- 1 Understanding Credit Card Pre-Authorizations
- 2 How Does an In-house Credit Card Work?
- 3 Credit cards & cash advances for travelers
- 4 5 things to know about new chip-enabled credit cards
- 5 Debit or Credit? Here’s Why All the Stores Are Asking…
Understanding Credit Card Pre-Authorizations
It's surprising how many merchants do not seem to understand or take advantage of the benefits of credit card pre-authorizations.
Let's start by clarifying exactly what a pre-authorization (commonly referred to as a "pre-auth") is.
Reducing Costs by Confirming Inventory
Taking a pre-authorization is not any different from running any other credit card transaction. It may vary slightly from processor to processor, so I will explain how it works at Merchant Accounts.ca.
A card issuing bank will not let a cardholder's funds be locked up in limbo forever. That is why a pre-authorization will expire after 5 days. However, if a payment expires there is nothing stopping you from issuing a new charge to their card (so long as you have your customers permission to do this). Even if a pre-auth times out, at least you know the customer has a valid credit card. To a large degree you have vetted the order and are further ahead in the customers mind (in terms of them completing the purchase). It is worth noting that if a pre-auth times out and the customer then spends funds on something else a card can be declined if you try to re-capture the funds with a new transaction, but this is likely to be a minor issue in the small number of cases in which it may occur.
It is genuinely surprising how many merchants do not realize and take advantage of credit card pre-authorizations. If you manage an inventory, sell a high risk product, a high ticket item, or a product that does not ship immediately after ordering, you probably should be running your credit card orders as pre-authorizations.
If you haven't reviewed your processing costs in a while take a moment to view our rates.
How Does an In-house Credit Card Work?
An in-house credit card is just like all other credit card except that you can only use it at one place. Most womens clothing stores have their own credit card and you can only use it in their stores. They may have stores all over the country and you can use it in any of them, but you can't take it and use it at your local grocery store. Many retailers have gone to in-house credit cards due to the fact that major credit cards charge them a fee every time you use one in their store. They can also reap the benefits of the interest and fees they charge the consumer.
Many people don't like to have major credit cards. It is too tempting to overspend their budget and get into debt. However, if there is a place they shop on a regular basis, they can get an in-house credit card and use it to get special deals, coupons and percentages off their purchases. You can also ask them to keep your limit at a certain number if you're trying to cut down on debt. It's also an easy way to budget because you know what you're payment will be.
How do I Get an In-House Credit Card
Most retailers will ask you if you want to apply when you are checking out at their store. You fill out an application or answer a few question and they electronically file it and you either get approved or denied. This is based on your credit score. You can also go to their site online and fill in an application. The process usually only takes minutes and you get an instant answer. If you are approved, you can decide if you want to be billed through the mail or online. Then you go shopping.
Credit cards & cash advances for travelers
Europe takes plastic—in fact, credit cards are usually the easiest and most-cost effective method of paying for anything while traveling.
Using credit cards is by far the cheapest way to pay for things when traveling, especially in a foreign country.
Credit card exchange rates average 9% better than even cash withdrawals from an ATM (the second cheapest way to pay for things).
These days, almost everywhere—particularly in the U.S., Canada, and Europe—takes plastic, right down to most of the smallest shops and bistros.
You do, however, have to be careful of foreign transaction fees (which can add on 1% to 4%), the chip-and-PIN revolution in Europe that is rending many North American credit cards obsolete, cash advance fees, and remember to take a few minutes to notify the bank of your foriegn travel plans to avoid having your cards frozen while you're on the road.
More on each of these issues below.
Contrary to the old commercials, you can leave home without American Express (www.americanexpress.com) and never notice the difference.
Visa (www.visa.com) and MasterCard (www.mastercard.com) are much more widely accepted abroad these days, partly because they've partnered with major European cards, and partly because AMEX charges higher fees to the merchants and is slower in paying them, so many small family businesses have stopped accepting it, arguing—with a good point—that nowadays "Everybody has Visa!"
Diner's Club (www.dinersclub.com) is accepted in many places (though usually, as expected, only the pricier joints). So is Japan's JCB (which I throw in there in case any Japanese people happen to be reading this.).
Discover or any other card will only elicit a raised eyebrow of curiosity and shake of the head from your waiter or merchant; leave any other card at home.
You can get much more on financial issues at the excellent financial planning sites BankRate.com (bankrate.com) and Card Hub (cardhub.com) and at this wiki on FlyerGuide.com.
While paying with credit cards does get you a better exchange rate than with cash, know that Visa itself imposes a 1% "commission9quot; for foreign purchases/cash advances.
