5. How can I reduce the risk of accepting bad or fraudulent credit cards?

As a reminder when you process a transaction and you see the approval code, doesn't mean you will recieve those funds. The system is set up to detect that the credit card has available credit and is in good standing and hasn't been reported stolen to the credit card issuer.

If your credit card was stolen and you were UNAWARE it was stolen the person who stole it can rack up credit card charges until you have reported it stolen. The person who loses in this situation is the merchant. They lose the merchandise as well as the money for the purchase as it is returned back to the cardholder.

This is why it is really important to make sure you ensure that the person using the card is the owner of that card. One real easy way of knowing is to see if the name matches the description of the person. For example it is unlikely a male will use a card if the name says Jennifer on it. Simple checks like this will reduce credit card fraud.

Imprint the credit card - Imprinting the credit card is simple all you do is take a pen or other stick like object and run the sales copy over the card to create an imprint. An imprint proves that the credit card was present when the sale was processed and is highly effective when your digital terminal is malfunctioning or the card is unreadable.

Usually in this instance if the cardmember tries to dispute they will usually lose and the merchant will win. When you process the credit card electronically it is imprinted with the magnetic stripe terminal and includes the point of sale entry codes.
 

Ask for identification - If your not sure if the person making the purchase is the primary cardholder then you may want to compare the signatures of their ID such as a driver's licence to their signature on the sales reciept. If the customer cannot provide ID or if the signatures don't match then don't ACCEPT the card.

It is better to be safe then sorry as you are the one ultimately responsible if it turns into a fraud case. As mentioned before you will lose the funds assoicated with the sale as well as any product or service performed. It is not illegal to ask for ID. It is illegal however, to write the credit card number on the face of a check.  

Use your common sense - One way to catch someone comitting fraud is to observe the customers spending habits. If you notice the customer is grabbing everything in sight without even bothering looking at the price, chances are the card might not even be theirs.
 

CVV2 technology - To provide the greatest amount of security Visa and MasterCard created CVC2 and CVV2 verification methods to enhance the security of credit card transactions where the credit card isn't present at the time of the sale. Industries that use this type of system include internet merchants as well as mail and phone order credit card processors.

The CVC2 and CVV2 are three digit codes located on the back of the credit card to confirm that the customer possess an authentic credit card and that the account numbers used in the transaction are confirmed. The three digits are located after the account number on the back of every MasterCard and Visa credit card.

How this system make sit extra secure is that the strip that is magnetic doesn't contain any of the CVV2 or CVC2 values making it next to impossible to fraudulently use the credit card. To verify the card is simple just input the credit card number expiration date and the CVV2 or CVC2 value. When processing a phone order you may ask for this information over the phone.

Once the transaction has been sent for processing the bank that issued the credit card will then check the CVC2 or CVV2 value against its account records. The code will check to see if it matches or doesn't match and if something is obscure about the transaction you may see a warning or notification about the transaction. This will give you a heads up on whether or not to approve the transaction. The final decision is up to the merchant and cancellation isn't required.  

AVS (ADDRESS VERIFICATION SERVICE) AVS is commonly known as Address Verification Service which matches the shipping address to the cardholders billing address. There are many different AVS codes that will show that it is either a complete or partial match. One rpime example is that the adress will match but the zip code does not.

In this scenario it is up to the merchant to phone or email the customer and ask the customer to verify where the item should be shipped.To reduce hassles the merchant should clarify with the merchant that billing information is required. By using AVS it will reduce the cost of your fees but is not required to ship the item or not. AVS is usually used by merchants who process credit card transactions over the internet or over the phone and has been proven to reduce fraud.

Use shipping services that require a signature such as DHL or FedEx. I don't recommend UPS as it is unreliable and UPS charges their customers substantial brokerage fees which makes it unfeasable for your business. - The reason why it is recommended to have a signature for delivery is to have proof that the item was delivered in the unfortunate event of a chargeback.

Verify - When verifying the credit card check to make sure that the credit card being processed matches the one on the reciept. The reason for this is because theives can replace the magnetic strip on the back of a credit card with a different one that can be approved.  

IP address tracking - Make sure if your processing transactions over the internet that you are logging where the IP address is coming from. Check to see if the IP address is in the proximity of the customers billing address. If the order seems suspicious for example, a huge order or the payment is rather large, then you may want to contact the customer to verify the order is legitimate. Carefully watching your orders will greatly reduce the amount of chargebacks.