Understanding the responsibilities, as well as the costs and the risks involved, is critical for jewelers that accept credit card purchases.
When it comes to making jewelry purchases, credit cards are as prevalent—or more so—than cash or checks. They’re convenient for consumers and solve the problem of walking around with a wallet full of cash or worrying that there’s enough money in your account to cover a check. Experts say accepting credit card payments can improve a retailer’s cash flow, because consumers paying with plastic typically buy more than those with cash or checks.
Moreover, if you don’t accept credit card payments, many customers will walk out your door and head for your competitor. But the world of credit cards is fraught with peril for jewelers and other small retail businesses. Experts say it can cost you if you don’t do your research and take steps to protect yourself from fraud.
CREDIT CARD BASICS FOR RETAILERS
According to experts, for MasterCard, Visa, Discover, Diners Club, and other credit cards, retailers typically pay the issuing bank/credit card companies a fee ranging from 1.5 percent to 2.3 percent of each purchase. In other words, on a $100 order, the merchant will receive $97.70 to $98.50, with the credit card company taking $1.50 to $2.30.
American Express is more expensive for merchants, which is one reason it isn’t accepted in as many establishments as MasterCard or Visa. Retailers typically pay American Express 2.95 percent to 3.25 percent of each purchase—so on a $100 order, the retailer receives $96.75 to $97.05, with AmEx taking $2.95 to $3.25.
How much you pay in fees to the issuing bank/credit card company depends on a number of factors, including the size of your business (larger retailers will get a fee discount), how long you’ve been in business, your track record, and the type of transaction involved, says Sam Segal, a credit card processor with North American Bancard who works with many retail jewelers.
Basically, there are three tiers of retail transactions involving credit cards—each with varying degrees of risk and differing rates that merchants must pay for each purchase.
Swipe-card purchases, typically used by discounters, supermarkets, and other “big box” retailers, are the least risky of the three transaction categories because the merchant is looking at the customer. Retailers using swipe-card systems for credit card payments pay a lower rate to the issuer than other types, Segal says.
Next in terms of risk are key-in purchases, where the account number is punched into the system and the retailer never sees the cardholder. This includes mail order, telephone, and Internet purchases. The rates charged to the merchant for each purchase will be more than the previous tier because the risk is greater, Segal notes.
The third tier of credit card transaction is called “nonqualified” and involves foreigners shopping in the United States who pay with a card. This carries the highest risk and the highest fee from the issuer, Segal says.
Each bank issuing the credit card has its own pricing policies for merchants. But Segal says jewelers or other merchants using an Address Verification System—which compares the billing address and ZIP code on the card to the one in the database for that customer—will get a better rate from the bank or credit card company because AVS reduces the risk of fraud.
In selecting a credit card processor, choose one that’s familiar with your industry. “Like with anything else, work off of referrals,” Segal advises. “A good processor also should explain to the retailer how to protect yourself from charge-backs and disputes.”
DEALING WITH FRAUD
Credit card fraud typically can be divided into two categories: fraud committed through telephone, e-mail, or other orders in which the customer is not present in the store; and fraud committed by a customer inside the store using a lost, stolen, or altered credit card.
Jewelers’ Security Alliance has not seen a major jump in credit card fraud, but that may be because it is days or weeks later before a jeweler even discovers they’ve been taken, says John Kennedy, president of JSA.
“If you ship on a phony credit card, you may get a charge-back that doesn’t even show up until 30 or 60 days later,” Kennedy says. “That’s when the real cardholder receives a bill and notices that he or she never bought the item.”
Kennedy notes that many of the current calls JSA gets concerning credit card fraud have to do with online sales. Online companies are at particular risk because of the anonymity of the Internet.
Segal offered a similar warning about jewelers accepting credit card payments online. “A lot of jewelers have launched Web sites, but they don’t know how to handle online transactions,” he says. “This is a big problem. There is a huge amount of risk when you ship product to someone you don’t have a personal relationship with.”
To protect stores from credit card fraud, Segal advises the jewelers he works with to ask credit card payers for photo ID and have them sign a special authorization form that verifies they have made the charge. “One of the common excuses we hear from people is that ‘I didn’t authorize this charge,’” he says. “It’s also a common fraud tactic that jewelers should be aware of.”