way in avoiding friendly fraud.

A billing descriptor is what cardholders see in their statements to identify specific charges. Every time a merchant charges a cardholder, they have to select specific information about their business and the nature of the transaction that will appeal on the statement the cardholder receives. It is often this information is unclear that leads to many friendly frauds. The cardholder may not recall the name of the business mentioned, they may not understand what they purchased, and there may be no contact number listed to clarify the charges.

As a result, some best practices for effective billing descriptors to avoid chargebacks classified as friend fraud are:

Always include the business name of the restaurant the customer visited. Not the trade name or the parent company name, but the actual venue the customer visited. This would be the best way to help a customer remember what, when, or where the charges occurred. So, if you are a Taco Bell, a Pizza Hut, or a KFC, your billing descriptor should mention precisely that, not Yum! Brands, the conglomerate that is the parent company of these businesses.

Also include the address of your business. It doesn’t need to be the complete address, but the street name along with the venue can help.

Finally, listing a contact number can help customers quickly access that number to call the restaurant directly to verify the charges. It is a lot better for the cardholder to call the restaurant rather than their bank to dispute those charges. Even if your business wins a disputed chargeback, too many of those and your business may be classified as a high-risk merchant.

Be careful contracting with Food Delivery Platforms: Food delivery platforms such as Deliveroo, Uber Eats, DoorDash, and others have a direct relationship with consumers ordering food from your restaurants. Technically, they are customers of the food delivery platform and not your restaurant. Their contracts should hold the restaurants liable for any fraudulent card activity on their apps. Furthermore, it is essential to ensure that the platforms have strong data protection and security protocols to limit credit card fraud.

The restaurant industry has undergone many transformations in the last couple of years. Digitization of the overall transaction and the payments by cards and other noncash means became the de facto standard overnight. All the while, the actual volume of transactions in the new form skyrocketed.

These were small shifts, but rather seismic, and they were sudden. And although the restaurant industry was unprepared for the influx of such a change and contended with significant amounts of fraudulent activity during that transformation, many restaurant owners learned that there are ways to manage the risks of these changing times and thrive. The industry still faces many hurdles and growing pain. However, the shifts in consumer spending habits and smart devices dictating more of how they spend their time and money are likely to increase. The changes restaurants have undergone over the past couple of years will be a permanent fixture and likely to intensify. As a result, restaurants must adapt specific best practices in managing the changes in payments platforms, shifts in legal liability, and the potential for payments fraud.

What Do Merchant Services Interpret As Low-Risk Accounts?

Merchant services providers will dictate the rates you spend over your risk level. A merchant services provider will review your risk level surrounding your operations and how often you manage returns and other issues.

A high-risk business will spend more on interchange fees and other markups. It may also have more stringent contract rules and other standards for operation, with the business showing too much unpredictability in how it can handle its funds.

So what types of merchant services accounts are low-risk ones? Some businesses will have a lower risk because they don’t handle as much money, or they are in industries that are a little different from what people are used to managing. You can check your current efforts to see whether you are at high or low risk in managing your work.

How Much Money Is Being Handled?

Online merchant services will deem businesses that operate less money on average as being low-risk entities. The values of any chargebacks or returns will be minimal for these entities.

A low-risk company may be one that handles less than $20,000 each month. It could also be a company where the average credit card transaction one processes is worth less than $500. It is easier for some merchant services teams to support businesses that don’t handle as much money, as the potential value of losses will not be as dramatic.

What Industry Do You Follow?

Your business’ industry can dictate your business’ risk value. A merchant services team can review your MCC code to determine which field you work in, thus helping dictate the rates you wish to manage.

Stores that sell traditional clothing products, household goods, and other common items might be low-risk places. But a spot that sells things like firearms, timeshares, gambling-related activities, and other potentially high-value or volatile items might be a high-risk company.

The Number of Chargebacks

Your risk may also come from the chargebacks you collect. A chargeback entails cases where someone’s credit card purchase is refunded due to an error or other issue. A business with fewer chargebacks will have less of a risk.

A chargeback takes a bit to manage, as it involves moving money back and reversing various fees and charges. Some online merchant services might not accept businesses that take in too many chargebacks unless they can produce substantial rate hikes.

What Country Do You Operate From?

