Credit Card and Risk Identification of Standard Chartered Bank
Subject: Finance | Topics:

Main purpose of this report is to analysis Credit card Business and its risk identification service analysis of Standard Chartered Bank. Credit card allows cardholder mainly to buy goods and services for the retailers or shops take cash advances from ATMs or branches pay their utility bills. Here discuss different type of credit card and analysis their feature and identification risk. Finally draw SWOT analysis and suggest recommendation.

 

Introduction

A plastic card issued by a bank, like Standard Chartered Bank or by other financial institutions. It is also known as plastic money. The credits cards are personalized to the user bear the user name, photograph and signature and are magnetized with unique card number. Credit card allows cardholder mainly to buy goods and services for the retailers or shops take cash advances from ATMs or branches pay their utility bills. On purchasing goods and services for the selected shops, called merchants, retailers are paid directly by the bank, less a service charge. On purchasing goods and services for the selected shops, called merchants, retailers are paid directly by the bank, less a service charge. On purchasing goods and services for the selected shops, called merchants, retailers are paid directly by the bank, less a service charge. On purchasing goods and services for the selected shops, called merchants, retailers are paid directly by the bank, less a service charge. On purchasing goods and services for the selected shops, called merchants, retailers are paid directly by the bank, less a service charge.

Card holder receives monthly statements from the credit card unit of the bank, which may be paid in full within a certain number of days with no interest charged. Card holders may make a specified minimum payment ( typically 5% of the outstanding ) and pay interest on the outstanding balances.

Card holder receives monthly statements from the credit card unit of the bank, which may be paid in full within a certain number of days with no interest charged. Card holders may make a specified minimum payment ( typically 5% of the outstanding ) and pay interest on the outstanding balances. In modern time in most of the countries Credit Cards are viewed as a prime payment instrument. A safer substitute for cash.

Historical Background

In today’s economy, the payment system has come a long way since the days of barter. The concept of cards or plastic money was first introduced by Western Union in the United States in 1914. The system was very well appreciated by everyone and began to spread out in other contexts also. In 1924, General Petroleum Corporation of California introduced their own fuel card to be used at their oil stations all over the country. This gave their customers the privilege of buying gas from all the general petroleum outlets with this card instead of using cash money.

The popularity of card encouraged the banks to introduce this product to their customers. Bank credit card was first introduced in the USA in 1952 by the Franklin National Bank. But the rising curve of the credit card popularity started in the later half of the 60’s. 1950’s witnessed introduction of travel & entertainment cards such as Diners club, American Express and Carte Blanche. The incident that triggered the constitution of the Diners’ Club is quite fascinating. The founder of ‘Diner Club’ Robert Mcnmara once experienced entertaining guests at a New York restaurant. This incident gave birth to the idea of charge cards. Barclays Bank of the UK introduced Barclaycard in 1966. This was followed by Access Credit Card launched jointly by Lloyds Bank, Midland Bank, National Westminster, Williams & Glyn’s and the royal bank of Scotland . Travel and entertainment cards are used as a method of payment only and not considered as credit cards. In 1958, American Express introduced their corporate cards which has today become the most widely used charge card in the world. Consequently in 1966 Mastercharge & Bank Amricard (which later came to be known as Mastercard) and in 1977 VISA were born. Both Mastercard international and VISA international are scheme operators who operate all around the world through a wide range of established banks like Citibank, Hong Kong Shanghai Bank and ANZ Grindlays Bank, Standard Chartered Bank etc.

Types of Card

The basic underlying hypothesis of plastic cards is that a cardholder can use that card as a medium of payment at different points of sales (POS) in the place of cash currency, in a standard situation, every transaction through cards involves three parties. They are (1) cardholder (2) the card issuing bank (3) the merchant. Here the card issuing bank acts as an intermediary between the card holder and the merchant.

There are various of cards being used around the world. The main Categories have been discussed in the proceeding section.

Credit card

Credit card as a substitute for cash or cheque and services is becoming increasingly popular with public since its introduction in the market. Global acceptability is a sine qua non for the success of credit card. It provides two aspects of banking function together: the transmission of payment and granting of credit. The system is mutually attractive to parties involved in credit card operation‑card holder, merchant and bank. A credit card has a limit on the amount the cardholder can spend on it; but at the same time it has the advantage of revolving credit. By definition, a credit card is a card which allows the cardholder to pay for goods and services or draw cash, up to a predetermined card spending limit and enables him to pay off the outstanding balance over from one statement to another. This charge covers the banks expenses of carrying uncleared debit balances in the cardholders account..

Visa and MasterCard Credit cards

Visa and MasterCard are two scheme operators who operate all over the world through established banks like HSBC, Standard Chartered Bank, Citibank etc. A world wide known brand like VISA or MasterCard is a very good example of strategic branding of services. Use of a single brand all over the world helps the users or cardholders by allowing them to derive maximum utility from their cards.

As a scheme operator VISA/ MasterCard works as a linkage between the card issuing bank and the card servicing bank here the card servicing bank is a member of the scheme operator’s curtail and it provides different establishments in its locality.

Debit Card

A debit card is issued by a bank to its account holders against a minimum level of deposit in their account. Then after regular intervals (usually 30 days) the transaction amount is debited from the customers account along with the service charge.

The Credit Card Transaction Process

When a transaction through credit card is initiated, it involves four parties and they are:

  • Credit card holder
  • Card issuer Bark
  • Acquirer Bank
  • Merchant

 Transaction Process of Credit Card

The merchant is a business establishment which has the facilities to accept credit card as a form of payment for goods and services. To have this facility the merchant needs to formalize an agreement with a bank which is called the acquirer bank. For scheme operators like VISA or MasterCard, who operate world wide through a number of member banks the acquirer bank and the card issuer bank are usually two different ones.

The acquirer bank gives this authorization after checking with VISA/ Master card international or the card issuer bank to fund out in his account or not. This authorization also protects the merchant from accepting lost or stolen card being presented by any person other than the cardholders. In technically advanced countries, this authorization is done electronically with the help of electronic devices.

The merchant is a business establishment which has the facilities to accept credit card as a form of payment for goods and services. To have this facility the merchant needs to formalize an agreement with a bank which is called the acquirer bank. For scheme operators like VISA or MasterCard, who operate world wide through a number of member banks the acquirer bank and the card issuer bank are usually two different ones.

A credit card transaction is accepted by a participating merchant on the basis of either receiving a voice or electronic authorization or if the transaction is under a certain value (floor limit). The acquirer bank gives this authorization after checking with VISA/ Master card international or the card issuer bank to fund out in his account or not. This authorization also protects the merchant from accepting lost or stolen card being presented by any person other than the cardholders. In technically advanced countries, this authorization is done electronically with the help of electronic devices which may include cash advances, sales and interest charges and request a minimum payment of the balance outstanding.

A similar process is followed when an acquirer bank selects an establishment for becoming a merchant. The establishments past business records, financial performance, bank’s recommendation along, with many more details are scrutinized before choosing it as a merchant and providing it with the necessary logistic and backup support to accept cards.


The key benefits of Standard Chartered Credit cards

Wide Acceptance

Standard Chartered Bank issues both VISA and MasterCard Credit Cards, the two widely accepted cards. So, the customers can buy anything from clothes to meals in exclusive restaurants to airline tickets to hospital bills. Any outlet that accepts Visa or MasterCard will entertain our cardholders.

They have (SCB) at present, agreements with 3500 merchants all over Bangladesh. But their cards are accepted in almost 4500 outlets. The number is growing everyday.

Easy Card

It is the primary benefit of credit card. Through cards one can buy almost any thing on credit within the credit-limit. Therefore people can go for their desired products and service and not bother whether they are carrying enough cash with them or have enough cash in their bank account. It enhances the purchasing power of the customer and gives them opportunity to shop any time as they like.

