For businesses and consumers, processing credit card transactions has come a long way. Previously businesses needed two forms of identification, to physically look at the card, review the signature on the back…then lay the card flat on card imprinter, place carbon paper over the card and force the handle from left to right for 3 carbon copies.This process was neither good for the business, who had no way to actually verify if the card had funds available on it; nor was it good for the consumer, who now had 3 unsecure copies of their credit card floating around for anyone to use for mail orders or internet orders.
The advent of electronic credit card processing and later the use of Card Verification (CVV) codes have dramatically changed the game and now go a long way to protect both businesses and consumers.
The proliferation of pre-paid credit cards and gift cards, however, has chipped away at some of that protection as far as businesses are concerned. Pre-paid cards are essentially “anonymous” and businesses do not have many options for protecting themselves against the improper use of these cards. This is especially true for businesses who’s “goods” are recurring service fees or incremental fees based on usage that must be billed monthly for example. Because there is no “line of credit”, a pre-paid card holder may have the amount of the fee available for the first authorization, but will not likely have it available for subsequent months.
One way businesses can mitigate the risk where pre-paid or gift cards are concerned is by validating against what is called a Bank Identification Number (BIN). The BIN or first 6 numbers of a card identify several key pieces of information for a merchant.
The BIN information determines:
1. Issuing bank name
2. Payment method
3. Card type
a. Credit card
b. Debit Card
c. Gift Card/Pre-paid Card
5. Phone number for that bank
With this information, businesses can chose to accept or decline transactions when pre-paid cards are being used and request that another form of payment be provided. Doing so can save businesses money in lost revenue from fraudulent transactions, reduce charge-backs and lower fees associated with high-risk transactions.
Posted by: Ryan M.