CyberSource Merchant Account Guide

March 2008

CyberSource Contact InformationPlease visit our home page at http://www.cybersource.com.

To contact CyberSource Support, call 1-866-203-0975 (Pacific Time), Monday through Friday between 6 AM – 5 PM (excluding holidays).

Copyright© 2008 CyberSource Corporation. All rights reserved. CyberSource Corporation ("CyberSource") furnishes this document and the software described in this document under the applicable agreement between the reader of this document ("You") and CyberSource ("Agreement"). You may use this document and/or software only in accordance with the terms of the Agreement. Except as expressly set forth in the Agreement, the information contained in this document is subject to change without notice and therefore should not interpreted in any way as a guarantee or warranty by CyberSource. CyberSource assumes no responsibility or liability for any errors that may appear in this document. The copyrighted software that accompanies this document is licensed to You for use only in strict accordance with the Agreement. You should read the Agreement carefully before using the software. Except as permitted by the Agreement, You may not reproduce any part of this document, store this document in a retrieval system, or transmit this document, in any form or by any means, electronic, mechanical, recording, or otherwise, without the prior written consent of CyberSource.

Restricted Rights LegendsFor Government or defense agencies. Use, duplication, or disclosure by the Government or defense agencies is subject to restrictions as set forth the Rights in Technical Data and Computer Software clause at DFARS 252.227-7013 and in similar clauses in the FAR and NASA FAR Supplement.

For civilian agencies. Use, reproduction, or disclosure is subject to restrictions set forth in subparagraphs (a) through (d) of the Commercial Computer Software Restricted Rights clause at 52.227-19 and the limitations set forth in CyberSource Corporation's standard commercial agreement for this software. Unpublished rights reserved under the copyright laws of the United States.

TrademarksCyberSource, the CyberSource logo, SmartCert, and PaylinX are registered trademarks of CyberSource Corporation in the U.S. and other countries. The Power of Payment, CyberSource Payment Manager, CyberSource Risk Manager, CyberSource Decision Manager, and CyberSource Connect are trademarks and/or service marks of CyberSource Corporation. All other brands and product names are trademarks or registered trademarks of their respective owners.

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Welcome

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Dear Merchant,

Welcome to the CyberSource family!

We've created this guide to provide you with an overview of the features available with your new CyberSource merchant account.

If you have questions regarding any aspect of your CyberSource merchant account, please call 1-866-203-0975 (Pacific Time), Monday through Friday between 6 AM – 5 PM (excluding holidays).

Please Note: Your merchant account provider (CyberSource) may be different from your payment gateway account provider. Please contact your payment gateway provider for any processing-related questions you may have regarding your payment gateway account. Figure 1 on page 2 explains these different roles.

If CyberSource is both your merchant account and payment gateway provider, our more detailed Merchant Account Guide for CyberSource Gateways contains information specific to the CyberSource gateway.

We look forward to serving your needs for years to come.

Sincerely,

The CyberSource Merchant Account Team

A Registered ISO of Harris Trust and Savings BankBuffalo Grove, Illinois

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Contents

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Welcome.........................................................................................................................................iii

Documentation Changes and Enhancements ........................................................................vii

CyberSource Merchant Account Guide .....................................................................................1Basics .................................................................................................................................................1Batching & Funding ........................................................................................................................4Monthly Statement & Fees .............................................................................................................5Reconciliation...................................................................................................................................6Chargeback & Disputes ................................................................................................................10Fraud Prevention...........................................................................................................................11Support ...........................................................................................................................................12

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Documentation Changes and Enhancements

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The following table lists changes made in the last release of this document:

Month of Release Changes

March 2008 • Initial release.

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This document provides an overview of the features available with your new CyberSource merchant account, including how to safely accept credit card payments.

BasicsThank you for establishing a merchant account with CyberSource. Your merchant account, combined with your payment gateway account, enables you to accept Visa and MasterCard credit and debit card payments from customers. It also sets up the banking relationship that transfers funds from your customers’ accounts to your business checking account.

Your new CyberSource merchant account operates alongside your payment gateway account. The payment gateway captures credit card details (e.g. card number, expiration date) and purchase amounts, and transmits that data to the cardholder's credit card issuer to obtain a purchase authorization and initiate funds collection.

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Basics

Figure 1 provides a basic overview of a sale transaction. Steps 1 through 8 occur in seconds, with funding (step 9) occurring within 4 to 6 days. This is one of three basic transaction types: authorization, capture, and sale.

• Authorization—Reserves funds on your customer’s credit card for the purchase.

• Capture—To have the money transferred to your account, you must capture the transaction. Credit card associations require that you ship the goods before you capture the funds.

