Let’s set the stage for a typical day at your dealership. Your customers drop off their cars at your bustling service department and head out to lunch while repairs are made. A technician notices an issue and calls the customer for permission to move forward with the repair. An over-the-phone payment is made to authorize the transaction before the work is done and the customer comes by later that afternoon to pick up the car.
This is likely par for the course at your dealership, but this approach to obtaining payment is full of landmines. Card-not-present transactions, such as over-the-phone and online payments, are riskier than those conducted in person. Due to this greater risk of fraud, card-not-present rates are higher. Additionally, failing to obtain the right data during payment could increase your rates further still.
If you take $50,000 in over-the-phone payments each month, you could be paying $275 more in credit card processing fees than necessary. Here is what you need to know to fight fraud at your dealership and lower your rates.
Electronic Interchange Reimbursement Fees (EIRFs)
You may be aware that every credit card has an associated interchange cost. This cost is dictated by the card brands (Visa, MasterCard, Discover and Amex) and accounts for the risk and reward associated with a given card. For instance, a swiped debit card has the lowest interchange rates because the risk is low, whereas a card-not-present transaction on a rewards credit card carries a higher interchange rate.
Aside from not accepting one of the card brands altogether, you don’t have control over which card your customer uses to make a purchase. However, you can do your part to mitigate risk and doing so will result in lower rates.
For instance, the following is a comparison of a standard in-person transaction with one taken over-the-phone:
- Visa (in-person transaction): 2.10% + $0.10
- Visa (card-not-present transaction): 2.40% + $0.10
To our earlier point, card-not-present transactions can carry even higher rates if you don’t take the proper steps to secure them.
Address Verification System (AVS) is an optional fraud-prevention method for card-not-present transactions, but card brands are expecting to see it on every keyed-in transaction. PayJunction strongly recommends entering the full address on any card-not-present transaction. It verifies that the cardholder knows the billing address associated with the card. For the best protection, you can request the customer’s billing information over the phone and require that the address and ZIP code match the bank records associated with the account in order to move forward with the transaction. Using AVS costs $0.01 per transaction but it keeps your rates from downgrading.
Also known as an EIRF, a downgrade is the result of a transaction costing more due to a number of reasons, from out-of-date terminal software to tax that isn’t entered separately from the transaction total. In the example noted above, failing to capture AVS can result in a downgraded rate of 2.95% + $0.10. That means you could pay 15 percent more for over-the-phone payments and 40 percent more by failing to use AVS.
In addition to the added costs, card-not-present transactions put your business at risk for chargebacks. One way to take safer phone orders is by obtaining a signature for these transactions. You might be thinking of fax machines right now, but this isn’t the case.
Now that many credit card readers feature a screen, you may be familiar with the option to email yourself a digital receipt when making an in-store payment. In the case of remote transactions, select providers are applying this concept to card-not-present signatures.
With remote signature capture, you can conveniently email the digital receipt for your customers to sign via smartphone or desktop. U.S. courts have ruled that digital signatures are legally binding, so they are admissible in the event of a chargeback dispute.
Although obtaining a signature is becoming a less-vital fraud-prevention measure, it’s still wise to do so given the high-ticket value of dealership transactions. Dealerships routinely order expensive parts for customers and commit to laborious service.
You can also fight fraud by capturing the Card Verification Value (CVV) for your phone transactions. CVV does not impact your rates, but it’s a fraud-prevention tool that verifies that the customer has physical possession of the card. The CVV is a three-digit number on the back of Visa, MasterCard and Discover cards and a four-digit number on the front of Amex cards.
Get Help Spotting EIRFs
Unfortunately, due to variation in interchange rates, it can be challenging to spot downgrades with an untrained eye. We recommend doing your part to implement AVS and CVV on every card-not-present transaction to reduce instances of fraud. Additionally, we also advise looking for providers that offer remote signature capture.
Sometimes providers allow EIRFs to occur because they don’t feel incentivized to help their customers save money. You can request a free EIRF analysis to see if you’re paying too much in downgraded transactions. Knowing why your EIRFs occur enables you to address them and save money on every card-not-present transaction your dealership takes.
How often does your dealership take over-the-phone payments? Would you like to implement something to make them safer? Tell us more below!