Cogs of Transactions

Melody L

It’s that time of the month again … I get cranky and tired and irritated. I know what you are thinking and I assure you, it’s not hormonal. It’s the result of the monthly roundtable call I participate in where I get updated on many of the ridiculous, and often government-funded, attacks on merchants and third-party processors. To be fair, I will agree that not all the actions are ridiculous.

Every month the legal section starts with “Wow, it’s been quite a month.” The utterance of the phrase is almost laughable now in that there are so many actions against payment participants on the originating side of the equation that what should be “quite a month” is merely “business as usual.” All these actions seem to be in the name of protecting the foreverinnocent consumer and the bank that services them.

It is Important to maintain a balance between scrubbing away too many valid transactions and allowing through too many questionable transactions.

Let’s see, this past month consumers were unable to make appropriate decisions on getting payday loans when they needed the money, consumers were still overdrawing their accounts because the merchants were sending through charges to these accounts, consumers were incurring NSF fees with their bank based on being overdrawn, and third-party processors who provide much of the advanced transaction screening and product specific technology for merchants are still the scapegoat for letting in transactions to the network that are invalid, or NSF or supposedly unauthorized.

I am not sure that many people understand or appreciate all of the upfront interrogation that occurs before a transaction ever hits the merchant’s bank and inevitably the consumer’s bank.

A good third-party processor/gateway will evaluate the transaction thoroughly, and in real time, before sending it out to the bank for settlement. At a minimum, the gateway will block the transaction based on numerous failures of criteria contravening its rules.

For instance, your gateway should have a negative database for all the past accounts that have been returned as unauthorized, fraudulent or exhibiting some other form of permanent failure. The IP address is more valuable than simply a way to provide extra proof that the consumer made the transaction; it can be used to more closely evaluate the transaction from the start. Your gateway’s routines around the IP address can reduce your costs from sending on suspicious transactions and incurring the fees and chargebacks that are more likely to occur. Querying third-party databases to evaluate the transaction also reduces the chance of sending on a fraudulent transaction.

It is important to maintain a balance between scrubbing away too many valid transactions and allowing through too many questionable transactions. Make sure you have a partner that is experienced in this delicate balance to ensure the optimal rules for your business.

As for the other hot topics related to consumer overspending, it seems unfashionable for one to expect consumers to be fiscally responsible and only spend what they actually have, so remember it is easier for the authorities to dig in your pockets on behalf of the consumers then to actually teach them how to balance their pocketbooks. I suppose, also, that the economy needs people spending ... even when they do not have the money.

Melody L is chief operating officer for L3 Payments.