| Sam Vaknin has been writing on business topics for a wide variety of European
publications since the 1980s. He is the author of
Malignant Self Love and many other titles. He is a columnist for
Central Europe Review and the Economic Advisor to the Government of Macedonia.
His Web site is:
http://samvak.tripod.com |
Your credit card is stolen. You place
a phone call to the number provided in your tourist guide or in the
local daily press. You provide your details and you cancel your
card. You block it. In a few minutes, it should be transferred to
the stop-list available to the authorization centres worldwide. From
that moment on, no thief will be able to fraudulently use your card.
You can sigh in relief. The danger is over.
But is it?
It is definitely not. To understand
why, we should first review the intricate procedure involved.
In principle, the best and safest
thing to do is call the authorization centre of the bank that issued
your card (the issuer bank). Calling the number published in the
media is second best because it connects the cardholder to a
"volunteer" bank, which caters for the needs of all the
issuers of a given card. Some service organizations (such as IAPA -
the International Air Passengers Association) provide a similar
service. The "catering bank" accepts the call, notes down
the details of the cardholder and prepares a fax containing the
instruction to cancel the card. The cancellation fax is then sent on
to the issuing bank. The details of all the issuing banks are found
in special manuals published by the clearing and payments
associations of all the banks that issue a specific card. All the
financial institutions that issue Mastercards, Eurocards and a few
other more minor cards in Europe are members of Europay
International (EPI). Here lies the first snag : the catering bank
often mistakes the identity of the issuer. Many banks share the same
name or are branches of a network. Banks with identical names can
exist in Prague, Budapest and Frankfurt, or Vienna, for instance.
Should a fax cancelling the card be
sent to the wrong bank - the card will simply not be cancelled until
it is too late. By the time the mistake is discovered, the card is
usually thoroughly abused and the financial means of the cardholder
are exhausted.
Additionally, going the indirect
route (calling an intermediary bank instead of the issuing bank)
translates into a delay which could prove monetarily crucial. By the
time the fax is sent, it might be no longer necessary.
 If the card has been abused and
fraudulent purchases or money withdrawals have been debited to the
unfortunate cardholders' bank or credit card account - the
cardholder can reclaim these charges. He has to clearly identify
them and state in writing that they were not effected by him. A
process called "chargeback" thus is set in motion. A
chargeback is a transaction disputed within the payment system. A
dispute can be initiated by the cardholder when he receives his
statement and rejects one or more items on it or when an issuing
financial institution disputes a transaction for a technical reason
(usually at the behest of the cardholder or if his account is
overdrawn). A technical reason could be the wrong or no signature,
wrong or no date, important details missing in the sales vouchers
and so on.
Despite the warnings carried on many
a sales voucher ("No Refund - No Cancellation") both
refunds and cancellations are daily occurrences. To be considered a
chargeback, the card issuer must initiate a well-defined dispute
procedure. This it can do only after it has determined the reasons
invalidating the transaction. A chargeback can only be initiated by
the issuing financial institution. The cardholder himself has no
standing in this matter and the chargeback rules and regulations are
not accessible to him. He is confined to lodging a complaint with
the issuer. This is an abnormal situation whereby rules affecting
the balances and mandating operations resulting in debits and
credits in the bank account are not available to the account name
(owner). The issuer, at its discretion, may decide that issuing a
chargeback is the best way to rectify the complaint.
The following sequence of events is,
thus, fairly common :
1. The cardholder presents his card
to a merchant (aka : an acceptor of payment system cards).
2. The merchant may request an
authorization for the transaction, either by electronic means (a
Point of Sale / Electronic Fund Transfer apparatus) or by phone (voice, authorization).
A merchant is obliged to do so if the value of the transaction
exceeds, predefined thresholds. But there are other cases in which
this might be either a required or a recommended policy.
3. If the transaction is authorized,
the merchant notes down the authorization reference number and gives
the goods and services to the cardholder. In a face-to-face
transaction (as opposed to a phone or internet/electronic
transaction), the merchant must request the cardholder to sign the
sale slip. He must then compare the signature provided by the
cardholder to the signature specimen at the back of the card. A
mismatch of the signatures (or their absence either on the card or
on the slip) invalidate the transaction. The merchant will then
provide the cardholder with a receipt, normally with a copy of the
signed voucher.
4. Periodically, the merchant
collects all the transaction vouchers and sends them to his bank
(the "acquiring" bank).
5. The acquiring bank pays the
merchant on foot of the transaction vouchers minus the commission
payable to the credit card company. Some banks pre-finance or
re-finance credit card sales vouchers in the form of credit lines
(cash flow or receivables financing).
6. The acquiring bank sends the
transaction to the payments system (VISA International or Europay
International) through its connection to the relevant network (VisaNet,
in the case of Visa, for instance).
7. The credit card company (Visa,
Mastercard, Diners Club) credits the acquirer bank.
8. The credit card company sends the
transaction to the issuing bank and automatically debits the issuer.
9. The issuing bank debits the
cardholder's account. It issues monthly or transaction related
statements to the cardholder.
10. The cardholder pays the issuing
bank on foot of the statement (this is automatic, involuntary
debiting of the cardholders account with the bank).
Some credit card companies in some
territories prefer to work directly with the cardholders. In such a
case, they issue a monthly statement, which the cardholder has to
pay directly to them by money order or by bank transfer. The
cardholder will be required to provide a security to the credit card
company and his spending limits will be tightly related to the level
and quality of the security provided by him. The very issuance of
the card is almost always subject to credit history and to an
approval process in Europe. Unfortunately, the same cannot be said
about credit card issuers in the USA. This lackadaisical vigilance,
the monpolistic practices of certain credit card companies, the
Kafkaesque procedures and the arbitrariness of the results - put
both merchants and credit card holders at risk. Whatever it is that
credit card companies provide - it is not guaranteed payment or
secure refunds.
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