Mar 14, 2014

First Data Corp. And Visa Strike First Deal for Anti-Fraud Measures

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The first accord has been struck between the major credit card companies, Visa and MasterCard, and a debit network, First Data Corp., with the looming transition to new electronic payment processes. The swelling incidents of credit card fraud was put in the spotlight with Target Corp.’s security breach late last year. As the credit and debit industry looks to switch to more secure technology, debit networks are nervous about being left out in the cold.

First Data Corp’s Star network features an estimated 20-25% of domestic PIN-based electronic transactions. Having struck the first deal with Visa, First Data looks to be the first voice to join with Visa and MasterCard as they try to settle the debit industry’s future. The new partnership is devoid of royalties from Visa giving a positive indication of the arrangement being a true partnership as opposed a manipulation.

Debit processing networks recently formed the Debit Network Alliance in the interest of protecting their mutual interests and industry as new security measures are implemented in US credit cards.

The new anti-fraud measures center around the no cardholder verification method, or CVM chip, that is far more secure than the traditional magnetic strips. Additionally, the common application identifier, or AID, promises a new and more secure method of handling sensitive customer information. With Visa and MasterCard already having agreed to use common AID’s for their respective clientele, the Debit Network Alliance is searching for a way to preserve their future in the deit industry.

The CVM chip is far more prevelant in Europe and serve to confirm a customer’s identity at the point of sale for both debit and credit card transactions. Visa and MasterCard, in partnership with Europay, own the CVM chip technology. This could present a significant threat to the debit networks existing in the United States as the industry shifts to better anti-fraud measures.

First Data Corp.’s deal with Visa could give them the inside track as a major domestic debit network as they are the first to license Visa’s AID—paving the way for the introduction of the CVM chip.

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Having a merchant account allows an account holder to take advantage of merchant cash advances. When a merchant is approved for an advance, the business agrees to receive a lump sum of cash in exchange for an agreed-upon percentage of future credit card sales.

Pricing varies depending the merchant’s industry, past credit card processing history, the type of business seeking the account, average ticket sales, and average transaction volumes.

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Several factors influence a merchant’s risk level. Though only one factor likely will not get a merchant classified as high risk, a combination of these may: business size, location, and industry, credit score, credit card processing history, a industry’s reputation for excessive chargebacks, a prior history of high chargeback ratios, and whether a merchant exclusively sells online.

Virtual terminals are stationed on a merchant’s website, making it easy for customers to make a payment or purchase online. Merchants or a payment processor can easily set up virtual terminals, so online businesses can accept credit and debit card and e-check transactions.

A merchant account is a business account with an acquiring bank. Without this business account, which actually works more like a line of credit, a merchant cannot accept and process credit and debit card transactions. Businesses need a merchant account to accept major credit cards via a static point-of-sale terminal, mobile card reader, or through a virtual payment gateway.

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