Safety

Customers do not need to carry cash to purchase goods and services. Through credit card customer can settle his/her dues to obtain credit in shops, hotels, restaurants, petrol stations, etc.

Supplementary Card

Standard Chartered credit card holder can enjoy the convenience of supplementary card for cardholders spouse, children over 18 years of age or any family members or friends. Cardholder can set the spending limit of cardholder choice, which will be the maximum amount that the supplementary cardholder can spend in one billing cycle. A supplementary cardholder can enjoy all the benefits that only cardholder can.

Emergency Need

In cases of emergency, cardholders can get instant cash advances up 50% of card limit from any of their 23 ATMs 24 hours in a day. Since non-account holder also can be a credit card holder, so non-account holder also can use their ATM through credit card.

Convenience

Cardholders can pay their utility bills through the Auto BillsPay Scheme. Customers no longer have to stand in long queues of the bank pay utility bills.

Insurance Coverage

Cardholders enjoy free any accidental death insurance coverage. Moreover under the Safety Net insurance scheme, in case of death or total permanent disability, the total outstanding on the card is waived by the bank.

Installment Loan facility

Customers can convert specific purchases into installment loans through the InstaBuy scheme. Cardholders can buy merchandise and pay them at a lower interest rate than most unsecured loans in the market. Moreover in certain special campaign, customers are offered ZERO interest rates loan facility for certain products.

Gifts and Rewards

Cards have an ongoing rewards campaign where customers get different gifts based on the Treasure Points that they get on their purchases of different goods. Besides that Cards always have some sort of campaign or other going on.

Discounts

Standard Chartered Credit Card has made arrangements with many shops, restaurants, gas station in Dhaka, Chittagong, Khulna, Sylhet, etc., to offer host of exclusive discounts on credit card purchases.

Target Market

Salaried

Self-employed

SCB RFCD & ERQ A/C holders (Int’l Card)

Age

Primary 21-60

Supplementary 18-60

Minimum Income

Master / Visa Card (Local)                             BDT 10,000

Gold Master Card (Local)                              BDT 55,000

Visa Gold / Silver (Int’l)                                 N/A (secured)

Multiple Cads

Primary                                                            One each type

Supplementary                                                Max 4 / Primary Card

Credit Limit

Master / Visa Card (Local)                             BDT 10,000 ~ BDT 90,000

Gold Master Card (Local)                              BDT 100,000 ~ BDT 500,000

Visa Silver                                                       US$ 500 ~ US$ 4,500

Visa Gold                                                        US$ 5,000 ~ US$ 20,000

Cash Advance Limit                                       50% of total limit

 

 Business Existence (for self-employed only)

1 Year – Local

Any Accidental Death Insurance

Master / Visa Silver (Local)                            BDT 100,000

Gold MasterCard (Local)                               BDT 500,000

Interest Free Period

Minimum                                                         15 Days

Maximum                                                        45 Days

Validity Period

1st issuance                                                      12 ~ 24 months

Renewal                                                          12 ~ 24 months

Renewal

Cards automatically unless revoked by the bank/requested by customer.

Minimum Repayment (15 days after the statement date)

Local – Higher of 5% / BDT 500

International – Higher of 5% / US$ 10

Minimum Income

Master / Visa Card (Local)                             BDT 10,000

Gold Master Card (Local)                              BDT 55,000

Visa Gold / Silver (Int’l)                                 N/A (secured)

Multiple Cards

Primary                                                            One each type

Supplementary                                                Max 4 / Primary Card

Credit Limit

Master / Visa Card (Local)                             BDT 10,000 ~ BDT 90,000

Gold Master Card (Local)                              BDT 100,000 ~ BDT 500,000

Visa Silver                                                       US$ 500 ~ US$ 4,500

Visa Gold                                                        US$ 5,000 ~ US$ 20,000

Cash Advance Limit                                       50% of total limit

Debt Burden Ratio

50%

Secured Card (Local / Int’l)

LTV 90%

Business Existence (for self-employed only)

1 Year – Local

Any Accidental Death Insurance

Master / Visa Silver (Local)                            BDT 100,000

Gold MasterCard (Local)                               BDT 500,000

Interest Free Period

Minimum                                                         15 Days

Maximum                                                        45 Day

Validity Period

1st issuance                                                      12 ~ 24 months

Renewal                                                          12 ~ 24 months

Renewal

Cards automatically unless revoked by the bank/requested by customer.

Minimum Repayment (15 days after the statement date)

Local – Higher of 5% / BDT 500

International – Higher of 5% / US$ 10.

 

Reward Program

The Rewards Program of the Credit at SCB is a scheme to make the credit card experience more exciting for the cardholders.

In this program, Cardholders accumulate Treasure Points for the Purchase on their credit cards. For every TK. 50 of purchase Cardholders will accumulate 1 Treasure Point. Through the treasure points, cardholders will be entitled to exclusive gifts or vouchers from selected merchant establishments across the country.

The Treasure Points necessary for a specific gift is given in the booklet that each customer receives along with his credit card. Existing customers were mailed the booklet at the start of the campaign. The booklets are also available, in limited numbers, at the Branches.

The customers have no fear of any fragment loss here. In other words, if someone purchases TK. 530 at month’s end, he gets 10 points for the TK. 500 and the TK. 30 is held and will be added to next month’s points accumulation. So, customers get points for every Taka that they purchase on their SCB Credit Card.

Each month’s statement includes the points accumulated by the customer till date. So customers can track their points accumulation.

Customers can redeem their Treasury Points for prizes, by either filling in a rewards cheque or by calling in at a given number. Within a week the Reward Redemption Voucher will be sent to the customers.

InstaBuys

InstaBuys is the crackerjack new scheme of Standard Chartered Credit Cards. This scheme allows to convert any purchase on your SCB Credit Card into installment loan. The cardholder has the option of choosing tenors of 6, 12, 18, 24, 30 and 36 months. Cardholders can turn any number of purchases into InstaBuy at any time. The value of the purchase will then be blocked under his credit limit. As the cardholder pays each installment, the principal component of the installment is freed up in the cardholder’s credit limit. The total value of the purchases under InstaBuy must not exceed the credit limit of the cardholder.

The Repayment factors and the tenor are given below: The installment is derived by multiplying the purchase price with the factor and dividing the result with the no. of months. Interest rate is 16.95%.

 
Standard Chartered in Bangladesh

The Chartered Bank opened in Chittagong in 1948, which was, at that time, the eastern region of the newly created Pakistan. The branch was opened mainly to facilities the post-war re-establishment and expansion of South and South East Asia. The Bank opened its first branch in Dhaka in 1966 and shifted its headquarter from Chittagong to Dhaka after the birth of the Republic of Bangladesh in 1971.

At present the Bank has ten branches in Dhaka, it also have one offshore banking unit inside the Dhaka Export Processing Zone at Savar, one branch in Narayanganj, three branches in Chittagong, one branch in Khulna, one branch in Sylhet, one branch in Bogra. In the year 1999 Standard Chartered has acquired the operation of Grindlays Bank in the Middle East and South East Asian countries. Former Grindlays Bank started its journey in Bangladesh in 1905 under the name of Grindlays Bank (when it forbears the National Bank of India opened in Chittagong). Standard Chartered Bank took-over the operation of ANZ Grindlays Bank in Bangladesh as a part of acquisition of the South East Asian and Middle East operation of the Australia and New Zealand Banking Group. Standard Chartered Bank (SC) become the highest bidder quoting about AU$2.5 billion  (US$1.5 billion) after ANZ Banking group decided to sell its subsidiary, the ANZ Grindlays Bank operating mostly in the Middle east and South East Asian countries. The SC with its 18 branches and booths across Bangladesh has employed more than 600 people. The acquisition has enabled Standard Chartered Bank (SC) to access 500,000 new customer and 40 branches in India, and this made them one of the biggest bank in this region.

