Tag Archives: cvv2

CVV Codes: Why do They Exist?

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CVV (Card Verification Value) codes are either three or four-digit numbers that are printed on either the front or back of credit and debit cards. This system was created to provide an extra layer of security to merchants and card-issuing banks against fraudulent transactions in card not present purchases.

Two Types of Codes

These codes come in two different forms: CVV 1 and 2. The CVV1 is integrated into the magnetic strip on the back of every card. In a retail, or other card present environment, where the card is physically swiped through a reader, the first CVV is used to verify the data on the track 2 mag strip is legitimate and matches up with the information the issuing bank has on file.

The second, and some might argue more important type, is the CVV2. Just to clarify, Visa and MasterCard use the three-digit CVV2 number printed on the back of the card next to the signature line. American Express uses a four-digit “Unique card code” that is located on the front of the card. Regardless of location or length, these both serve the same purpose: to prove that the person making the purchase has the original and real card in their possession.

man showing where CVV is located on a credit card

Skimming and Fraud

The CVV2 code is commonly requested by merchants in purchases over the Internet or in MOTO (Mail Order, Telephone Order) transactions. If a fraudulent card has been produced from a skimming device, the thief will not have the CVV2 number as it is only physically printed on the card and not stored electronically. Skimming is the practice of attaching a device over the top of a real magnetic strip reader, usually on ATMs or gas station pumps, to gather the sensitive information about the card. This information is used to make fraudulent cards and/or purchases.

If a thief attempts to make a purchase with a stolen card and does not have the CVV2 when the merchant requests it, the transaction will not be approved. The problem is that according to a recent study, only around 56% of online merchants request the CVV2 in order to complete transactions. Also, if a business does require the code, they can see around a 25% reduction in chargebacks.

The Bottom Line

It is important for consumers and merchants alike to protect sensitive information about their debit and credit cards. If a thief has your name, card number, expiry information, and CVV code they can very easily make fraudulent purchases or even create a duplicate copy of your card. For consumers it is important to ensure the business you are purchasing from is legitimate. For businesses, it is critical that proper procedures be followed when recording and storing your customers’ sensitive financial data.

Eleven-letter Dirty Word: Chargebacks

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If you surveyed everyone in the payment processing world, both merchants and processors, what they wish they could do away with for good, I would venture a guess that 8 out of 10 would say chargebacks. Unfortunately this is not going to happen in the foreseeable future. And the reason for that is simple: the credit card associations and credit card issuing banks have setup the system to ensure that consumers feel secure in using their credit cards.

The causes of chargebacks vary but inevitably boil down to one simple truth: the customer disputes the charge on their account from the merchant. These range from circumstances that are out the control of the business owner to conditions that can easily be remedied. They include, but are not limited to the following:

  • Fraud occurred or is suspected
  • Discrepancy in amount charged
  • Good or service paid for but never received
  • Unauthorized or duplicate transaction
  • Quality of the good or service did not match customer’s expectation
  • Customer does not recognize the transaction or the associated company name

Just based on this short list alone it is evident that chargebacks are inherent within the credit card system. While the majority of industries are compliant, there are certain verticals that have been identified as having higher occurrence of chargeback rates. The card associations tend to deem these “high risk” and many have trouble getting on boarded with most merchant services providers.

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.