The country you work out of may also influence your risk. A low-risk company is traditionally one located in a country that is financially and economically stable. These include countries that have strong standards for which businesses can operate and how they can work online. Some of the more prominent low-risk countries include the United States, Australia, the United Kingdom, Canada, Japan, and various places in the European Union. Since the risk starts low there is always a risk when working with different countries due to their currency as well.

Do You Handle Returns?

Not all returns on your credit card transactions come from chargebacks. Your customers might also return products they purchased with you. They are still entitled to credit card refunds for their returns.

Your business will have a higher risk if you have too many people completing returns. These returns are often likely for clothing and personal care products, but they can occur at any point.

Talk with the merchant services team you wish to contact for your credit card processing needs to see what your risk is and what rates you can utilize. Don’t forget to review your business yourself to see what it is doing right or wrong and if you need to make certain changes to keep the risk of operating your business under control.

How to Analyze the Root Causes of Chargebacks

Chargebacks are disputed everyday at every business, sometimes they can be difficult but have you ever looked back and analyzed the true cause for the chargeback? Chargebacks are a common problem for businesses and especially for high-risk businesses. Chargebacks protect the consumer from fraudulent transactions as well as rectify errors from simple miscommunication. It’s not just small businesses that are subject to chargebacks; large, established retail enterprises fall prey to chargebacks as well. As such, it is essential to analyze the root causes of chargebacks carefully. Such analysis may uncover genuine problems with specific areas of operations of a business that may need to be rectified to wrest control over chargebacks.

Below, we explore what chargebacks are, why they are essential to dispute effectively, the root causes of chargebacks, how to analyze these root causes, and what preventive measures to take to prevent chargebacks from occurring.

What are Chargebacks?

Chargebacks are payment disputes the customer raises about a particular charge to their credit card. When a chargeback arises, the issuing bank withholds the funds from the merchant until it decides the accuracy of the transaction. If the bank rules for the business, the funds are released to the merchant. However, if the bank rules in favor of the customer, it reverses the charge on the customer’s credit card. The chargeback process is often a lengthy and cumbersome process that requires a significant amount of documentation and recordkeeping.

Importance of chargeback disputes

Disputing chargebacks is a crucial facet of running a business. There are specific cash flows associated with transactions involved in chargebacks that are suddenly on hold and may not possibly arrive. This becomes even more pronounced because the business has already incurred the costs of manufacturing the product, shipping it out and may now be assessed chargeback fees if the dispute is unsuccessful.

As businesses go through the motions of the dispute, they simultaneously need to get to the root cause of why the chargeback transpired. Everything from fraudulent activities to genuine issues the client raises, analyzing chargebacks’ root causes is vital to tackle recurring problems effectively.

Analyzing chargebacks root causes

Merchants often revert to focusing on the disputing chargebacks and the revenue lost and how to adjust budgets for the cash flow that will not be coming in. Those are necessary steps for a business to carry out but only the first steps in a series of actions they must take.

There is a lot of information available in the chargeback merchants receive. For starters, merchants can analyze the cause of the transactions being disputed. Reviewing these causes can help merchants get to the root causes of chargebacks in their business. This root cause analysis may uncover that specific changes may be needed in any one of the following areas:

Customer Support – Evaluate whether the customer made any effort to reach out to the support team to rectify any qualms about the product before filing a chargeback complaint with the bank. It is essential to understand the consumer journey and identify any friction that can lead to miscommunication or a lack of communication that manifests into chargebacks unnecessarily.

Delivery – What are the merchant’s processes around the delivery of goods. It may be a bit hard to successfully dispute a chargeback when a child’s Christmas gift ordered a week in advance is received on Easter. Preferred delivery vendor relations may be offering your charge rates but costing you much more in lost revenue and negative customer feedback.

Sales Staff – Having a professional and well-trained sales staff is vital to a robust revenue pipeline and happy clients. If your sales team is overpromising and hyping up expectations of customers that don’t pan out upon delivery, it may be time to revisit your company’s sales tactics. You want to ensure overzealous sales staff aren’t being too aggressive in closing sales that customers end up regretting shortly after purchasing the product, let alone receiving it.

Product – This is a critical facet to consider. There may be a shortcoming with the product that the client doesn’t value as much. Is it a manufacturing or quality flaw? Are there durability issues? Lower quality goods can lead to client dissatisfaction and chargebacks. Furthermore, word of mouth in today’s hyper-social environment can further alienate clients from your company’s products if quality issues lead to chargebacks.

