A payment card which enables a person with the options of making purchases on credit is generally termed as credit card. In simpler term credit card is nothing but “Spend now pay later!!!”
How does card transaction take place?
While making a payment for the purchased goods with a card, transaction appears to happen as soon as the PIN number is entered. This is often accompanied by complex payments mechanism behind the scene to make sure that the transaction is processed correctly. The diagram below depicts the stages that are involved in card transaction’s payment cycle.
What are credit card risks?
Despite being a convenient financial tool, credit card is often accompanied by several risks known as credit card risk which is referred as risk of the merchant to incur “charge backs” or disputes from the customers. Sometimes the customer claim that the charge was false or that their card number was misappropriated by another individual and used for purchases that was not approved. All these and many more reasons constitute credit card risk. Due to the several credit card frauds many people even hesitate to use credit cards. To avoid these sorts of situations it is very essential to have credit card risk management.
The popularity of internet to carry out the sales on the global scope has attracted both big and small companies. This is also considered as the main reason behind the fraudulent activity. The transaction occurred is basically termed as Card-Not-Present(CNP) transaction which offers the exporter minimal type of security in case the card comes up to be stolen. Therefore, Mail order /telephone order (MO/TO) and e commerce exporters who choose to process transaction in CNP environment must understand that there is greater need of security against fraud exposure.
What is credit card risk management?
The major parties involved are card issuing bank, card holder, merchant and the acquirer. To assure that healthy transaction takes place in the card transaction cycle is basically termed as credit card risk management. To avoid any sort of fraudulent activities, both the merchant and acquirer should be alert while making the transaction. The cashier at merchant’s end should ensure that the card present is genuine which can be verified by quickly examining the standard security features of the card like hologram, date, etc. For the transaction exceeding the amount as agreed with the bank, authorization must be taken form the card authorization center of concerned bank. To tally the signatures could also be simple yet effective step in minimizing the fraud. Also the card number should be checked against the list of lost, stolen or stopped card number as provided the bank. Some of the simpler steps to be followed by users to stop the fraudulent activities are, to ensure that the card is swiped in POS machine in front of the user, to sign the slip only after verifying the amount, to avoid keeping the pin number in the purse along with the card which may impose problem in the case when purse is lost and at last immediately notifying the bank is the card is lost or stolen.
Explanation of Risk Management System by way of an example
To identify the fraud for companies who accept payment by credit card in case of CNP environment, Estar Online has developed RMProfiler (Risk Management Profiler System) which is a practical, efficient and effective tool. The clients who have used RMProfiler have realized the significant reduction in credit card fraud from 5% to 0.2%/
The verification of credit card number under CNP system could be done by Veri-phone, CBV2 and smart cards. Veri-phone system is used simply by the exporter typing the numbers into a device that enters the number into the system. CBV2 is the system for using address verification which uses 3 digits on the back of credit card to verify if the address is correct or not. The most promising verification service is the use of new card termed as smart card which consists of computer microchips embedded in it that has the details about the owner of the credit card. This card has an assigned pin number, that must be used in any given internet transaction.
To wrap up, proper credit card risk management will ensure profitable continuation of credit card programs in the market. Moreover, such a system will also enable quick identification of fraudulent activity. At last none of the involved parties will face any sort of problems when the proper card management system is maintained.