• Sale—Combines authorization and capture in the same request.

Figure 1 Overview of a Sale Transaction

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Processing American Express and Discover CardsYour merchant account enables you to accept Visa and MasterCard. American Express (AMEX) and Discover have different processing procedures than Visa and MasterCard. If you would like to accept AMEX and/or Discover cards to potentially increase sales, consider the following instructions.

• To add AMEX:

Do you already have a merchant account established with AMEX? This account enables you, as a merchant, to accept transactions from AMEX card holders.

• To add Discover:

Do you already have a merchant account established with Discover?

Contacting CyberSource

Any time you need help with your CyberSource merchant account, contact our merchant account support team at 866-203-0975.

Yes: If you already have an account with AMEX, contact CyberSource with your Service Establishment # (your AMEX account number).

No: There are two options if you would like to have an AMEX account and don't already have it:

Option 1: Sign up for an account with AMEX directly; contact CyberSource to provide the SE# number.

Option 2: Request that CyberSource register you for a new AMEX account. There is no registration cost.

Yes: If you already have an account established with Discover, please contact CyberSource with your Discover account information.

No: If you don't already have an account with Discover, please contact CyberSource to request they register you for a Discover account.

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Batching & Funding

Batching & FundingTo accept an order, you perform an authorization, then request a capture after the goods ship, or perform a sale to combine the two if you are shipping the same day. After you capture transactions with a capture or sale transaction, your captured transactions are grouped together by your payment gateway into a batch that is sent to your payment processor. This initiates the process that moves funds from the customer to your bank account via your CyberSource merchant account.

Basics about batches and funding:

• Transactions are batched daily. The time depends upon your processor and your gateway provider.

• After the transactions are batched, it typically takes 4 to 6 business days for Visa and MasterCard funds to be transferred to your bank account.

• The money deposited to your bank account is a lump sum, not per transaction. You will receive one amount from CyberSource regardless of how many transactions you capture. If you accept AMEX or Discover, those funds will be deposited separately.

• To understand how to reconcile your bank deposits and determine discount fees, see Reconciliation on page 6.

Additional Information• If you don’t capture any transactions, there won’t be a deposit to your bank account.

• Make sure to capture authorized transactions after you ship, or do a sale (authorization + capture) if you are shipping right away.

• Funding generally takes 4 to 6 business days, but will be delayed for bank holidays. If you believe that you should have received funds but they are not in your bank account, confirm that the authorization was successfully captured, that funds were not held as part of an agreed-upon reserve, and that the transaction appears in reports from your payment gateway provider.

• Your gateway provider’s batch report normally provides you with a list of transactions batched on the previous day.

For specific information regarding batching and batch reporting, please contact your payment gateway provider.

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AMEX and DiscoverEven though AMEX and Discover transactions are batched at the same time as other transactions, there are two important things to note about AMEX and Discover transactions:

• Funding may be different than for Visa and MasterCard. The time frame is dependent upon AMEX and Discover since these card associations handle their own funding.

• Their deposit will be separate from the deposit for your Visa and MasterCard transactions.

Monthly Statement & FeesYou will receive a monthly merchant account statement that includes information on all of your batched transactions and deposits (see a sample statement), as well as an itemization of fees incurred. The fee types and amounts may vary, depending on the sales contract associated with your merchant account.

FeesThe following fees are the ones that may be assessed in association with your merchant account maintenance:

• Monthly Fee—Assessed to your account for statement production, customer support, and other services.

• Minimum Discount—If your sales volume doesn’t generate the minimum amount of discount rate fees agreed to in your contract, the difference may be assessed to your account. For example:

In your contract, the minimum required discount amount is $75.You processed 29 transactions this month, resulting in $67.83 in discount rate fees.Your minimum discount rate fee is the difference between the two: $75 - $67.83 = $7.17

If your sales volume results in more than $75 worth of discount fees, then the minimum has been met and you will not be assessed an additional fee.

The following merchant account fees are associated with credit card processing:

• Discount Rate—Visa and MasterCard assess a fee on each Visa and MasterCard sale. The fee is a percentage of the sale and is the main component of the discount rate fee. This fee counts toward your monthly minimum discount fee described above. The discount rate percentage that you are charged depends upon whether the sale is considered “qualified,” “mid-qualified,” or “non-qualified”:

• Qualified (aka “qual”): This is your basic rate that will be assessed on all transactions per your contract.

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Reconciliation

• Mid-qualified surcharge (aka “mid-qual”): Approximately 0.5% surcharge on the qual rate. This is usually applicable when customers use reward cards, which are more expensive to administer.