Card Related issues – Was the card valid? Was all the credit card information collected to process the payment? Merchants should carefully review the process in place of collection, verifying, and storing card data to ensure that there aren’t any inefficiencies in that operation leading to chargebacks.

Safeguards around chargebacks

Once businesses understand the true nature of the problems that give rise to chargebacks, they can successfully place safeguards to avoid them going forward. Some examples of safeguards can include:

Appropriate training levels for sales staff to work with clients by partnering with them as trusted advisors instead of looking to close a quick sale and moving on. It may not work all the time and may require changes from the top-down. However, it can reap significant benefits from both a revenue and branding perspective.

Emphasize stellar customer support. This will also require an investment of time and money in training and upskilling your support staff to set the appropriate tone of empathy towards current and future clients.

There are specific technologies merchants can invest in to avoid the chances of fraudulent transactions. These include:

3-D Secure – an online authentication protocol for card not present transactions.
Tokenization – a storage mechanism of securing card data being used to process a payment.
BIN checkers – used by merchants to ensure the card details used in transactions are legitimate before they process the payments

Understandably, chargebacks are not an easy issue to tackle for businesses. Chargebacks cost real money. Merchants end up paying for chargebacks in many ways; through lost sales, shipping and handling costs borne by them, and chargeback fees by the merchant account provider. The merchant account provider may also start evaluating the merchant as a high-risk business leading to higher payment processing rates.

Sometimes it isn’t in a merchant’s control how a chargeback dispute is settled. However, there is hope and reason to be optimistic and take action on the matter. Merchants have a lot of control over chargebacks arising. By being deliberately proactive and using the steps in tackling chargebacks it will become easier to dispute them.

Why is a Business Considered High Risk For Merchant Services?

High risk businesses are subject to more expensive merchant service charges than others. A business will spend more to process each transaction if it is a high-risk entity. It could also be subject to increased charges. Contract terms for the business could also be restrictive. Some companies may even have some of their revenues tied up in rolling reserves. They may not get those funds in their reserves until weeks after they are paid.

The issues that come with being a high-risk business for merchant services are significant. But what would cause a business to become high-risk in the first place?

You must be aware of these concerns that can cause a business to become risky for merchant service providers. There’s always a chance you might fall into this category.

High Risk Business For Merchant Services – Top reasons

The Industry May Be Risky

The most common reason why a business can be considered risky is because of its format. Businesses in certain fields are more likely to experience chargebacks, fraud, and other concerns.

High Risk Business - Online electronic sales

Some of the industries that are often high-risk include:

Adult product businesses
Bail bonds
Online electronics sales
Debt services
Timeshares
Telecommunications sales, including for VoIP services or calling cards
Travel services
Firearm dealers, including those who sell ammunition
Software downloads
Dating and personal sites
Online auctions
Multi-level marketing programs
General business opportunities; include promotions where someone could invest in a business endeavor that hasn’t gotten off the ground yet

These industries and many others have higher chargeback rates than others. Their financial stability and legality can also be in question in some cases. There’s a chance a company might shut down or become heavily regulated, causing its risk to increase.

The Products or Services Are Questionable

A business can also be a high-risk one if it sells products or services that might be of concern to some merchant service providers:

High Risk Business - selling memberships

A company sells expensive items. These include customized vehicle parts, high-end computing systems, and many other high-price things.
A business can provide memberships or other items that entail automated recurring billing processes. Billing errors often occur here, thus leading to chargebacks.
A business could sell items that banks might ban. These banks could prohibit the sale of certain products or services. While some banks may allow these sales, the fact that others will not do this could increase a company’s risk.
Some of the products a website offers can be future deliverables. These include things like event tickets, hotel or transportation reservations, and other things that will be scheduled for later. A business may issue chargebacks or returns for cases where these events are cancelled or the purchaser has buyer’s remorse and wants to walk back the transaction.

These threats are significant ones that can occur among many businesses. A business can review its operations to see what types of items or services it sells to determine its risk.

MATCH Listing

High-risk businesses will be on the MATCH list. The Merchant Alert To Control High-Risk list highlights merchants whose accounts have been terminated in the last five years. The MATCH list highlights companies that have struggled to manage their accounts and have been deemed unable to work with them as desired.