 

Financial Health of Standard Chartered Bank

Income Statement

Standard Chartered Bank (SCB) reported interest income for the year 2008 to be BDT 1,216.9 M and it was 13.3% higher than previous year (BDT 1073.6 M in 2003). Most of this income was from discounted credit bill negotiation (BDT 413.0 M) followed by loans and advances (BDT 345.8 M), fixed loans (BDT 150.9 M) and revolving loans (BDT 142.4M). Other than that the bank also earned form loans to Bangladesh Bank and other banks, personal lending and call money.

Table: Analysis of Income Statement (SCB) at a Glance (2007-2008

 20072008% Change
Income12691073.618.3%
Interest paid on Deposit595.7670.1-11%
Invested income189.5236.6-19.6%
Commission from FOREX & Brokerage618.6474.130.5%
Operating Expenses404.7360.712.2%
Provision for Bank Loan40.5110.3-63.3%
Net profit513.5292.144.4%

All Figures in BDT (Million)

 

SWOT Analysis:

The acronym for SWOT stands for

 The SWOT analysis comprises of the organization’s internal strength and weaknesses and external opportunities and threats. SWOT analysis gives an organization an insight of what they can do in future and how they can compete with their existing competitors. This tool is very important to identify the current position of the organization relative to others, who are playing in the same field and also used in the strategic analysis of the organization

Strength

SCB’s Banking Experience for more than 40 years provides SCB the strength of being the market leader in the foreign banking sector. This strength of SCB is totally unmatched by any other multinational bank in Bangladesh, as the long term success of a bank heavily depends on its reputation while dealing with every sensitive commodity like money.

  • SCB is the first bank in Bangladesh to issue Money link (ATM) card. As the market leader, they showed the most substantial corporate strength among the foreign banks by grabbing the opportunity that exists in the market.
  • In Bangladesh SCB has wide range of customer base and is operating efficiently in this country.
  • SCB has a bulk of qualified, experienced and dedicated human resources.
  • SCB has the reputation of being the provider of good quality services to its potential customers

Weakness

SCB has fewer branches than their competitors. Such as SCB have only

17 branches whereas Uttara Bank Limited has 198 branches and 12 regional offices.

SCBhas more and high fees and charges compared to its rivals. Such as minimum balance fee, ledger fee etc. as a result SCB is loosing its customers.

SCB often has problem with market share as ATM machines. Customers often complain that the ATMs are out of order.

SCB hasn’t that much good market share as other multinational bank. It’s as because SCB’s marketing strategy is not aggressive they always follow defensive/ conservative strategy. This may be considered as weakness.  Composition of market share in the banking industry is given below.

Opportunities:

Standard Chartered Bank was approved of the permission to start Islami Banking from The Government of Bangladesh. The bank now has a whole new prospect opening up and also the opportunity to introduce a wide array of Islami Banking products. It also has the prospect of expanding its customer base

SCB has rigorous credit screening policy and it is over conservative. By freeing their credit screening policy a little, they may be able to pursue many opportunist business ventures.

More Branches around Dhaka specially and all over Bangladesh will enable SCB to capture more market share, and hold a stronger competition against local banks.

Threats:

Increased competition by other foreign banks is a threat to SCB. At present HSBC and CITI Corp are posing significant threats to SCB regarding retail and business banking respectively. Furthermore, the new comers in private sector such as Prime Bank, Dutch Bangla Bank, EXIM Bank, BRAC Bank, Southeast Bank, Mercantile Bank, Social Investment Bank, Islami Bank and Bank Asia are also coming up with very competitive products. With customers shifting to these banks, SCB’s profits, as well as market share is falling, and it faces the threat of being wiped out by competition

In today’s economy, substantial amount of savings is remaining idle. Currently foreign direct investment in the country is very low. These economic situations of the country indicate political threats.

 

Merchant Acquisition and Approval Process

Before signing a merchant, an Acquirer must evaluate the merchant’s qualifications to become a Visa card acceptance location. A through inquiry into a merchant’s background can help Acquirers asses the credit-worthiness of a merchant and possibility avoid the potential for excessive fraud losses. Deciding whether to sign a merchant involves many important decisions for an acquiring merchant. The strategy should include the following points:

(i) Merchant Acquisition

A strategy for acquiring merchants should include information such as the types of merchants Acquirers want in their portfolios and the level of risk they are willing to assume. Acquirers should also maintain documented policies and procedures approved by the bank’s board of directions for approving merchant applications.

(ii) Acceptable Merchants

Acquirers should identify the types of merchants and geographic areas that are acceptable for their merchant portfolios by asking the following types of questions.

  • Does the merchant’s of business pose a greater risk than other types of business, such as escort services, door-to-door sales, or massage parlors?
  • Is the merchant’s location in a geographic area that has demonstrated excessive levels of bank card fraud?

(iii) Approval Guidelines

 Acquirers should establish guidelines for approving merchant applications, which may include the following.

Establish approval levels based on the merchant’s projected sales volume. For example, a merchant application with projected U. S. $ 10 million in sales per month would require the approval of a senior bank officer, an application with projected U. S. $ 10,000 in sales per month would require the approval of a credit analyst.

Accept only complete applications with supporting documentation. Do not accept applications that have incomplete information.

Establish an override policy for granting approval to a declined merchant application.

Establish an approval policy, such as requiring center manager approval.

(iv) Merchant Application

The application process is often the most extensive contact Acquirers will have with a merchant and it is the best opportunity Acquirers have to gather merchant information. Acquirers should design a comprehensive merchant application to get all the information necessary to determine a merchant’s ability to meet its obligations as a participant in the Visa payment system.

The following suggestions are the types of information Acquirers may want to include on their merchant applications.

 

Merchant Business Background

Merchant History- Obtain the merchant’s authorization to research its background, including credit, banking, financial history, and how long the merchant has been in business. New businesses frequently fail within the first few years of operation.

Doing-Business-As Name- Compare the merchant’s “doing-business-as” name to its legal name. Some merchants may conduct their daily business activities under one name and apply for legal registration under a different name. If the names are different, it is important to know both names.

Legal Form of Business- Inquire on the legal form of the merchant’s business. For example, is the merchant a corporation, partnership, or sole proprietorship?

Business License or Registration Numbers- Obtain and verify the merchant’s

business license number or any other license or registration numbers that may be required to own and/ or operate a business. Perform a search with the appropriate business bureaus to verify that the merchant owns or operates a legitimate business

Bankruptcy History- Verify if the merchant or its principals have previously filed for bankruptcy, and if yes, when. This may provide a good indication of the financial stability of the merchant.

Prior Merchant Agreement- Ask if the merchant has had a prior merchant relationship with another acquiring bank. If yes, request bankcard statements for several months’ activity. If another Acquirer previously terminated the merchant, the reason for termination should be noted on the merchant’s application.

Other Businesses- Ask the merchant to supply information for any other businesses it owns or operates.

Business References- Ask the merchant for other business references that can support its financial responsibility. For example, invoices or billing statements from suppliers and customers can provide evidence of the merchant’s ability to meet financial payments.

 

Merchant Business Operations

Operating Statistics- Ask the merchant for the following operating to gain knowledge of the merchant’s expected business revenue.

  • Projected sales volume
  • Projected charge back volume
  • Projected credit volume
  • Percentage of sales by mail order or telephone

Cards Honored- Determine what other, if any, bank or travel and entertainment cards the merchant honors.