Many Visa-issuing banks—recognizing yet another good way to fleece its own customers—tack on additional 1%, 2%, or even 3% "commissions9quot; of their own.
They will tell you this is a banking fee for performing the currency exchange.
This is because:
- The Visa corp has already performed the currency exchange before the transaction ever gets to your issuing bank (which receives the transaction in dollars), and
- It's all electronic, so there's really nothing to "exchange9quot; in the first place.
These extra few percentage points your bank is charging is 100% profit for them, pure and simple, and they are stealing it from you.
Luckily, there is a way around this: a low-fee credit card.
Since having an account with one of these financial institutions helps with other aspects of travel finances (such as low to no ATM fees)—not to mention offering better banking services at home to boot—I have created a separate page just on shopping for a better bank.
Call your card's issuing bank before you travel to let it know that you're taking a trip.
If you do not notify the credit card issuing company of intended forign travel in advance, you may find your card frozen when you try to use it abroad.
You need to talk to the fraud department and let them know the dates of your trip and the countries you will be visiting. (A few card issuers are now putting a "travel notification" feature on their websites so you can do this in 90 seconds online ratehr than after five minutes of selecting options in phone call center limbo before you finally get to a live person who can jot down your travel dates and places.)
Most banks have a computerized watchdog that monitors your card's use, looking for radical changes in the frequency or location of charges. When it finds suspicious charges, it freezes the account.
Ideally, this system alerts them if someone steals your card and goes on a shopping spree, but it has the unfortunate side effect of leaving travelers in the lurch, because on a typical vacation you're (a) charging more than usual and (b) charging it from strange places.
(For what to do in case of real theft, see the "Losing Things" section.)
The U.S. is woefully behind the rest of the world when it comes to implementing advanced technology in everyday life.
Japanese and European cell phones (and networks) are better, many cities now use radio cards for public transport that you just wave at the turnstile while waltzing though (in Hong Kong, you can use your Metro card to buy snacks at 7-11), and many countries are now using more advanced credit cards called "chip and PIN" with computer chips built in (rather than just the magnetic stripe; note, this is different from the radio chip in an AMEX Blue card).
Why do I risk the wrath of my more zealously patriotic fellow citizens by pointing all this out?
Because, in a very few (but, ominously, increasing) number of cases, you will find merchants and services in Europe that only accept the chip-and-PIN smartcards—most disruptively, this includes:
- many gas stations (especially after-hours)
- ticketing machines for trains and public transport
- the bike rental kiosks that are proliferating in many major cities
To all of them, your old-school Visa with the magnetic strip is just a worthless slab of plastic. It simply will not work.
Best I can figure, the chipcard-only phenomenon started in Scandinavia, but it's spreading.
In summer, 2009 I encountered it in Italy as well. (Luckily, the shop still had its old swiping machine, which they kindly dug out of a drawer, dusted off, plugged in, and used to run my card. I felt like a bumpkin who had tried to trade them a chicken for their services.)
In the fall of 2010, I was actually turned away from a shop in Leipzig, Germany; their store policy —printed right by the register—was "smartcards only."
In fall, 2011, I was unable to rent a bike in Dublin from the cheap public stands because they only accepted chip-and-PIN cards.
A month later, I found I could not use the automated gas pumps in New Zealand.
Get a Travelex Cash Passport, currently the ONLY chip-and-pin card available to the general American market. It's a pre-paid card, so you have to fill it up with cash before you leave—and the exchange rate is an abysmal 14%–15% worse than with credit cards—but it can come in darn useful (www.us.travelex.com).
As of 2012, a few American banks are starting to experiment with chip cards (Citi, Chase, and U.S. Bank all now offer some card with a chip, though usually they are all annual fee cards).
Unfortunately, in the true, backwards fashion we've come to expect from our banks, most are issuing only baby-step chip-and-signature cards. These have a chip, and so will be recognized by the machines, but no PIN.
For purchases of less than $50, this is usually not a problem, as no PIN is required on those.
For larger purchases, your larval-stage chip-and0signature card will cause most card readers manned by an actual person (such as at a store or restaurant) to spit out a receipt for you to sign, so again, no problem.
For charges greater than $50 at an automated machine, well, there you may run into problems as you will need a PIN.
(Note: some banks will issue a PIN with your chip-and-signature card, but this is to access the cash advance feature, which means any purchases made using it will be charged interest at the highest possible rate—usually 21%—and start accrusing immediately, not at the end of a monthly cycle in which you do not fully pay off the card, as with most purchases).
