Setting Up Credit Card Authorization for Your Business: Best Practices
If you started a business with the intention to make money, you’re going to need to be able to accept payments made via credit card processor. To inspire the act of giving card information to your ecommerce platform, developing trust with your customer is essential.
In this article, we’re going to dig into why trust is so important and what goes into not only building it, but maintaining it.
Trust in the Age of Ecommerce
Tapping a credit card on a reader or entering card information online is more than just a transaction in today's ecommerce landscape; it’s a pivotal moment of trust between the business and the cardholder.
Businesses, ranging from budding small enterprises to global powerhouses, are presented with remarkable opportunities in this age, especially when predictions estimate global online transactions to soar to $6 trillion by 2023. Ensuring every credit card transaction at the point of sale is not only seamless but also secure becomes imperative.
As you set up credit card authorization, remember that the right credit card processing system can make all the difference in streamlining operations and boosting sales.
The Intricacies of Credit Card Authorization
At the core of every successful payment transaction lies the pivotal process of credit card authorization. For the layman, it might simply look like a swipe, a tap, or a quick input of numbers on a webpage, but the machinery working behind the scenes is impressively intricate.
Let’s break down the process. Imagine Jane, an avid online shopper, finding a coveted designer handbag on her favorite ecommerce platform. Excitedly, she proceeds to checkout, entering her credit card information, which includes the card number, the expiration date, and the CVV.
Step 1
A routine we've all been through countless times. But once she hits 'Purchase', a series of rapid, meticulously orchestrated events begin to unfold in the digital realm.
Step 2
The merchant’s website instantly forwards Jane's card information to their allied payment processor. This might remind one of a relay race, where the baton – in this case, the card information – is passed swiftly.
Step 3
The payment processor takes charge, hurling an authorization request to the card network associated with Jane's card. Is it a Visa? A Mastercard? Something else? Whatever the case, the card network becomes the new custodian of Jane's purchase request.
But the card network doesn't hold onto this responsibility for long.
Step 4
The network reaches out to Jane's bank—the institution that issued her credit card. It's as if the card network is asking, "Does Jane have sufficient funds to cover this purchase? Is the card valid and not reported lost or stolen?"
The bank then deliberates. If Jane's account is in good standing, with ample funds, the bank gives a nod of approval. Otherwise, a denial is issued.
Step 5
The bank's decision then travels back the same path it came: from the bank to the card network, then the payment processor, and finally, back to the merchant's website where Jane awaits.
Jane sees an "Order Confirmed" message if it's an approval or an "Error: Transaction Declined" message if it's a denial. To her, it seems almost immediate. But what she has just witnessed is the symphony of credit card authorization, played out in mere seconds.
One crucial distinction to note here is that the authorization only earmarks Jane's funds for the purchase. It's a 'hold', so to speak.
Only later, possibly at the day's end, will the actual charge—or the funds transfer—occur. This differentiation safeguards both merchants and customers, allowing for potential reversals or adjustments before the transaction is finalized.
Ecommerce’s Double-Edged Sword: Opportunities and Pitfalls
In the digital age, stories of technological triumph often walk hand in hand with tales of caution. Let’s take a look at a classic example that brings the stark reality of these statistics to life.
Sarah, a small business owner, enthusiastically ventured into the realm of ecommerce, drawn by its promises of a broader customer base and exponential sales growth. Her online store, which specialized in handmade jewelry, witnessed burgeoning sales and a steadily growing clientele.
However, one fateful morning, Sarah woke up to a series of emails alerting her of multiple high-value orders placed overnight.
At first, she was elated at the unexpected surge. But as she sifted through the details, a pattern emerged that made her uneasy. All the orders were made using different credit cards but requested shipment to a single overseas address.
Alarm bells went off in her mind. What Sarah was witnessing was a classic instance of 'card-not-present' fraud. Scammers, having procured a list of stolen card information, were testing the waters, making several purchases to see which cards worked.
Sarah's store, unfortunately, became their testing ground. Had she processed these orders, she would have faced significant chargebacks once the legitimate cardholders noticed the unauthorized transactions. The average cost of such a fraudulent transaction hovers around $213. But the cumulative effect, both in terms of monetary loss and the blow to her store's reputation, would be far more significant.
This anecdote is not unique. With the meteoric rise of ecommerce, there's been a parallel increase in card-not-present fraud and other schemes. The figures are daunting: it's estimated that $48 billion will be lost for ecommerce merchants, up from $41 million in 2022.
The rise in cases paints a concerning trajectory, highlighting the urgent need for businesses, especially smaller ventures, to invest in robust fraud prevention systems. While ecommerce offers unparalleled opportunities for growth and outreach, it also necessitates vigilance.