Billing Terms- Ask the merchant for its credit terms. For example, does the merchant allow its customers to pay for purchases in monthly installments?

Credit and Return Policies- Ask the merchant for details of its credit and return policy procedures to ensure the merchant is properly handling exchanges and credit.

Inventory- Determine if the merchant owns or finances its inventory.

Contracts- Determine if the merchant has any significant contractual relationships, such as a manufacturer’s agent or exclusive supplier that may impact the merchant’s ability to meet its financial obligations if a contract is canceled.


Merchant Business Location

Type of Location- Determine the type of location of the merchant, such as storefront, indoor shopping mall, or office. Is the merchant location in a geographic area that has demonstrated excessive levels of fraudulent activity?

Own/ Lease- Ask if the merchant owns or leases the location. If the merchant owns the location, ask the merchant for the name and address of the mortgage holder. If the merchant leases the location, ask the merchant for the name and address of the landlord.

Time at Location – Ask the merchant how long the business has operated at the present location.

 

Merchant Principal(s) Information

Principal History – Ask the merchant for the name, address/ social security number or similar identification number/ and telephone number of each principal involved in the business.

Ownership – Obtain the percentage of ownership held by each principal.

Percentage of Time – Ask the merchant for the percentage of time spent at the business by each principal.

Merchant Evaluation Requirements

After gathering as much information as possible about a prospective merchant Acquirers must decide whether to sign the merchant. According to the Visa Operating Regulations, Acquirers must perform the following minimum requirements when evaluating a prospective merchant, before entering into a Merchant Agreement

Financial Liability– Evaluate the merchant’s financial status to ensure the merchant is financially responsible.

Merchant Inspection -Inspect the merchant site to ensure it is a valid business.

Merchant Status – Research the merchant’s status through terminated files (where available) to determine if another Acquirer previously terminated die merchant.

Financial Liability

Before entering into a Merchant Agreement, an Acquirer must determine that the prospective merchant and/or its principal/owner is financially responsible. Acquirers can perform a financial evaluation by reviewing the following information gathered from the merchant application. (Please note: Some of these items may not apply in your market.)

  • Personal and business financial statements (preferably audited).
  • Income tax returns.
  • Financial references.
  • Credit bureau reports.
  • Business Reporting Agencies (such as Dunn & Bradstreet and Better Business Bureau reports).

By reviewing these types of documents. Acquirers can form a business opinion on the reliability and financial stability of the prospective merchant.

Merchant Inspection

As part of the qualification process, an Acquirer must perform a physical inspection of a prospective merchant’s business. The on-site inspection allows Acquirers to verify the legitimacy of the merchant and its ability to generate sales and credit volumes as projected.

Acquirers should conduct a merchant inspection during normal business hours and fully document the inspection with a written report and photographs of the merchant location. During the inspection. Acquirers should evaluate the following. (Please note: Some of these items may not apply in your market.)

  • Location – Is the merchant located in an area that will generate the level of sales the merchant expects?
  • Personnel – Does the merchant have a group of experienced, professional staff?
  • Inventory – Is their sufficient inventory to support the merchant’s sales estimate? Is the merchant’s merchandise of good quality and priced accordingly? For example, the Acquirer should examine and verify that the merchandise is worth the selling price. Fraudulent merchants typically sell sub-standard merchandise at inflated prices.
  • Equipment – Does the merchant have updated equipment that can handle the business projection of store.
  • Occupancy – Does the merchant owe or lease the facility? If the facility is leased, what are the leasing terms?
  • Business Stationery – Does the merchant have official business stationery imprinted with the correct merchant name, address, and telephone number of the merchant location?
  • Telephone Access – Is the merchant location accessible by telephone or are telephone calls directed to another location?
  • Refund and Return Policy – Does the merchant have a policy for refunds and returns dearly posted in the location?

 

 

Mail Order/Telephone Order Merchants

The precautions taken for typical merchants may not be enough for other types of merchants. For example/Mail Order/Telephone Order (MOTO) Merchants are one of the fastest growing segments of the direct marketing industry. During these types of transactions, the card and cardholder are not physically present This situation presents suspect merchants with the opportunity to use cardholder information fraudulently without the cardholder’s knowledge.

  • Verify if the merchant has an actual product to sell, rattier than a service.
  • Obtain a sample of the product being sold, along with any product information and advertisements.
  • Verify if the product’s sales price is appropriate compared to the product cost. Be suspicious of excessive price mark-ups.
  • Understand that chargeback rates for mail order/telephone order merchants are typically higher than average.

 

Merchant Status

In specific Regions or country markets, national databases list merchants whose contracts were canceled due to high-risk or fraudulent activities. The databases provide information to assist Acquirers in making decisions about signing new merchants.

As part of the merchant qualification process. Acquirers may be required to check these databases (if available in their market) before signing a merchant.

If one of the above databases lists a merchant, an Acquirer is not prohibited from signing the merchant The Acquirer must make a business decision based on information from me listing Member and all other information the Acquirer gathers.

For more information. Acquirers should refer to specific ORF or NMAS documentation available from their regional Visa Risk Management and Security office.

Suspicious Merchant Behavior

Acquirers should be cautious of suspicious behavior of a prospective merchant during the evaluation process, and alert to the following suspicious conditions.

  • The merchant appears to be in a rush to establish an account.
  • The merchant shows little interest in negotiating me discount rate and readily accepts the given rate.
  • The merchant is willing to leave large amounts on deposit to open an account
  • The merchant is unwilling to provide requested financial information.
  • The merchant has no physical location for its business.
  • The merchant asks for an account that can process foreign currencies in addition to local currency.

 

Merchant Agreements

Introduction

After an Acquirer has thoroughly evaluated a merchant and has decided to sign the merchant, the two parties must enter into a contract called a Merchant Agreement, which defines the rights and requirements of both parties in the relationship. Acquiring banks gain added protection by clearly defining merchant responsibilities and procedures in the Agreement.

Most of the form/ content, and appearance of a Merchant Agreement are at the discretion of the Acquirer. However, each Merchant Agreement must contain at feast the provisions stated in the Visa Operating Regulations. The following section provides an overview of the Visa Merchant Agreement requirements, in addition to recommended provisions.

Minimum Requirements

The following items are stated in the Visa Operating Regulations as requirements in all Merchant Agreements.

Honoring Cards – The merchant must honor all valid Visa cards when properly presented for payment. By dearly stating the card acceptance terms, the Acquirer prohibits the merchant from selectively accepting Visacards.

Prohibitions-

  • Accepting a card to collect or refinance an existing debt
  • Accepting cardholder payments for previous card charges.
  • Disbursing funds in the form of cash (Please note: Specific merchants such as hotels or supermarkets ay disburse cash. For more information/ please refer to the Visa Operating Regulations.)
  • Processing a transaction for collection of a dishonored check.
  • Submitting sales drafts on behalf of another merchant (laundering).

Authorizations – Merchants must request authorizations for all transactions that exceed the floor limit. Regardless of the transaction amount, merchants must request an authorization if any of the following is true:

  • The cardholder presents an expired card for payment.
  • The card signature panel is not signed.
  • The merchant is suspicious of a proposed

Cardholder Identification – Merchants must validate the cardholder’s identity transaction by verifying that the signature on the card matches me signature on the transaction.

Floor Limits – Visa has established floor limits for transaction categories as specified in me Visa Operating Regulations. Acquirers must ensure their merchants obtain authorization for transaction amounts above these floor limits. Failure to comply with this requirement may result in chargebacks.

Zero Floor Limits – Zero floor limits apply to all the following transactions.