Not Enough Financial Data

A merchant service provider may list a business as high-risk if it doesn’t have enough company financials to review. A business must have enough money to support its chargeback liabilities. A company that doesn’t have enough proof to show it can handle chargebacks will be charged more.

This problem is more prominent among newer businesses. But more established companies could also have the same issue. Some businesses may be willing to conceal their financial data to reduce the risk of losing funds.

Poor Credit

A business could also have a poor credit rating. The weak rating may be due to a business running up significant debts and being unable to manage its inventory. A business with a weak credit score may be high-risk due to how it might be unable to manage chargebacks and other threats. A business needs to manage its funds well, or it will be unable to get a better credit rating going forward.

Time In Business

Most business owners don’t assume that the amount of time they’ve spent in business will influence their risk. But businesses that have been around for a while won’t be as risky to merchant service providers. A long-running business will be more established and will have an idea of how it can run its operations. It will be more stable, thus reducing its general risk.

Online Operation

A business can reduce its risk for chargebacks by managing physical card transactions. But companies that don’t see the actual cards these customers use will be high-risk entities.

A business that operates online will complete CNP or card-not-present transactions. These deals allow someone to enter one’s card data online. While a website might offer a secure platform for transactions, there’s always the chance that someone might engage in card fraud. Someone who isn’t the proper customer might take the physical card and enter it into a website for a purchase. The risk of purchase fraud will increase the general risk that the business holds.

Check Your Business Status

Take a good look at your business and see how it operates and functions. Be aware of what it is doing and that you have control over how you operate things. Look at what you sell and how your finances look, especially if you’ve been around for a while. Your review can help determine if your business is a high-risk entity and if you’re going to spend more on credit card processing efforts.

But don’t think that if you’re a high-risk business operator you can’t find merchant services. You can still look for many merchant services that can support high-risk entities. But be advised that you will still pay more for the service than if you were at a lower risk than what someone is often willing to afford or support.

What Are the Types of Fraud That Can Result In Chargebacks?

No one wants to think about fraud when dealing with their business plans, but it is a concern that can develop all the same. Fraud can be dangerous, as it can cause someone to request a chargeback because that person didn’t actually do business with you.

You could lose significant amounts of money from fraud. The losses can come from not only losing money from a chargeback, but also dealing with additional fees for bearing with plenty of chargebacks. You could also lose access to your merchant account if you have too many chargebacks, which could be dramatic and significant if you watch what happens here.

The worst part about fraud is that it can come in many forms. Here’s a look at three types of fraud that can occur in your business, with each of these problems potentially resulting in a chargeback.

Merchant Error

The most common fraud type that can occur in your business is merchant error. This problem happens when a merchant doesn’t handle the proper data.

There are many merchant errors that can occur in your work:

There might be an unauthorized recurring payment on a credit card.
The product wasn’t delivered on time, or it might have been damaged when getting it shipped out. The customer won’t be able to use the item, thus resulting in a chargeback on the order.
The customer might be dissatisfied with the customer service one received.
Sometimes an employee might have entered the wrong data when handling an order. That person might enter an excess amount of money, thus resulting in the need for a chargeback to occur.

Criminal Fraud

Criminal fraud is a threat that can happen with many online transactions. The online world has made it easy for people to pretend they are others that they are not. You could experience some significant problems if you aren’t careful enough in trying to manage your funds and keep everything under control.

Criminal fraud can occur for many reasons:

Someone stole another person’s credit card. The person may have a physical card on hand, or that someone might have all the data needed for a transaction. This content includes the CVV and the billing address for the card.
A person could also use a counterfeit card that features account information that was stolen. Magstripe cards are often counterfeited, but an EMV card could also be manually entered in cases where the card isn’t reading on a device.
Someone can also hack a person’s account information to complete a transaction. The hacking typically results in a card-not-present or CNP transaction.

The worst part about criminal fraud is that it doesn’t take much for people to find credit card info. Some people can go on the dark web and download stolen credit card data. They can purchase the data and use it to handle whatever they want to manage.

Friendly Fraud

Not all people who actively commit fraud will do this with criminal intentions in mind. Friendly fraud is a problem that can occur in many situations, and it can be dangerous if not managed well enough.

