Avoid Chargeback Chagrin

Taking a customer's money has never been a riskier proposition. The credit fraud that plagues retail has put merchants and their banking partners on high alert, causing them to put controls in place to determine the validity of card payments before the transaction occurs. Anne Fields, director of financial compliance at $270 million home and automotive electronics retailer Crutchfield, says the decision to accept or decline a payment is all the more problematic among online and catalog retailers. There, cash is anything but king, making payment acceptance far from cut-and-dried. "We conduct the large majority of our business in two Virginia call centers that serve our catalogs and online via three Web sites," she says. "Naturally, the majority of our transactions are card-based."

Unfortunately, payment acceptance controls have a tendency to degrade the transaction and order fulfillment process. At the transaction level, data verification solution provider TARGUSinfo estimates that millions of good customers are red-flagged each day by credit card authorization systems. Inadvertent declines of good credit cost retailers billions in sales and wasted labor, not to mention the long-term impact of loss of consumer loyalty. At Crutchfield, a laborious payment verification process was in place to avoid this loss, but where it might have saved a few sales, it slowed productivity. "If we didn't have enough information up front to approve an order, the order processing representative was required to check five or six other applications and resources to make an acceptance determination," says Fields. This took lots of time and left plenty of room for error. "One of our differentiators is speed of service. When our customers place an electronics order, they're excited to receive the merchandise as quickly as possible," she says. "Meeting that expectation breeds customer loyalty." Unfortunately, the payment checks-and-balances process resulted in some merchandise sticking around too long after the order placement. The company's goal is same-day shipment of orders, but that wasn't happening for hard-to-verify orders, which had an impact on customer service and loyalty.

New System Reduces Chargebacks
The acceptance of bad credit was also problematic at Crutchfield, despite the front end scrutiny that went into the payment verification process. The retailer needed a means of quickly — and accurately — approving payments. In October 2006, Crutchfield agreed to test the TARGUSinfo On-Demand Verification service and used it exclusively for Web and catalog order verification. The service leverages national phone, name, and address data to confirm that transactions are linked to legitimate consumers. It also analyzes many of the common reasons that good transactions are delayed, including the use of work, cell, or VoIP (voice over Internet Protocol) numbers in Web forms; recent home relocations; and alternative ship-to destinations. On-Demand Verification is available as a Web or automated service. Pricing is dependent on volume.

Jeff Bingaman, director of IT for application development at Crutchfield, describes the integration process as painless. "We're a Microsoft shop, and some 80% of our tools are internally written," he says. "We integrated the TARGUSinfo service with our homegrown order-entry application, which took about 25 hours; we classified it a task [at Crutchfield, IT activities that require less than a week of labor are called tasks; those requiring longer are deemed projects], and it wasn't challenging." The interface allows users to click a button on a pop-up screen to send order contact information to the TARGUSinfo On-Demand Verification service. In seconds, a second pop-up screen gives the sales representative all the information they need to either accept or decline the sale. "Training our representatives on the system only took 20 minutes," says Bingaman.

Payment acceptance inaccuracy becomes particularly evident in the February/March time frame, when credit issuers dole out chargebacks from bad transactions made during the holiday season. "We took a poll in late February and found chargebacks were down 22% over the 2005 holiday season," says Fields. Equally important to Fields is the sales representatives' acceptance of the system. "Following the trial period, we asked the order processing department how they would feel if we took the tool away," she says. "The feedback we received was tremendously in favor of keeping the system."

For More Information On TARGUSinfo
Go To www.targusinfo.com