  • Automated Teller Machine Transactions.
  • Automated Dispensing Machine Transactions.
  • Electron Transactions.
  • Manual Cash Disbursement Transactions.
  • Recurring Transactions.
  • Transactions originating at a merchant identified by the Risk Identification Service indicators (1 or 3) in the special condition indicator field of the BASE n record.
  • Transactions originating at a merchant identified by the Terminal Placement Program.
  • Self-Service Terminal Transactions.

Cross-Border Merchants – Acquirers can not enter into a Merchant Agreement with a merchant outside their Country of Domicile unless:

The regional Visa board with jurisdiction over the merchant outlet has approved the Agreement and the country or territory is either not any other principal’s Country of Domicile or one where the Acquirer has a Branch.

Mail Order/Telephone Order Transactions – Mail Order/Telephone Order Merchants must send the cardholder’s Visa card expiration date as part of the authorization request.

Card Recovery – Merchants should attempt to recover cards by reasonable/ peaceful means. Merchants should not complete transactions if they are suspicious in any way, such as for any of the following reasons.

The Acquirer requests the merchant to retain the card.

The printed 4 digits above the embossed Visa account number do not match the first 4 digits of the account number.

 

Recommended Provisions

The requirements stated in the Visa Operating Regulations for Merchant Agreements may help acquiring banks reduce their exposure to high-fraud losses. Acquirers are encouraged to include additional provisions in their Merchant Agreements for further protection.

The following recommended provisions for Merchant Agreements are not required by the Visa Operating Regulations; however, they may provide added protection against fraud losses for Acquirers.

Merchant Liability

  • If the merchant has more than one owner or principal, (for example/ a partnership) liability under the Agreement should include all parties involved.
  • The Agreement should dearly state the merchant’s liability for chargebacks and credits.
  • The merchant should be held liable for any losses that arise from the merchant’s breach of/ or failure to comply with, the Agreement.

Fees and Charges

The Merchant Agreement should clearly state any fees and charges that may be charged to the merchant/ such as the following.

  • An initial contract fee.
  • A merchant service charge levied on the value of all credit card transactions.
  • A merchant service charge levied on the value of all debit card transactions.
  • Details of how the merchant service charge will be paid/ such as immediately or periodically.

Floor Limits

  • Floor limits help control the risk of fraudulent transactions by requiring authorizations for transactions above a certain amount. The Agreement should specify the merchant’s responsibility for initiating an authorization request.
  • The Agreement should dearly define the merchant’s floor limit.
  • The Agreement should state the floor limits for all types of transactions.
  • The Agreement should require the merchant not to disclose the floor limit to the general public or other third parties.

Chargebacks

By dearly defining chargeback responsibility in their Merchant Agreements/ Acquirers can protect themselves against improperly handled transactions and hold their merchants responsible for chargebacks. Acquirers may want to reserve their right to charge back transactions to merchants under the following circumstances.

  • The merchant did not process the transaction in compliance with the Merchant Agreement.
  • The cardholder disputed the transaction because the goods were not received or were defective; or the services were not performed or were inadequate.
  • The transaction was made with a counterfeit or altered card.
  • The transaction was fraudulent, ineligible, or illegal.

Amending the Merchant Agreement

  • Acquirers should reserve the right to amend a merchant’s Agreement at any time. Written notification of any amendment should be provided to the merchant at least 30 days before the effective date.

Termination of the Merchant Agreement

Acquirers should specifically state its right to exercise immediate termination of the Agreement if the merchant has violated the terms of the Agreement in any way or is found to be participating in fraudulent activity through an audit or investigation.

If a merchant account is inactive for a specific time/ Acquirers should reserve the right to terminate the Merchant Agreement.

 

Merchant Set-Up

Introduction

The set-up process for new merchants gives Acquirers the opportunity to properly educate their merchants on bankcard procedures and risk management techniques. If possible, Acquirers should develop a training guide or other reference tools for new merchants that outline the procedures for accepting Visa cards. Acquirers should also dearly define most of these procedures in the Merchant Agreement.

Educating merchants on proper card acceptance and authorization procedures is the first line of defense Acquirers have against fraudulent activity at merchant locations. Acquirers should train merchants and their staff to look for specific visible card security features on a genuine Visa card to stop me use of counterfeit cards at the point of sale. Merchants also must understand proper authorization procedures for all Visa card transactions.

This section provides information Acquirers can use to educate their merchants on proper card acceptance and authorization procedures.

Accepting Visa Cards for Payment

Merchants must honor all valid Visa cards that are properly presented for payment. During the transaction, merchants should follow routine procedures to verify that the card is legitimate and in the hands of the actual cardholder. Merchants also should be aware of a customer’s behavior for any signs of suspicious activity. During the transaction/ merchants should use the following guidelines.

  • Verification – Make sure the signature on the sales slip matches the signature on the back of the card.
  • Authorization – Make sure the number displayed on the terminal or printed on the sales draft matches the account number embossed on the card. Merchants should avoid key-entering information at terminals. Manual key-entries are prohibited in some countries.
  • Additional Identification – If unsure or suspicious of the cardholder’s identity, merchants may request additional identification for verification.
  • Alerts – Alerts should only be used if merchants are unsure of card authenticity, cardholder identity, or suspicious cardholder behavior. Acquirers should document procedures that identify the circumstances when a merchant should request an alert- Merchants should call their authorization center and request a Code 10 or its equivalent (where available). The authorization center will ask a series of “yes or no” questions to determine if the merchant should complete the transaction.

Security Features on Visa Cards

There are physical security features on valid Visa cards. Merchants should be able to recognize these security features and verify that they are legitimate during each transaction. Merchants should examine the following security features during every transaction.

  • Account Number – The first four digits of the account number should be printed directly above the embossed account number on the card/ and the printed and embossed numbers should match. For integrated circuit cards, the first four digits should be printed directly below the embossed account number. On authorization terminals that display the account number by reading the magnetic stripe/ the number displayed should match the number embossed on the card.
  • Embossing – The unique embossed flying “V” symbol should be embossed on all Visa cards. The embossing should be dear and straight.
  • Hologram – The three-dimensional holographic image of a dove should appear to have depth when the card is tilted back and forth. The hologram should have a multi-image appearance, not a flat appearance.
  • Signature Panel – The repetitive pattern of the “VISA” wordmark printed at a 45 degree angle in the signature panel should be dearly visible on the card-
  • Card Validity – The embossed “Valid form” and/or “Good thru” dates on the card should be verified-

 

Authorizations

Merchants are required to obtain an authorization for any of the following conditions.

  • The transaction amount exceeds the merchant’s floor limit.
  • The signature on the sales draft does not match the signature panel on the back of the card.
  • The merchant suspects the card is fraudulent.
  • The transaction requires a handwritten sales draft/ such as for mail or telephone orders.

 

Procedures

When requesting an authorization, merchants should be aware of the following procedures.

  • Request an authorization for the total amount on the sales draft, including any applicable taxes and gratuities.
  • Retain the card until the authorization response is received.
  • If the transaction is approved, the merchant should write the authorization number on the draft.
  • If the transaction is declined, the merchant should return the card to the customer and refuse to complete the sale.
  • If the authorization response is to pick-up the card, the merchant should make an effort to retain the card. If the merchant feels at risk or in any danger, the card should be immediately returned to the customer and the transaction should not be completed.
  • Notify the authorization center if an authorized transaction is not processed.

Chargebacks

If a merchant is unable to meet its chargeback obligations/ the Acquirer is responsible for the chargeback. It is in the best interest of Acquirers to ensure their merchants understand the most common errors that lead to chargebacks. To avoid chargebacks, merchants should follow proper card acceptance and authorization procedures. Some of the most common mistakes include the following.