Friendly fraud is a problem where people are actively engaging in fraud. The main idea is for someone to use a product or service without having to pay for it. While this instance of fraud isn’t as common as what you might find elsewhere, it can be a real concern.

One reason why friendly fraud often occurs is that someone is trying to get around the refund process. A customer might not want to talk with the business, as that might be too complicated. Going through a bank for a chargeback is often an easier process. But even then, the customer might be aware of what one is trying to do and is actively going after the refund.

One other point about friendly fraud involves how many credit card companies offer zero-liability protection. The feature means that a card company isn’t going to declare you responsible for anything that happens if there’s a questionable charge on your card. This feature ensures your protection, but it is also something any cardholder could use to one’s advantage. The person might take the parts to one’s use and try to commit friendly fraud.

Can You Prevent These Problems?

The three types of fraud that can cause chargebacks can be frustrating, but you can prevent them with a few tips. These are all sensible things to see when looking for something that could work in any situation:

Provide the best possible customer service to your clients. Answer whatever questions they have about what you are selling, and make sure they feel confident in whatever you provide.
Real-time resolution services are critical for all disputes. You can provide real-time data to help identify the customer’s order. You can have this data on hand before the dispute starts, ensuring there are no problems with whatever you might manage at any moment.
Be accurate when representing whatever products you sell. Being accurate in what you’re discussing will ensure your customers understand what they are buying.
Keep enough evidence for each purchase to ensure you can confirm someone paid for an item in cases where a customer is actively trying to commit fraud.
Provide an easy to review merchant descriptor on a credit card bill. Make sure the customer recognizes your name when looking at the chargeback and what you’re trying to list here.
Use the proper hardware and software firewalls and protective measures to keep your data secure when going online. You can use these firewalls to prevent outside parties from getting in the way of a setup.

The right measures are critical for ensuring there are no problems with whatever you’re trying to manage at any time. Be sure you look at what you’re getting out of your plans for preventing fraud to ensure there are no concerns coming from any situations that might develop.

Steps to Get Your CBD Oil Merchant Account

Do you run a business that offers CBD oil? You might be in a great spot, as the demand for CBD oil and other CBD-related products is on the rise. People are exploring what makes CBD useful, and many people who have tried it know how effective it can be for their needs. It can help relieve anxiety and may also help people feel more confident. It has also been found safer than what most people might expect.

The CBD oil market has been growing in the last few years and so is the demand for a CBD oil merchant account. The industry will likely grow at a compound annual growth rate of about 36 percent before the end of 2023. More companies are offering CBD products than ever, plus there are many new ways how people can use CBD oil for their demands. There’s no telling how far the market can expand at this juncture.

CBD Oil Merchant Account

Running a CBD oil website can be a profitable endeavor. However, the process of obtaining a CBD oil merchant account can be a challenge. While CBD oil is being widely accepted throughout society, merchant account providers still consider it a high-risk product. People trying to sell CBD oil might have a tougher time getting merchant accounts.

The CBD industry is a high-risk field, meaning that chargebacks and fraud are more likely to happen on websites that offer CBD products. Your business could lose money from all these issues, making your entity one that some merchant account providers might want to avoid. Those who are accepted may be subject to higher interchange rates, extended contracts for service, and higher fees for chargebacks and other concerns.

The legality of CBD oil is also a concern. The Controlled Substances Act cites that CBD oil is a Schedule I drug. It is still legal in various states, but the federal classification means that a law enforcement entity could shut down a CBD website. A bank might not be willing to support a CBD-based business if it is constantly in jeopardy of being taken offline for legal purposes.

The good news is that you can still get a CBD oil merchant account if you look in the right places. You can get a high-risk merchant account that will help you accept credit and debit card payments from your customers.

Steps to Get Your CBD Oil Merchant Account

Check your local hemp laws first.

Be sure before acquiring your merchant account that it’s legal for you to handle CBD-related products. Make sure you are legally offering CBD oil that you know where you get your product from and that it is safe to provide online.

Provide an organizational structure chart.

A structure chart can illustrate your business operations. You can show a bank or account provider your business has a solid foundation for operation. High-risk businesses will need to provide these details to help account providers see that their entities are suitable for operation and are at minimal risk.

