Guest Analysis: TC40 Data: The Monster under Merchants’ Beds

BENJAMIN GROSSMAN & NICHOLAS RUGGIERI

TC40 Data: The Monster under Merchants’ Beds

Merchants who accept credit cards, especially online retailers, are all too familiar with the phenomenon of chargebacks. When a customer claims that a transaction on his or her credit statement is fraudulent, the customer’s issuing bank will demand a refund. Dealing with chargebacks, though, is really only the first of several headaches that a typical fraud transaction causes for a merchant. Once a customer reports an unrecognized transaction to his or her bank, the bank analyzes all the data available to determine whether the transaction was legitimate or was, in fact, credit fraud. When a transaction is determined to likely be fraudulent, the issuing bank submits a report of fraud to Visa. This report is known as a TC40 message. The information in these reports, sometimes called TC40 data, includes details like the bank identification number (BIN), geographic information about the transaction, currency code, and more.

Can TC40 Hurt My Business?

The short answer: Absolutely. When Visa receives TC40 reports from issuing banks, they keep the report on file and share the information with other banks in their network. Like merchants, banks face costs associated with fraud transactions and chargebacks and so have an incentive to reject or decline purchases attempted with merchants designated as high-risk. Because of this, even merchants who rarely approve fraudulent transactions and who do their due diligence to resolve chargebacks quickly and professionally can face issues due to existing TC40 reports on record with Visa and/or issuing banks. In some cases, merchants are not advised that a TC40 report has been filed until months later (if they get the message at all). In the meantime, countless charges may be declined due to an existing TC40 fraud alert of which the merchant is unaware. At Visa, high risk merchants are included in the Risk Identification System (RIS). MasterCard keeps parallel records known as the System to Avoid Fraud Effectively (SAFE). When a multiple TC40 claims stack up against a single merchant, the merchant may face costly fines and even put their contracts with the major card brands in jeopardy. For online merchants, accepting major credit cards is often a major key for e-commerce success.

What’s the Difference Between TC40 and a Chargeback?

Chargebacks happen for many reasons: unhappy customers, non-receipt of a product or service, purchases damaged in transit, and more in addition to outright fraud. Only when a merchant believes the primary reason for the chargeback is fraud, however, is a TC40 report generated. Understanding the difference is crucial, especially for small dollar merchants.

Small Dollar Merchants Especially at Risk

As stated above, banks face costs when they issue a chargeback. Because it’s not always “worth it” for a bank to process a chargeback for small dollar items, a merchant whose customer has been victimized may never be bothered with a chargeback. However, even without a chargeback being processed, the TC40 report is still generated to Visa and MasterCard. Fraudsters with access to thousands of credit numbers need a fast, foolproof way to determine which card numbers have value, and which don’t. One way to make this determination is to attempt very small transactions on thousands of cards at once. If these transactions succeed, it means the card number is valid and connected to an open account. Today, websites who have small price points have become popular for use in “testing” credit cards. First, the average credit card holder is unlikely to notice a small ($1.99, for example) fraud charge on his or her monthly statement. Second, even when these small transactions are proven to be fraud, banks probably won’t process chargebacks, since the $1.99 they would get is too little to justify the expense of getting it. But again, even when no chargeback is processed, a TC40 report will still be created.

Fixing TC40 Problems

If your customers report declined transactions and a reason for the decline is not obvious, a TC40 record may be the cause. To fix this, the first step is to talk with your customers and review your log of blocked transactions. Because merchants are often in the dark about TC40 reports, first-hand discovery may be the fastest way to identify a problem. Merchants can also contact the acquiring bank for information about existing TC40 records and, in some cases, a copy of the report. If none of those options are feasible, contacting the card brand (Visa or MasterCard) directly may be the best option. Knowing what TC40 reports are and how they can affect merchants is critical. While everyone knows “chargebacks,” TC40 is perhaps even more dangerous. Merchants must keep an eye out for declined transactions, especially small ones, because it could be a sign of a much bigger problem.

Benjamin Grossman is the Co-Founder and Chief Executive Officer for Pinpoint Intelligence. Benjamin sets the company’s strategy and oversees product and business development efforts. Under Ben’s leadership, Pinpoint has grown 150 percent in the past 12 months, while protecting its merchant customers from millions of dollars in fraudulent transactions.

Nicholas Ruggieri is the Co-Founder and Chief Sales Officer for Pinpoint Intelligence. Nicholas is accountable for the overall global sales performance of the organization, overseeing all revenue generating functions and growing all merchant direct and channel partner sales efforts on behalf of Pinpoint.

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