• Non-qualified surcharge (aka “non-qual”): Approximately 1% surcharge on the basic qual rate. Sales that are made with higher-cost, non-consumer cards or those that do not meet Visa and MasterCard’s conditions for lower risk, incur this surcharge.

See our Discount Rate FAQ for more information.

• Chargeback Fee—This fee is assessed each time a cardholder processes a chargeback against your account.

Note Your payment gateway provider will have their own schedule of fees for transaction processing. Please contact them directly for this information.

Best Practices to Avoid the Discount Rate SurchargeThe best way to avoid surcharge fees is to comply with Visa and MasterCard conditions for lower-risk sales. Your gateway provider automatically helps you comply with most of these conditions, but some conditions are solely within your control. Consider the following suggestions:

• Ship in a timely manner so that you may capture MasterCard orders within 3 days of the original authorization and Visa orders within 7 days of the original authorization. Visa and MasterCard regulations don’t allow you to capture the cardholder’s funds until you have shipped their merchandise.

• Calculate the amount of the order, including tax and shipping, at authorization so that the authorization amount matches the final amount you expect to capture.

ReconciliationThe term “reconciliation” is specifically used to describe the process of accounting for transactions processed and money deposited in your bank account. Depending on your sales volume and business needs, you may want to consider how frequently you would like to reconcile: daily, weekly, or monthly. We recommend reconciling your account at least once a month.

In order to reconcile, you will need to use various tools, including reports provided by your gateway provider. Contact them regarding the transaction reports offered.

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ToolsHere are some of the tools we recommend using in order to reconcile your account:

• Your bank statement—Provides you with a record of how much money you’re receiving from the transactions that have been processed. Visa and MasterCard transactions batched the same day are funded in one deposit to your bank account. AMEX and Discover transactions are funded separately.

• Monthly merchant account statement—You receive this statement in the mail. It details daily deposits to your merchant account from the previous month, along with any associated fees. See Figure 2 on page 8 to learn about the different components of the merchant statement.

• Gateway daily batch reports—Displays detailed information about all transactions included in the previous day’s batches. Your payment gateway’s daily batch reports help you identify exactly which transactions were included in each deposit.

• Transaction Search—This is a feature provided by your payment gateway. Depending upon their service offerings, you may be able to search up to 24 months back for particular transactions. The search feature helps pinpoint specific transactions or groups of transactions.

• GAA (Optional)—Global Access Advantage is an optional merchant account reporting portal, provided by your processor and available with your CyberSource merchant account. The site provides you with additional transactional information, as well as an online version of your monthly merchant account statement. Contact CyberSource at 866-203-0975 to request access to these reports.

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Reconciliation

Figure 2 Sample Merchant Account Statement

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Reconciliation 101The core of reconciliation is to compare the deposits you receive in your bank account to the transactions you’ve captured. Although most transactions process correctly, it is possible for transactions to fail at batching or for funding to go astray.

To ensure that you’re receiving the correct amount in your bank account, minus applicable fees, use the aforementioned tools to account for all customer transactions.

One factor that may complicate reconciliation is the discount rate. The discount rate is a percentage fee assessed on your sales transaction. For example, if your sale is $100 and your discount rate is 2.49%, a discount fee of $2.49 ($100 x 2.49%) is deducted before you receive your deposit in your bank account.

If a mid-qual or non-qual surcharge applies, as outlined in Fees on page 5, the discount rate plus surcharge is deducted. For example, if the above sale is assessed a non-qual surcharge of 1%, the discount fee would be $3.49 ($100 x 3.49%). Discount rate fees are typically assessed and deducted immediately as transactions are captured, but timing is dependent upon your original sales contract and volume.

Note As already mentioned, Discover and AMEX transactions are settled and deposited separately from Visa and MasterCard transactions. The “Non-Settled” column of your Merchant Statement refers to Discover and AMEX transactions that were batched by your payment gateway provider, but were settled and deposited separately.

We recommend reconciling the sales you shipped and captured each day with your daily batch detail report. At the beginning of each month when you receive your merchant statement in the mail, we recommend that you reconcile it to your bank account using these steps:

1 Using your bank statement, add up all of the deposits you received from CyberSource. If you also accept Discover and/or AMEX, add up those deposits separately.

2 Referring back to your monthly merchant account statement, note your total deposits and compare that amount to the total you derived from your bank statement.

3 With regards to Discover and AMEX transactions, note the deposit total in your payment gateway account reports and compare that to the deposit total you summed up from your bank account statement.

The point of reconciliation is to ensure that your accounts add up correctly and that you’re receiving the correct amounts and deposits. As you become familiar with the available tools, reconciling your account will be easier.