Include the processing history for your business for the last few months.

Get enough processing reports for at least the last six months highlighting what you have been doing with your company over that time. List the total volume of orders, the number of transactions you complete, and any chargebacks you might have. The provider may determine your risk surrounding how much you process each month, how much people spend on each card transaction, and how often chargebacks occur.

Provide details on your website.

Your website must meet all PCI DSS standards. A PCI-compliant website will be encrypted and will include a complete privacy policy. It must also offer transparent details on your pricing and shipping efforts. Your website also needs to keep all credit card data secure to where it is only accessible on a need-to-know basis.

The risk management department at whoever you apply with will review your website and your application.

Each merchant service provider has distinct rules for who can safely handle merchant accounts.

You will then get access to your merchant account after you are fully approved for work.

Your account will let you accept payments from others after you are approved.

You will appreciate how easy it can be for you to get a merchant account ready for your CBD oil business. But be sure when looking at your account that you’ve got the support you deserve. There are a few things worth exploring when looking at a high-risk merchant account:

Be sure whoever you hire can respond to your needs as soon as possible.
Transparent pricing is critical for all accounts. Your platform should include a sensible pricing structure that you understand.
The merchant service provider can offer various tech items that fit your needs. These include APIs to help you accept online payments, useful physical card kiosks, and various computing items.
Favorable membership terms are always worthwhile. The best services offer monthly rates that don’t require long-term contracts.
Merchant service providers can also offer quality security features like a chargeback prevention system and a fraud detection program.

All these details could still change depending on what happens with CBD legislation. There’s a potential that CBD could be fully legalized throughout the country. It would be easier for you to get a merchant account if this happens, but there’s no guarantee that this will happen. The potential for this to work is still out there, especially since the market is continuing to grow. General public sentiment surrounding CBD and other cannabis-related items has also been improving, meaning there’s a potential that a merchant service provider may not see your business as much of a risk after a while.

Bottomline

Your CBD oil business will be more successful if you have a suitable merchant service account. Be sure when getting your business ready that you have the support of a merchant service account provider that will help you with all your needs. You will have an easier time accepting payments when you have an account that works and fits your demands.

How to Handle Check-In and Checkout Processes Through Merchant Services For Hotels

Merchant services for hotels work a little differently from what you’d find in other industries. Instead of processing sales or issuing refunds, you will check in and checkout your customers. The process sounds simple, but you could potentially deal with chargebacks if you aren’t careful in your work.

You must provide the proper dates for checking your customers in and out of a hotel when handling their credit cards. The customer’s issuing bank must receive the data necessary for ensuring an authorization for using the card. The effort ensures the customer’s protection while also keeping you covered if the customer has a later dispute.

The Consideration of Extended Authorizations

Hotels can utilize extended authorizations when collecting credit card payments. Your hotel can collect a guest’s credit card data and keep it on file. Your hotel can then authorize the card when the customer arrives. The customer will not be fully charged, as the authorization will stay on the card until your hotel finishes the sale.

The entire sale will not be fully authorized until the customer’s stay ends. It could take a few days, or it could take a couple of weeks. The extended authorization process can be risky, but you can keep it under control by running proper check-in and checkout processes.

You can use a new system to reduce the risk of chargebacks due to a card being open longer than necessary. The setup lets you list the specific time you’ll be keeping a person’s reservation open. You can charge the customer for whatever one uses at your hotel, plus you won’t risk a chargeback from billing someone for more than necessary.

Steps For Handling the Transactions

You can use these steps to manage the check-in and checkout processes when managing a sale at your hotel:

You can check your guest in through a point of sale terminal you use through a merchant service provider. You’ll enter the card data and the amount you plan on charging the customer.
Enter the room number the guest will use. You can produce a temporary key that works for whatever room the guest will utilize.
List the number of nights that the person plans on staying in that room.
You should get an invoice number for your guest’s stay. You can use this to manage the checkout effort later.
The checkout process will start after the guest’s stay ends. It can start after the proper number of nights, or it can begin early if the guest has to leave on short notice. You’ll enter the guest’s invoice number here.
Enter the final amount you will be charging. The total should reflect the daily room rate.
Enter the tax rate you will charge. The tax rate will vary by location.
Confirm the checkout time.
The transaction will close, as the guest will have fully completed one’s stay at your hotel.