Businesses must prioritize secure checkout processes, not just for their sake but to foster and maintain the trust that customers, like Sarah's loyal clientele, place in them. The symbiotic relationship between businesses and their customers in the digital marketplace depends on this mutual trust and the consistent efforts to uphold it.
Pro tip: Optimizing your online store's payment process is crucial for customer retention. Dive into our ecommerce credit card processing guide for actionable insights.
Establishing Robust Credit Card Authorization: A Deep Dive into Best Practices
Choice of Payment Gateway
In a world dominated by electronic transactions, the choice of payment gateway is akin to selecting a trusted guardian for your finances.
Opting for a lesser-known payment processor for its marginally lower fees can be costly. A series of transaction delays and customer complaints can soon have you switching over to a more reputed platform.
With the switch, it's typical that errors plummet and customer trust metrics see a boost.
Mastercard, Visa, Discover — whichever card network you're aligned with, tying up with stalwarts in the payment processing realm can be game-changing. Their robust infrastructure ensures that credit card transactions are not only swift but also secure.
Protection of Card Information
Imagine the horror a customer would feel upon realizing their card information was misused due to a breach at their favorite online store. With 63% of small businesses having faced such breaches, the need for encryption and tokenization is glaringly evident.
These technologies transform sensitive card data into unreadable codes, acting as a fortress against potential hackers.
PCI Compliance
The Payment Card Industry Data Security Standard (PCI DSS) is more than just a cumbersome acronym. It's the gold standard for credit card security, ensuring businesses handle credit card information in a secure environment to minimize the risk of data theft.
So what can happen if you're found PCI non-compliant? Hefty fines and a tarnished reputation to start, but it can go as far as your bank terminating its relationship with you along with payment processors and credit card companies you receive payments from.
With compliance dipping 27.5% over recent years, adherence to these standards is not just recommended; it's imperative.
Regular System Reviews
John, who runs a tech store, once recounted how an outdated point-of-sale system almost cost him thousands of dollars. Luckily, an audit caught the glitch in time.
With innovations like EMV and contactless payments revolutionizing the scene, ensuring POS systems are up-to-date is paramount.
Regular check-ups, much like health screenings, can detect and rectify vulnerabilities in time.
Empowering Your Team
Companies who invest heavily in cutting-edge payment systems but overlook training their staff set themselves up for a series of mishandled transactions and disgruntled customers.
The best systems, devoid of knowledgeable hands to guide them, can falter. Continuous training ensures every touchpoint, from in-person to online, is seamless and trustworthy.
Navigating Authorization Challenges: Real-World Implications and Remedies
In the multifaceted realm of credit card payments, the difference between a thriving business and one riddled with financial hiccups often lies in the details. An awareness of common pitfalls and their ramifications is crucial. By addressing these challenges head-on, businesses can safeguard their bottom line and bolster customer trust.
Not Diversifying Payment Methods
Jane, an online entrepreneur with a budding fashion platform, initially accepted only Visa cards. While she managed to attract a loyal customer base, she soon discovered that she was alienating a significant demographic. In one instance, a regular customer, Ellie, wanted to purchase a limited-edition handbag using her Mastercard, but couldn't. Jane's failure to diversify payment options translated into a whopping 17% transaction decline.
When she eventually expanded her payment gateway system to include not just Mastercard but also debit cards and various online payments, the decline rate dropped substantially.
Key Takeaway: Diversification isn't just beneficial in the stock market; it's paramount in payment gateways too.
Bypassing Multi-factor Authentication
Jane now has to be careful. She may have added all the payment methods she can imagine, but before she boasts about her seamless online transaction process, she'll need to protect against card-not-present fraud. The answer to Jane's problem? Multi-factor authentication.
Layered security measures have been shown to drastically curtail unauthorized transactions.
Key Takeaway: In the digital age, where cyber threats lurk around every corner, rigorous authentication protocols are not just beneficial — they are essential.
Neglecting Recurring Payment Updates
Let's say for a moment you're operating a subscription based service. In this scenario, we'll examine a music streaming platform that we'll call, "MuseTune".
The company enjoyed a robust subscriber base, but they started noticing a concerning trend: a 12% churn rate in their subscription renewals. Delving into the issue, MuseTune found that many customers’ credit card details had changed or expired, and there was no user-friendly process to facilitate easy updates.
Once they implemented an intuitive interface allowing users to effortlessly update card information, the churn rate saw a significant decrease.
Key Takeaway: Empower customers by streamlining the process of updating their card details, especially for recurring payments.
The Future of Credit Card Authorization
The intricate dance from adding an item to the cart to the final checkout is a blend of cutting-edge technology, up-to-date knowledge, and strategic foresight. As the landscape of online transactions continues to expand, prioritizing the security and efficacy of credit card processing should reign supreme for business owners.
In the burgeoning realm of ecommerce, a robust credit card authorization system paves the way for a secure, efficient, and lucrative journey.