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Chargeback & Disputes

Chargeback & DisputesA chargeback occurs when a cardholder disputes a charge with their credit card issuer. Common reasons why cardholders initiate chargebacks are:

• They are dissatisfied with the merchandise or service.

• They never received the merchandise or service.

• The return/exchange policies weren’t clearly visible.

• They never authorized the charge (due to identify theft fraud or simply because they can’t remember making the purchase).

• A duplicate charge or a recurring charge doesn’t stop

Occasionally, a chargeback might be prefaced by a retrieval request. A retrieval request occurs when a cardholder (or the cardholder’s credit card issuing institution) questions a transaction’s validity, but has not disputed the transaction. They are requesting information from you, the merchant, with regards to the transaction in hopes of clarifying the situation; for example, the cardholder doesn’t recognize or remember the charge. If you receive a retrieval request by mail, we urge you to respond promptly within the time allotted and provide all the documentation that may be requested. Failure to respond to a retrieval request may lead to a chargeback being initiated.

Each time a chargeback is initiated, you’re assessed a nonrefundable processing fee, so it’s in your best interest to curb and discourage chargebacks. See the Best Practices to Avoid Chargebacks section below. Additionally, one of the primary reasons for chargeback costs to merchants in non-fraud scenarios is that the merchant doesn’t respond to requests for paperwork to combat the chargeback.

When a chargeback has been initiated, you’ll receive a Debit Advice Notice by mail, which will outline the transaction being disputed. Transactional information such as a signed delivery notice would be favorable evidence to present your case. Regardless, prompt attention and responsiveness to the matter will help your cause tremendously.

Best Practices to Avoid ChargebacksCollect as much information on the customer as possible. This helps ensure that the person placing the order has the actual card on hand and knows all of the information pertaining to the authorized cardholder. Collect:

• Both the billing and shipping addresses plus phone numbers.

• The CVV2/CVC2/CID code (three-digit number on the back of the credit card).

Payer authentication features such as Verified by Visa or MasterCard SecureCode may also make sense for your business.

Confirm that the business name that appears on your customers’ credit card statement clearly reflects the business from which they will recognize having made a purchase, and

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that the phone number reaches your customer support. You can handle many customer issues before they result in a chargeback.

On your Web site, properly disclose all return, warranty, and guarantee policies, as well as shipping and processing fees. You can also require a customer to acknowledge the cancellation and refund policies prior to purchase completion.

Fraud PreventionWhile the Internet can be a wonderful new sales channel, it also provides criminals with new opportunities to defraud consumers and merchants. All Internet merchants should take significant measures to ensure that buyers presenting card information are indeed the rightful owners of those cards.

Your payment gateway should provide you with access to a variety of valuable tools to help you validate the identity of your customer and thereby control fraud losses. Please take the time to review this information and become familiar with it. At a minimum we suggest implementing the following tools.

Address Verification Service (AVS)The Address Verification Service (AVS) verifies the card’s billing address provided by your customer during the sale with their card-issuing bank. AVS is available throughout the United States and in selected countries abroad. It is required by Visa and MasterCard for Internet processing. AVS responses include “full match,” “no match,” and various “partial match” conditions. You make the decision, based on the AVS response, whether you want to accept or decline the order.

Card Verification Number (CVN)The card verification number is a code printed on the card that may be submitted with the transaction to verify that your buyer is the legitimate owner of the card and actually has the card in hand. For Visa, MasterCard, and Discover cards, these three-digit codes are printed on the back, in the signature panel. American Express has a four-digit number which is printed on the front of the card above the embossed account number. Card association rules do not allow you to store this number.

Fraud Control Helps Prevent LossesNot all merchants will be the target of criminals that wish to misuse cardholder data to obtain goods and services. Criminals’ interests vary dramatically based on the type of goods or services that you provide. If, however, you are a merchant whose products are likely to make you the target of criminal activity, be sure to implement the proper controls to guard against fraud.

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Support

In addition to fraud losses, you may incur additional costs from fraudulent transactions including chargeback fees, fines from the card associations, and loss of customer goodwill. In extreme cases, you could even lose the right to accept cards for payment. With caution and with the tools your payment gateway provides, you can combat fraud while minimizing fees and maximizing profits.

SupportWe hope that all of the information contained in this guide is of help to you. If you have further questions about your CyberSource merchant account and would like to contact Merchant Account Support, you can:

• Give us a call! The phone number is 1-866-203-0975 (Pacific Time) and we’re available Monday through Friday, 6 AM - 5 PM (excluding holidays).

If you have processing-related questions for your gateway account provider, please contact their customer support team.

General Links & Documents• CyberSource Merchant Account Documentation and Support—http://

www.cybersource.com/support_center/support_documentation/merchant_account/

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