You can manage this process for merchant services for hotels to ensure you’re managing card transactions well. The effort should be about preventing chargebacks by listing the stay data for each guest.

How to Get a Bad Credit Merchant Account [2025 Update]

You may assume it would be impossible for you to obtain a merchant account if you have poor credit. You might have gotten a bad credit rating due to issues like your business not being able to pay off its loans. You could also have a poor rating because your business is constantly dealing with chargebacks.

There’s no need to worry, as you can get a bad credit merchant account to help you accept credit card payments from your customers. You can use a few steps for acquiring an account, but much of this involves figuring out what is suitable for your business. You may find our experts at Host Merchant Services to be more effective for your work needs than you might expect for any situation.

Avoid the Credit Check

The first thing to do when finding a bad credit merchant account is to find a group that will not conduct a credit check on your business. A credit check may reveal various flaws and issues with your business that will keep you from getting an account.

A credit check traditionally entails looking at factors like how much money a business spends and owes, how much credit it uses, and whether it is delinquent on anything. It can also include a look at the chargebacks in a business and how they might make it harder for a company to bring in the funds it deserves. Groups that don’t collect as many funds can be tough to support.

Not all merchant service providers will work without credit checks. We at Host Merchant Services can review your work without a credit check.

Provide Processing Data

The best way to get a poor credit account is to provide processing data for your business. You can submit at least the last three months of your credit card processing bills. The statements will display how you collect funds from people.

You can also include the last three months of bank statements in your business. These statements will help you highlight how much money you’re bringing into your business.

General Details on Your Business

You can also submit enough details on how your business operates when applying for a merchant account. You can provide a government-issued ID, a bank letter or voided check, and a Social Security Number to your merchant service provider.

Presenting a functioning website also helps for your success. Your website will help a service provider review what you offer and how you’re going to collect money from your customers. It is easier to get an account if you can show your business has a plan for how it will operate and promote its work.

Be Cautious With Your Account

While it is easy to get a poor credit merchant account, you will likely deal with higher processing fees. The added fees cover your increased risk for chargebacks or other financial issues.

You may also experience restricted contract terms. You might have fewer privileges versus good-credit businesses. There may also be penalties for getting out of your contract early.

The expenses for your account will vary, but you can expect to spend more than what most people would spend on your services. Always check the contract you enter when looking at what you’re using, and be sure you plan your work well surrounding how much you’re going to spend on merchant account services.

You may be eligible for lower rates if your credit rating or your payment history improves. But it may take a while before you can get a better rate on what works.

Who Is Willing To Accept the Risk?

The best way to review a possible merchant account is to identify who’s willing to take a risk with you. Not all account service providers will support your business. They may be suspicious of how your business operates. Some entities may also not have enough resources to support your business.

Every merchant service provider has different rules for trust when dealing with clients. Some providers may be more supportive of high-risk entities than others. They might be fine with businesses that have poor credit ratings, but they may not be willing to provide as many services. Look at the thresholds these providers have when figuring out what they will offer for your business before making a choice.

Look At HMS Today!

We at Host Merchant Services will help you with your bad credit merchant account. We can prepare a new account that fits your needs without having to review your credit rating. Our team will check how well your business is running and identify a solution that works for your needs.

Best of all, we never require any long-term contracts for service. You can pay for our services by the month, giving you the flexibility you need to handle your work. We’ll even reprogram your existing infrastructure if necessary. We can also provide equipment to you for free as long as you return it after you no longer have a need for what we offer.

Our charges are also transparent and simple. We provide a simple interchange-plus pricing platform that includes rates you can understand and recognize. You can use our reports to figure out what you’ll spend on something of value. We will help you review if our system is suitable for your business or if you should stick with a different solution.

We don’t require weekly minimums for our services. We also do not charge setup or application fees. You won’t risk paying any early termination fees either, what with us not imposing long-term contracts for what we provide.

Don’t forget about our customer service department. We will be there for you twenty-four hours a day to answer whatever questions you hold about how your business is working.

Take note of what we at HMS provide when looking for a merchant account today. You’ll find it is easier for you to get a poor credit merchant account than you realize when you ask us for help with your work.

Frequently Asked Questions

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.

