4 things to know about taking payments over the phone

4 things to know about taking payments over the phone

Are you considering accepting credit card phone orders for your products or services? It's a necessity for catalogs and food order businesses. Plus, some customers do prefer to call in and talk to a live person, even when they could make a purchase online.

Yet there are some risks -- and costs -- you'll take on in accepting payments over the phone. Consider these four factors before you start taking calls.

1. You're taking a bigger risk.

When customers provide their credit card numbers over the phone, it is called a "keyed" transaction (because you're keying the credit card information into the system) or a card-not-present transaction (because you never see the credit card itself). The risk of fraud with such transactions is higher than when you accept a credit card at a physical location (also known as a "swiped" transaction).

With a card-not-present transaction, you can't know if the customer actually has the card or if he or she is using a number obtained by some fraudulent method. You can't check their ID to make sure that it matches the name on the credit card. You can't verify their signature against the signature on a driver's license.

With an increased risk of fraud, comes an increased risk of charge-backs. If it turns out a customer who ordered from you was actually a fraudster, the real owner of the card will probably dispute the charge -- and the money you made on the transaction will get siphoned out of your account and routed back to the rightful cardholder.

In addition, there's a greater chance of error when you have to physically key a credit card number into your payment system. It's easy to transpose a figure or two when you're entering a long line of numbers.

2. You'll need the right equipment to process the payments.

Most merchants with a brick-and-mortar store will have credit card terminal readers that accept swipe cards, but you  won't need one of these if the customer is providing ar card number over the phone. What you will need is some way to key the credit card information into your payment system, according to Merchant Warehouse.

Check with your credit card payment processor to determine which methods they offer for phone-order credit card payments. Your options might include:

• A payment terminal (although you won't need the swipe reader or even a cash drawer if you're only accepting credit cards by phone for payment).
• A Web-based payment system, where you enter the information into a secure website for processing.
• Software on your own computer, linked to your credit card processor.
• A phone-entry system, where you call a number using any touch-pad phone and enter the credit card information into the processing system.

In essence, you'll need the necessary equipment to authorize the card in real time. Once the customer gives you a credit card number, you'll input the number into whichever of the above systems you've set up. Your  acquiring bank will then send a request for authorization to the bank that issued the customer's credit card. The issuer either approves or denies the transaction and sends that message back to the merchant via the acquiring bank. The process generally takes less than 15 seconds, according to Merchant Warehouse. 

3. It will cost you  more.

Merchant account providers often want to avoid high-risk merchants -- those whose businesses will be plagued by charge-backs and fraudulent transactions. Because transactions keyed in over the phone are inherently riskier, you'll have to pay your merchant account provider more.

For example, while fees for swiped (card-present) transactions can be as low as 1.7 percent of the purchase, rates for keyed-in phone order transactions are generally above 2 percent.

4. Following procedures may help you prevent losses due to fraud.

Collecting the right data is key when it comes to preventing the fraudulent use of credit cards for phone orders. When taking a phone order, be sure to ask for the following:

• The credit card number
• The expiration date
• The security code on the back of the card
• The name on the credit card
• The address of the credit card account

When you request authorization of the transaction through your credit card processor, you should enter the billing address and the security code along with the credit card number so that the system can pick up any discrepancies and alert you. This is your first line of defense -- and gives you a chance to ask the customer for a different card or step away from the transaction altogether.

Check with your credit card processor to see what kind of fraud prevention tools it has for you to use with phone transactions. These could include an address verification system or a screening system that flags suspicious transactions. When you employ these tools on every credit card order that you accept by phone, you have a better chance of avoiding charge-backs -- and getting rejected for a merchant account in the future because of a checkered history with fraud.

See related: 4 excuses small merchants make for ignoring data security, Merchant account guide for churches and houses of worship

Published: October 10,2023