Wells Fargo and JPMorgan Chase have each made limited numbers of what they call E.M.V. cards available to select customers. They have a chip and PIN, and they will work abroad.
Keep apprised of news on this subject at www.creditcards.com and the forums at FlyerTalk.com.
Some credit cards are now charging exorbitant "transaction fees"9mdash;plus a laughably inflated APR, which starts accruing immediately—for each cash advance through a credit card, so read the fine print carefully when choosing which Visa card to use on the road.
Use cash advances only in emergencies. These credit card folks are counting on your complacency to keep milking you for money. Don't give them the satisfaction.
Whenever you get a cash advance on a credit card, the bank starts charging you interest immediately , not after the end of the billing cycle's month as they do with purchases.
That means if you take out $200 on the first day of a two-week trip, for two weeks the credit card issuer will be charging you the highest possible interest rate (not that introductory 9.67%, but the industry ceiling of 18% or more), compounded daily, and will continue to do so until you pay your entire credit card bill all the way down.
They often also tack on a one-time "service fee" of $5 or more as well.
You may be able to avoid all this, however, by being a bit sneaky: They can only charge you interest if you're carrying a balance. The trick is to make sure you never carry a balance on the card by overpaying your bill (by however much you expect to withdraw in cash advances, plus purchases) the month before you leave.
5 things to know about new chip-enabled credit cards
There's a chicken-and-egg problem with the Thursday deadline for consumers and retailers to switch to new chip-enabled credit cards.
Because a majority of consumers still haven't received their new upgraded cards, many retailers aren't upgrading their credit-card terminals to accept the new cards. The end result? Much of America is going to blow the Oct. 1 deadline for upgrading to the new cards.
The new chip-enabled cards, which are also called EMV cards (short for Europay, MasterCard and Visa), are being phased in because they're more secure than the old-style magnetic-strip cards because retailers and card processors don't store the card data in their systems. It's a system that has proved to be effective: Europe marked a sharp decline in credit card fraud after the chip-enabled cards were introduced.
Given the incentive for retailers, card issuers and consumers to switch, why is America lagging in rolling out the new technology? And what do consumers need to know if they're not prepared on Oct. 1?
Why haven't I received a new card yet?
The delay is due to the sheer logistical problem of replacing Americans' 1.2 billion credit and debit cards, said Carolyn Balfany, senior vice president of product delivery for MasterCard (MA). She said it's estimated that about two-thirds of cards will be replaced by year-end.
"Banks are working to replace them," she said. "In the beginning, they were working on international travelers because those were the consumers who were challenged because they were traveling overseas" where EMV cards are already commonplace.
Banks are handling the replacement cards in several ways, ranging from a mass reissuance to replacing them as they expire, she added. Consumers anxious to receive a new card should call their bank to request a replacement. Chances are the bank will send a new EMV card fairly quickly.
Is there a fine for missing the deadline?
Consumers won't face a fine if they don't have a new card by Thursday.
For that matter, neither will retailers for failing to upgrade their systems to accept the new cards, although they're on the hook in another way.
The deadline is what the credit card industry calls a "liability shift," which means on Oct. 1 how liability falls between credit-card issuers and retailers will shift. After Thursday, the liability for fraud will be placed on the party that hasn't upgraded its systems.
Since fewer than one-third of business owners in July said they'd be ready with new checkout terminals by Oct. 1 in a Wells Fargo/Gallup poll, chances are that thousands of retailers may be facing fraud liability starting on Thursday. The top reason for skipping the upgrade? Retailers don't think it will affect their business, a fair assumption given that so many Americans don't even have the new cards.
How do I use the new card?
Insert the end of the card with the chip into the bottom slot of the new point-of-sale terminals, and leave it there for a few seconds to allow the machine to read the card, said Paige Hanson, senior manager of education programs at LifeLock, a provider of identity-theft protection services.
After Oct. 1, "If you have an EMV card and try to swipe it, there is a notification that will populate on the cashier's screen that says you have a chip-enabled card," she said. The machine will prompt you to retry the purchase by using the EMV-card reader.
What do I do if there's a fraudulent charge on my card?
Consumers will still handle fraudulent credit-card charges they way they always have, Mastercard's Balfany said.
"You'll still report it, just like you do today, by letting your bank know and they'll resolve it," Balfany said. "The liability between the bank and the merchant might be different. The one that has not upgraded is going to be responsible, but that's invisible for the consumer."
Should I avoid retailers that haven't upgraded their terminals?
Not necessarily, although Balfany said consumers may feel better about using their cards at stores that have installed the new systems.