7 Ways Your High-Risk Business Can Prevent Chargebacks

Your business may already be a high-risk entity because you’ve been dealing with chargebacks. Chargebacks are inconvenient for how they cause you to lose money from both lost transactions and fees imposed by your merchant service provider.

The worst part about chargebacks is that they can occur for various reasons. It could be from fraud, a technical error, duplicate billing, or because someone did not receive a product or service as advertised. While you might want to ensure the customer is satisfied, you’ll lose money while doing so due to your chargeback.

But your high-risk business can prevent chargebacks if you use a few points for your work. Here are seven things to do to keep chargebacks from being a possible threat to your business.

Let your customers know what they are buying.

Start by providing your customers with details on what they are buying from you. You will reduce your risk of chargebacks when you let people see what you’re offering for sale. You can provide full descriptions of everything you’re selling. Videos and pictures that show your items from multiple angles will also help.

You can also answer questions people have about whatever you’re selling. Answering these questions will help people feel confident in the purchases they are making while reducing your risk of chargebacks. They will also know more about these products and how they might be advantageous for their needs, making them more likely to complete these purchases.

Include a sensible billing descriptor.

One reason why chargebacks occur is that people aren’t fully aware of who is on a bill. A customer may dispute a charge if that person doesn’t recognize the billing party.

You can reduce this threat by producing a more accurate billing descriptor. The descriptor can include things like your company name and a phone number where people can contact you if they have issues. People can communicate directly with you if they have any problems with their orders.

Prepare a sensible return policy.

You must have a suitable refund and return policy to prevent chargebacks. You can post details on your return policy on your website, at your register, or anywhere else you do business. The customer can review the timeframe for making a return, any fees associated with the return, and possible exclusions to the policy. The customer will contact you instead of the credit card company if that person knows you can handle the return and refund process. The direct effort prevents a chargeback, plus it improves your standing with the customer. The client will feel confident in doing business with you.

The return policy should still be reasonable and easy to handle. The policy should be something you can fulfill without risking possible losses.

Provide details on your shipping efforts.

One problem with today’s online shopping world is that people expect to get their purchases delivered to them right away. Your business could be subject to chargebacks if your customers are unhappy with the shipping process. They might figure their orders won’t reach their destinations, resulting in chargebacks.

List whatever shipping policies you have on your website to let customers know what they can expect when buying something from you. Let the customers see how long it will take to ship something and if expedited options are available at extra cost.

Be realistic when telling people how long it will take for them to receive their orders. Don’t get anyone’s hopes up by promising you can get their orders ready in less time than most others.

Offer the best possible customer service.

Your customer service efforts are critical to preventing chargebacks. Customers will feel confident in doing business with you when they notice you’re listening to their every need. They will contact you first instead of the credit card company if you pay attention to their needs and respond to whatever they require for work.

Always respond to customer calls and requests as they arrive. Be ready to answer questions and respond to whatever requests someone might hold. You can support a customer’s needs if you look at how well you’re answering one’s questions and facilitating the unique demands that person may hold.

Review your fraud protection tools.

Every business can use fraud protection tools to keep them safe. You can use a firewall that blocks suspicious IPs. You can also use identity verification systems and protocols to reduce fraud risk. A security system can also include filters that identify potentially risky transactions based on value, frequency, location, and other factors.

Your merchant service provider can help you with various fraud protection tools that can protect your business and prevent chargebacks. Look at what your provider offers and see how you can use these systems. Don’t assume your provider will cover everything, as you might need to add outside materials of your own to help you prevent fraud from being a concern with your business.

Look at your prior chargebacks to see what caused them.

The last way to prevent chargebacks is to look back at some of the chargebacks you’ve dealt with in the past. A high-risk business will likely have plenty of prior chargebacks to review. But there might be a trend surrounding all these chargebacks.

You might notice trends like chargebacks coming from purchases of certain values or specific locations. Some chargebacks may also come from terminals or shopping carts not meeting PCI standards.

Look at what you’ve been doing when seeing how you’re getting chargebacks. You can figure out how to fix things the right way when you look at what is open.

All seven of these solutions are worth reviewing when you’re aiming to prevent chargebacks. But make sure when using these points that you know where you’re going with your work. Your plan for stopping chargebacks will help you build your reputation, but you will require a thorough approach that entails supporting your customers and providing enough info to keep people comfortable with your work.