  • Failing to obtain a card imprint.
  • Accepting cards before or after the valid card dates.
  • Failing to obtain a sales draft signature.
  • Failing to obtain an authorization for a transaction that is above the floor limit
  • Failing to record an authorization code on the sales draft.
  • Completing a transaction when the sales draft signature does not match the signature panel.
  • Depositing sales drafts and credit vouchers past the allowable time limits.
  • Submitting illegible sales drafts.
  • Splitting sales drafts into two or more below-floor limit drafts to avoid authorization.

Suspicious Customer Behavior

Individuals who use fraudulent cards tend to exhibit similar behaviors during a transaction. Merchants should be alert if a customer does any of the following.

  • Pulls the credit card out of a pocket not a wallet.
  • Makes indiscriminate purchases without regard to size, style, color or price.
  • Makes distractions or talks unnecessarily during the transaction.
  • Makes large purchases right before the store doses.
  • Questions the merchant about the floor limit.
  • Insists on taking a large item/ rather than having it delivered.
  • Refuses clothing alterations/ even if they are included in the price of the garment.
  • Decides not to make the purchase when the merchant initiates a telephone call to the authorization center.
  • Makes multiple purchases below the floor limit (in cases where there are no terminals).
  • Makes purchases, leaves the store, and returns to make additional purchases.
  • Does not hesitate to purchase an extended warranty, even if the warranty is expensive.

If a merchant is suspicious of a customer at any time, the merchant should call the authorization center and request a Code 10 or its equivalent (where available) authorization. The operator at the authorization center will ask a

series of “yes or no” questions to determine if the merchant should complete the transaction. The merchant should hold on to the card until receiving instructions from the operator.

If the merchant feels at risk or in danger at any time, the merchant should return the card to the customer immediately and not complete the transaction

 

Monitoring and Investigating Merchant Activity

Introduction

An important part of managing merchant portfolios is the careful and regular monitoring of merchant activity. Acquirers should be familiar with normal patterns of activity for their merchant locations. Weekly or even daily monitoring, depending on the volume of a merchant’s deposits, is important/ and can help Acquirers recognize any unusual or sudden change in normal deposit activity levels such as the following.

  • A sudden change in a merchant’s deposit frequency, For example/ the merchant normally made deposits on a weekly basis and suddenly begins depositing drafts on a daily basis.
  • The merchant deposits multiple consecutive drafts containing the same cardholder account number/ which may indicate the merchant is splitting charges to keep the total charge under the floor limit to avoid authorization.
  • The merchant deposits sales drafts with another merchant’s name imprinted on them/ which may indicate the merchant is laundering sales drafts for another merchant.

Most Acquirers have their own monitoring programs in place to regularly monitor merchant activity. To enhance Acquirers’ own programs. Visa established minimum requirements for Acquirers to use in monitoring their merchant activity

This section discusses Visa requirements for merchant deposit monitoring and provides recommended monitoring practices or Acquirers- Also included are guidelines Acquirers can use when investigating suspicious activity at merchant locations.

Required Monitoring Standards

To establish minimum system-wide guidelines for screening merchant deposits/ Visa developed Merchant Deposit Monitoring Standards. These standards provide Acquirers with a warning system to detect fraudulent activity at an early stage.

Acquirers must gather specific merchant deposit data on a regular basis. The following is an overview of the required monitoring standards according to the Visa Operating Regulations.

Normal Weekly Activity Reporting

At a minimum/ Acquirers must gather on a weekly basis each merchant’s:

  • Gross sales volume.
  • Average transaction amount.
  • Number of sales drafts.
  • Averaged elapsed time between the transaction date of the sales draft and the “endorsement date” (endorsement date is defined as the date a sales draft is prepared for clearing through interchange).
  • Number of chargebacks.

After collecting this data for one month/ Acquirers must use this data to establish a merchant’s “Normal Weekly Activity.” Acquirers should adjust the Normal Weekly Activity at least once a month to reflect expected changes in a merchant’s sales volume, such as for seasonal spending patterns.

Acquirers should establish monitoring parameters carefully for each merchant. These parameters will determine which merchants are identified through exception reporting.

For example, if an Acquirer sets a merchant’s parameter for “Average Ticket Amount over Maximum” at 50 percent and the merchant had an average daily transaction amount of U.S. $40, the merchant would appear on the exception listing if its average transaction for the day exceeded U.S. $60—or 50 percent above U.S. $40.

Exception Reporting

Acquirers must compare merchant activity to the Normal Weekly Activity established for each merchant at least once a week and generate reports for merchants who meet the following criteria.

  • Weekly gross sales volume equals or exceeds U.S. $5/000 or any of the following exceeds 150 percent of the Normal Weekly Activity –
  • Number of sales drafts deposited

 

  • Average transaction amount.
  • Number of chargebacks.

Average elapsed tune between the transaction date and the endorsement date for a transaction (counting each as one day respectively) exceeds 15 calendar days.

Acquirers can use exception reporting to adapt a merchant’s Normal Weekly Activity level to meet risk control requirements.

Investigating Merchants

If exception reporting detects unusual activity. Acquirers must investigate the identified merchant within seven calendar days of generating the report. If the investigation reveals fraudulent activity. Acquirers must:

  • Cooperate fully with Visa in any investigation, and release all information relevant to the merchant upon request.
  • Take appropriate legal action to minimize losses.
  • Cooperate with Issuers and law enforcement agencies involved in the investigation.
  • Attempt to make the merchant financially responsible for the fraudulent transactions,
  • Hold funds/ if possible.
  • Initiate criminal and civil proceedings against the merchant if applicable laws exist in the Acquirer’s country market.

Acquirers should have documented procedures for responding to exception situations, such as when to contact senior management who have the authority to freeze merchant funds, or law enforcement agencies for further investigation.

Acquirer Compliance

At the request of Visa, Acquirers must provide the following information to demonstrate compliance with Visa’s Merchant Deposit Monitoring Standards.

  • Copies of actual reports or records used to monitor a merchant’s deposits.
  • Any other relevant data requested by Visa.

 

Recommended Monitoring Practices

The Merchant Deposit Monitoring Standards are the minimum requirements for monitoring merchant activity. It may be beneficial for Acquirers to enhance these minimum requirements for added protection against high-fraud losses. Acquirers may find the following recommended monitoring practices helpful.

  • Daily, on-line merchant activity monitoring for more timely risk control.
  • Additional monitoring of specific merchant activity.

Authorizations

  • Daily authorized amount over the maximum limit. Multiple authorizations for the same cardholder account number.
  • Total daily authorized count over the maximum limit
  • Declined daily authorization percentage over the maximum limit.
  • Daily approval percentage over the maximum limit
  • Descending amounts for the same cardholder account number. Daily transactions that are manually or key entered on an Electronic Data Capture terminal.

Chargebacks

  • High percentage of chargebacks month to date. Total number by merchant type.
  • Dollar volume by merchant type.
  • Maximum daily credit amount
  • Daily credit to debit ratio Deposits
  • Daily deposit amount over maximum limit.
  • First deposit in six months or more.

Draft Retrievals

  • Number of copy/original request by merchant.
  • Variations in weekly total by merchant.

Sales Drafts

  • Average ticket amount over maximum limit.
  • High percentage of tickets below the floor limit.
  • Excessive key-entered transactions.
  • Non-Electronic Data Capture items from a merchant who has Electronic Data Capture terminals.
  • Multiple sales drafts with the same amount.

Periodic Review of Merchant Accounts

The financial condition of a merchant and its principals may improve or deteriorate over time. Acquirers should periodically review their merchant accounts to detect any significant changes that may impact financial risk.