"You know that they care about the security of your data," she added. That being said, "The consumer is not responsible for fraud. It will take some time for terminals to be rolled out across the U.S., and we have always known that not all of them would be enabled right away."
Still, bad guys may target stores that haven't upgraded, according to Tom Donlea, director of e-commerce practice at Whitepages. "Criminals will know which stores have either not yet implemented the EMV terminals or they will learn how to damage the chip in the EMV cards they have spoofed so that it forces the retailer to perform the traditional swipe if they want to make the sale," he wrote in an email.
"Merchants expect fraud attacks to start increasing this fall," wrote Donlea. "It won't be a tsunami, but rather a slow but steady increase in online fraud attacks."
With the new cards likely to foil credit card fraudsters more often, consumers should be alert for other types of scams, said LifeLock's Hanson.
"It could push criminals to explore more serious lines of theft, such as stealing your identity," she noted. To that end, consumers should continue to monitor their credit card statements (or start checking them, if they aren't already). You should also take advantage of text-based alerts about account balances and big charges, Hanson added, because that can help catch fraud right away.
© 2015 CBS Interactive Inc.. All Rights Reserved.
Debit or Credit? Here’s Why All the Stores Are Asking…
I couldn’t stop to think about why every transaction I make at the store requires me to push “debit or credit”. At the end of the day, it makes very little difference to me. The exact amount of money will leave my account one way or another.
You would think that every purchase you make with your debit card would be processed as a debit transaction. But not so fast.
Even after sliding your debit card, you’re prompted to select whether you would like the transaction to be processed as “debit” or “credit.” No, the machine is not simply asking you what type of card you hold in your hand.
The selection you make comes with pros and cons: for you, for your bank, and the merchant. Here’s why they’re asking:
Why you may want to go the “debit” route
If you struggle to stay on top of what is in your account and you have the funds available to you right now, selecting debit is probably the way to go. Entering your PIN number is considered an “online” transaction with your bank, meaning the funds are pulled immediately and you can quickly check the balance remaining.
Making a debit card purchase with your PIN also gives you the option of receiving cash-back, in addition to paying for your purchase. If you are charged ATM fees, this is a great way to bypass those charges.
Merchants are also hoping you make this selection. Why? Because banks rake in a larger fee percentage from the merchant for purchases processed as credit rather than debit.
The peace of mind you get when funds are pulled from your account immediately after making a purchase can quickly turn into a headache if the merchant has a security breach or you slid your card in a machine with a skimmer attached. Suddenly a thief has access to the cash in your account, as opposed to a credit transaction where it can possibly be flagged before going through.
In addition, if fraudulent activity occurs with a debit transaction, you usually aren’t given the same protections as a credit transaction – you may instead be on the hook for some charges. For example, if you notice the charges within 48 hours, you won’t pay more than $50. If you don’t catch it for up to two months, however, you could be on the hook for as much as $500.
Some banks may also have a limit on the number of debit purchases that can be made in a day or the dollar amount that these purchases can add up to. So if you need cash afterwards, you could be denied. Or, depending on the issuing bank, debit card transactions could come with a fee attached.
Why you may want to go the “credit route”
For the same reason merchants prefer debit transactions, banks prefer credit transactions – it all comes down to fees. Since banks are able to charge merchants more, they sometimes try to sway consumers by offering rewards for credit purchases.
The biggest perk for the consumer – aside from avoiding the fees that are sometimes tacked on to PIN-based purchases – is increased protections against fraudulent activity. Credit purchases are run through the Visa and MasterCard network, meaning they are given the same protections as an actual credit card – you’ll be more likely to be fully reimbursed for fraudulent charges.
If you struggle to keep track of your purchases, selecting credit means allowing for a longer window of time for your account to be reconciled. By that time you could have already made a few more purchases and overdrawn your account.
And again, if you would rather help out the merchant – say they are a local shop that could use additional support – selecting credit may not be the way to go. Even with a cap placed on fees charged to merchants as a part of the Dodd-Frank Act, they still cause financial pain for some businesses.
While there are a few notable differences in how payments are processed, it’s important to note the similarities as well. Both selections are still pulling funds from your checking account — meaning it’s about the cash you have in your name, right now.
In addition, your particular debit card and the issuing bank may differ in how they treat each purchase. The bottom line? Know what your account and your card offer when it comes to fees and fraud protection. That knowledge can help you sort through the pros and cons and select what works best for you.
This post was published by Kayla, ReadyForZero Writer for » ReadyForZero. ReadyForZero is a company that helps people get out of debt on their own with a simple and free online tool that can automate and track your debt paydown.