Acquirers should review each of their merchants at least once a year—more frequently for high-risk merchants. Inactive merchant accounts represent potential risk and should also be reviewed regularly. Fraudulent merchants typically open multiple accounts and only use an inactive account if their primary acquiring bank has become suspicious of their deposit activity.

A merchant account review may include the following.

  • Re-evaluate the merchant’s financial condition, such as notable changes in the merchant’s sales volume/ products, operations/ or business practices.
  • Conduct another on-site inspection to confirm that the merchant is complying with the provisions of the Merchant Agreement and the Visa Operating Regulations.
  • Verify that the merchant’s financial statements and references are current.

Investigating Suspect Merchant Activity

Merchant activity monitoring is an important tool for Acquirers to use to identify highly suspect or fraudulent activity at their merchant locations. Just as important is how Acquirers respond to suspect situations.

In addition to the Merchant Deposit Monitoring Standards, which includes guidelines for investigating merchants, Acquirers should establish and document procedures for investigating suspect activity/ including provisions such as:

  • Holding settlement funds until the merchant explains the reasons for the activity.
  • Contacting the merchant’s branch bank if the merchant is involved in fraudulent activity.
  • Visiting the merchant’s site, if necessary, to perform an investigation.
  • Escalating cases to senior bank management if fraud is more than a specific value or involves high-risk merchants.
  • Notifying the merchant underwriting or approval departments of the suspicious activity.
  • Performing ongoing monitoring and investigations of identified merchant

 

Acquirer Risk Management Programs

Introduction

In the worldwide payment system industry, fraud losses cost the industry billions in U.S. dollars each year. Fraud losses impact everyone in the business—the Visa Member banks, merchants, and cardholders. To combat mounting fraud losses. Visa has developed a number of fraud detection and monitoring programs specifically to assist Acquirers with managing risk in their merchant portfolios.

The following risk control programs identify and/or monitor specific types of fraud in a merchant’s operation.

  • Acquirer Monitoring Program-Evaluates an Acquirer’s entire merchant portfolio to identify areas of excessive fraud losses.
  • Central Deposit Monitoring – Monitors daily merchant deposits to identify fraud and laundering activities.
  • International Points-of-Compromise – Identifies potential merchant locations who may be comprising cardholder account information.
  • National Merchant Alert Service – Provides information on high-risk and terminated merchants.
  • Risk Identification Service – Monitors suspicious merchant activities such as excessive numbers of transactions on lost and stolen cards, fraud-related chargebacks/ and confirmed fraud transactions.
  • Terminal Placement Program – Identifies merchants with excessive counterfeit card losses.

These programs have been highly successful in identifying fraud and reducing fraud losses at the merchant level. This chapter provides an overview of each program’s features and functions.

Acquirer Monitoring

The Acquirer Monitoring Program bridges the gap among Visa International’s risk control programs to form a comprehensive performance profile of an Acquirer’s merchant activity. The program evaluates an Acquirer’s entire merchant base to determine if its merchants are exposing the Visa membership and payment system to excessive levels of fraud losses.

Monitoring Works

The Acquirer Monitoring program has the following three distinct stages.

  • Identification
  • Analysis
  • Follow-up

Identification

The Acquirer Monitoring program uses two sources to identify Acquirers who may be generating excessive levels of fraud. First/ the program analyzes on a quarterly basis the Acquirer’s fraud to sales volume to determine if the Acquirer’s level is excessive compared to the average fraud levels for the Acquirer’s state or country/ Region and worldwide levels.

Second, Acquirer Monitoring compiles and reviews the following program information to determine if the Acquirer’s merchants exceeded any of the established parameters for each program.

  • Central Deposit Monitoring
  • International Points-of-Compromise
  • National Merchant Alert Service
  • Risk Identification Service
  • Terminal Placement Program

Analysis

Each quarter. Visa staff analyzes the information gathered in the identification stage to look for unusual or excessive fraudulent activity in the Acquirers’ merchant portfolio. Regional Visa staff will contact Acquirers to work on reducing overall fraud losses if the Acquirer’s merchant base demonstrates higher than average fraud to sales volume/ or if their merchants exceed the risk control

Follow-up

Visa staff will conduct routine follow up with identified Acquirers to ensure they give adequate attention to reduce excessive fraud losses within a reasonable time. Visa will assist Acquirers with fraud prevention and detection methods to help reduce fraud losses.

If the Acquirer Monitoring program identifies an Acquirer/ regional Visa staff will work with the Acquirer to identify problem areas in the Acquirer’s card program operations. The Acquirer has the responsibility to work with regional Visa staff to implement suggested corrective measures in the areas that have problems. Corrective measures may include reviewing the Acquirer’s merchant signing procedures or educating the Acquirer on the importance of utilizing terminals at me point of sale.

Acquirers should also review the first section of this guide that provides information on the merchant signing and acquisition process. It is an Acquirer’s responsibility to understand how to thoroughly evaluate a prospective merchant and make an informed business acquisition decision.

Central Deposit Monitoring

Central Deposit Monitoring (CDM) identifies highly suspicious deposit activity. This type of activity typically displays characteristics that indicate fraudulent activities are occurring at the merchant location, such as multiple imprinting of sales drafts, creating fraudulent sales drafts, or depositing sales drafts on behalf of another merchant (laundering)/ which is a direct violation of the Visa Operating Regulations.

Deposit Monitoring Working process

CDM monitors daily merchant deposits by reviewing BASE n activity on a global basis. The program reviews deposits for unique characteristics known to be associated with fraud or laundering activities.

On a daily basis. Visa sends transaction detail reports for the identified merchants to the issuing banks. The Issuers then contact the cardholders to verify if the transactions are legitimate. Through this process/ Issuers identify fraudulent transactions that may be eligible for chargeback.

When CDM identifies a merchant location for fraud or laundering activity/ regional

Visa staff will contact the respective Acquirers. Early identification and confirmation of fraudulent activity provide Acquirers with the ability to investigate, implement corrective action, and if necessary/ to end their business relationship with a collusive merchant.

Most importantly, it is the responsibility of Acquirers to regularly monitor their merchant activity. Regular monitoring assists with the efforts to recognize potential problems early— before incurring significant losses.

International Points-of-Compromise

The definition of a point of compromise is:

“The point at which the account information on a card is copied and retained for future use without the cardholder’s consent.”

The International Points-of-Compromise (IPOC) program identifies merchant locations that may be compromising cardholder information.

 

How International Points-of-Compromise Works

The IFOC program reviews Issuer-reported counterfeit transactions and previous valid transactions for the same account numbers, in an attempt to link valid transactions at merchant locations to the subsequent fraudulent use of the accounts. The program sorts and accumulates valid transactions by merchant that occurred before the first reported fraudulent use of the account numbers. Merchants who have an unusually high number of cardholder accounts that were subsequently used fraudulently are identified as potential points of compromise.

Once a month. Visa will notify Acquirers if the program identified any of their merchants as a potential point of compromise.

Acquirer Responsibilities

Upon notification. Acquirers must perform an inquiry with the identified merchant to determine if the merchant or any of the merchant’s employees is compromising cardholder information.

Within 30 days of notification. Acquirers must report the results and any corrective action taken at the merchant location to Visa using the IPOC Questionnaire for each identified merchant.

Inquiry Guidelines

In addition to an Acquirer’s own practices, the following suggested guidelines may be helpful in performing an inquiry with an identified IPOC merchant.

  • Identify the individuals responsible for compromising cardholder information, whether it may be the actual merchant owner or the merchant’s employees.
  • Notify the merchant’s manager and/or owner for their support in identifying the source of the problem.
  • Notify the merchant’s security staff, if one exists, to gain their cooperation in completing the inquiry in a timely manner.
  • Review the merchant’s sales draft processing procedures to ensure the merchant keeps cardholder information in a secure area that is accessible to a limited number of authorized personnel.
  • Contact a regional Visa Risk Management and Security office for assistance with a merchant inquiry.
  • If the inquiry reveals fraudulent activity/ notify local law enforcement authorities for further pursuit and

prosecution of the individuals involved.

 

National Merchant Alert Service

The National Merchant Alert Service (NMAS) is a national database that contains detailed information about merchants whose contracts were terminated by other Visa Acquirers for cause under specific program operating principles. The centralized database gives Acquirers timely and reliable information that can help them evaluate if a merchant presents risk to their institution/ before signing the merchant

How the National Merchant Alert Service Works

The NMAS database contains information about high-risk or terminated merchants and its prindpal(s) for the specific country market. In each participating NMAS market, Acquirers must query the NMAS database through their existing interface to the VisaNet BASE D Clearing and Settlement System before signing a merchant.

If a merchant is listed in the NMAS database/ the Acquirer must verify the alert/ contact the listing Acquirer/ and decide whether to sign the merchant.

For extended protection, a retroactive alert feature notifies Acquirers if a merchant is added or its listed information is changed within 180 days of an initial inquiry about that merchant.

 

Acquirer Responsibilities

Inquiries

In participating NMAS markets. Acquirers must query the NMAS database to determine if the prospective merchant is listed/ before signing the merchant.

When Acquirers receive a response from the inquiry, it is their responsibility to evaluate the information and take the appropriate action.

NMAS does not prohibit Acquirers from signing a listed merchant. It is up to Acquirers to determine if a listed merchant presents risk to their institution.

Listings

If an Acquirer decides to terminate a merchant’s Agreement and the grounds for termination include one or more of the NMAS Listing Reason Codes as specified in the market’s operating principles, the Acquirer must list the merchant in NMAS. Listings must be made within one business day of the date the Acquirer notified the merchant of the intent to terminate the Merchant Agreement.

 

Major findings:

  •  It is clear that authorization (79%), balance enquiry (9%), card activation (4%), payment related queries (2%) and others (2%) are the main customer queries in holidays.
  • We can see that in comparison to holidays more problems like cash advance, application status, limit enhancement, merchant, payment, ATM, and pin related problem came up, because these problems can be solved in the working days.
  • From the 1st pie chart it is very clear that 19% of the total call occurs from 7pm to 9pm, 17% occurs from 5pm to 7pm, 15% occurs in 3pm to 5pm and 11am to 1pm and 11% occurs in 1pm to 3pm time slot. Others are low in comparison to these rush time slots.
  • From the 2nd  pie chart it is very clear that 19% of the total call occurs from 7pm to 9pm, 17% occurs from 5pm to 7pm, 15% occurs in 3pm to 5pm and 11am to 1pm and 11% occurs in 1pm to 3pm time slot. Others are low in comparison to these rush time slots.
  • We can see that in comparison to holidays more problems like cash advance, application status, limit enhancement, merchant, payment, ATM, and pin related problem came up, because these problems can be solved in the working days.
  • In holidays till 11am and 1pm -3pm calls are low, as this is the rest time. But from 11am to 1pm and from 3pm to till 11pm the calling frequency is very high as the customer goes out and sometimes stays home and solves the problem. But in working days rush hour is from 9am to 9pm. And after 9pm the calling frequency goes down. Customer from the office and their housewives from shopping or home calls up in working days, so the pressure is pretty high.
  • In general the rush hour is from 9am to 9pm and gradually it decreases and there are hardly few calls during the night after 1pm. In general 3pm to 5pm is the peak time slot.

 

 

 

Recommendation

Considering the customer queries the following recommendations are made, which will benefit both SCB and its customers.

  • As we have seen that 3pm to 5pm is the main rush hour, so necessary CSA’s should be allocated in that time. Again, the holiday rush hour is slightly different from working days. So proper allocation of manpower can improve the service quality.
  • As the authorization is the most frequent problem, so the CSA’s should be trained in such a way so that they can solve all sorts of authorization related problem quickly.
  • It is a noticeable problem that the online remains down especially in holidays. So, necessary steps should be taken for smooth service.
  • The frequency of personal calls that falls under “others” category has a remarkable figure. Now if service remains busy with the personal affairs the proper service cannot be given.
  • Lost card report is a very irregular problem that can occur anytime. So the C/H should be informed about the problem and its solution.
  • Due to the wrong information provided by the direct sales executives, many unnecessary calls come in the online service. So proper product information can be a better solution in this situation.

Recommendation-2

In considering the customer satisfaction on the online service the following recommendations are made, which will benefit both SCB and its customers.

  • In case of reliability, the customers are only satisfied. As we have seen that only 14% strongly agreed that they are getting promised service, and 16% strongly agreed about service at the first call and getting service in promised time. So SCB should ensure that the customers are not only getting accurate information but also the promised service in the first and promised time so that customer can highly rely on our service.
  • In case of responsiveness though the customers are very satisfied, some necessary steps can be taken for improvement. Giving the prompt solution or informing the customer about the action taken time and also proper maintenance of this informed action taken time could improve the customer satisfaction from very to high level.
  • Again in case of assurance, right solution should be given so that the customer feels more confident after getting our service.
  • Only understanding the customer problem will not highly satisfy them unless individual attention and caring highly satisfy them. So proper individual attention and caring should be more to highly satisfy customer.
  • In accessibility the customers are totally dissatisfied. Limited phone line and service time with uncertain access, a long time consuming waiting time to get our service is becoming time consuming and costly to the customer. So in order to improve this situation phone line should be increased with the increase of other resources.
  • Though customers are very satisfied with the courteousness, warmly the artificial one replaces greetings. Proper warmly greetings, more polite and helpful behavior could bring the highly satisfied customer.

So, SCB should start strategic planning to increase the infrastructures and also the six important constructs needed to support its large customer base.  So, considering the service sector of Bangladesh SCB should be more conscious to deal with its customers as the customers have now more choice to bank with and there are institutions that are intensifying competition by focusing more on online customer service.

 

Conclusion

SCB bank is still regarded as a reliable bank and the growing number of its customers indicates its acceptance among clients. It is very common statistical saying that it is 5 times costly to get a new customer than retaining the customer. It is also noted that getting a credit card and closing it is expensive. In both cases a number of time consuming steps have to be taken from the bank and the customer. Since SCB has been able to increase the number of card holders, it now should take care the matter of customer satisfaction and quality of service.

The major findings of the first research is that excluding the rest hours in holidays and from 9am to 9pm in working days mostly authorization, balance enquiry, card activation, cash advance, application status, limit enhancement, merchant related, and others are the common queries faced in online service. Another finding is that in holiday from 11am to 1pm and from 3pm to till 11pm the calling frequency is very high. On the other hand in working days rush hour is from 9am to 9pm. general 3pm to 5pm is the peak time slot. And the major findings for the second research are that the customers are very satisfied though they are not highly satisfied. Satisfaction in reliability, very much satisfaction in r It is very true that the most of the customers do not hesitate to term SCB as a better than other bank. But it should be considered that the customers have very few choices of banks with which they can actually compare the online service of SCB. The nationalized banks of Bangladesh already have earned a bad reputation in serving customers. Again among the foreign private banks like HSBC, AMEX are the banks that have widened operation like SCB. Other private banks have limited operation in limited locations. The local banks have recently focused their attention to customer service, satisfaction and also credit card service. Moreover there are a good number of private banks that are coming into the competition soon. Therefore it is better for SCB not to let the situation be worst and should emphasize on serving customers effectively and efficiently to ensure better service.

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