WO2004084113A1

WO2004084113A1 - Credit card charge back prevention system

Info

Publication number: WO2004084113A1
Application number: PCT/US2003/012285
Authority: WO
Inventors: Zoltan Kovacs; Lenard Iszak
Original assignee: Zoltan Kovacs; Lenard Iszak
Priority date: 2003-03-12
Filing date: 2003-04-18
Publication date: 2004-09-30
Also published as: AU2003304012A1

Abstract

A database of customers with a history of fraudulent orders and sales focuses specifically on those customers whose purchases result in a refund due to payment disagreement. The database can be accessed by members only in order to better ascertain customer’s credit card habits before a sale is made. The information entered on the customer allows the merchant to make an informed decision on each sale and does not necessarily mean that the merchant should not take payment from a particular customer. Knowing that some customers are apt to take advantage of no signatures on file, as in an Internet credit card transaction, the merchant may protect his or her business against a customer’s pattern of possible charge back attempts.

Description

CREDIT CARD CHARGE BACK PREVENTION SYSTEM

FIELD OF THE INVENTION

The present invention relates generally to a system for merchants who accept payment by credit cards. More specifically, the present invention is a system implementing a database listing fraudulent orders and sales that resulted in a refund due to disagreement with the customer, for any applicable reason, and the databases related features.

BACKGROUND OF THE INVENTION

A "charge back" is a refund to a credit card initiated by the customer and the issuing bank of the card. For example, if a customer requests a refund, and the refund is not applied in a timely manner, the customer may call the card issuer and have the issuer charge back the disputed amount to their card. Although this charge back system is in place to protect the consumer, it can create problems for a vendor when it happens. Also, due to missing signature on credit card transactions of Internet purchases, charge backs are a growing trend, and can be used by less scrupulous customers on a regular basis to avoid paying for services or items rendered.

A traditional "brick and mortar" merchant accepts credit card payment with a signature. However, Internet purchases are most often made by credit card, and the customer has no way to sign for an Internet transaction. Due to missing signatures on credit card transactions of Internet purchases, merchants' accounting of purchases may be open to discrepancy, and lead to charge backs affecting the merchant's working capital. Without a signature, merchants don't have proof that the customer agreed to the terms of the charge, and the merchants are essentially powerless to stop the charge backs against their merchant accounts. When the charge backs are processed, a merchant's processing bank can "freeze" tens of thousands of dollars in credit card deposits and demand that the disputed funds should be held for 6 months or longer.

The customer may use the charge back system to revoke charges to a credit card which was not authorized, but the customer may also dispute charges, which were legitimate, and the merchant has no recourse. When a merchant has a charge in dispute, the money is pulled from the merchant's account and refunded to the user's card. The charge is placed in dispute by the issuing bank and the bank may refuse to release the funds for six months to a year from the time that the purchase was made. Additionally, if the merchant has a charge back rate of higher than 1 % of their total credit card sales, the merchant's credit deposit account may be cancelled. This places the merchant in a situation of not being able to accept any credit cards, and can ultimately push a small company, or an Internet company out of business.

Therefore a need has been established for a database to provide merchants with information about specific customers who have used credit cards to make a purchase and then cancelled payment resulting in a charge back to the merchants' accounts. Additionally a database is needed which can allow a merchant to determine if they wish to accept a credit card payment from a consumer who regularly abuses the charge back system. Moreover, there is a need to attempt to curb repeated charge backs initiated by . the same person. Also, there is a need for a system which provides forms for merchants to use with customers presenting a higher than normal charge back risk. Further, there is a need to provide encouragement and/or the means for allowing credit card transactions to go through aside from the credit card company decision-making system. There is also a need to provide a verification system to ensure that charge backs will not occur due to misappropriation of a credit card number - i.e. credit card theft.

SUMMARY OF THE INVENTION

The present invention presents a database of customers with charge back habits. The charge back system database provides a merchant with a database of fraudulent orders and sales that resulted in a refund due to disagreement with the customer. As a member of the charge back system database, the merchant can search this list before finalizing a credit card sale. The charge back system will alert a merchant to require a signature on a purchase agreement from high-risk customers in order to prevent a charge back to the merchant's processing bank.

In addition, the charge back system will send out an email, fax, or postal mail to the customer letting him know that his information has been entered into a negative database, and the consumer may have trouble purchasing goods or services, due to this entry, on the Internet in the future. The merchant may choose to remove the customer from the charge back system's database, possibly resulting in the customer paying the merchant. This feature is important because it provides a means whereby the customer is educated that charge backs are not populai- with merchants, and the customer is pushed to allow a transaction to be executed. Other related means are employed to encourage a customer to allow a charge to be executed, as well as to prevent charge backs due to credit card fraud. has been entered into a negative database, and he or she will have trouble purchasing goods or services on the Internet, due to the entry, in the future. The merchant who posted the information on the customer in the database is preferably the only one who can remove the information from the database. The administrator of the database system can verify that there is a true report on record, and adjust the record so that the database system is not falsely maligning a customer. Chat and/or private messaging systems can be employed so that the merchant and the reported charge back customer can resolve a dispute amicably. Online mediators and/or arbiters can also assist in resolving charge back problems. Thus, the present invention provides a forum for dispute resolution wholly apart from credit card resolution systems currently in place. The present invention allows direct, preferably, non-telephone voice communication between the parties to resolve the dispute. The merchant has the ability to cross sell and/or fix the problem to ensure the charge is executed.

The present invention also encompasses collecting outstanding fees from reported customers so the fees can be turned over to the merchant members for a fee. This continues with the dispute resolution previously discussed.

Second, the database can be accessed before finalizing sales with other customers. This allows a merchant to choose to allow a customer, who has a history of fraudulent orders and sales that resulted in a refund, to purchase from that merchant's company. Alternately, the merchant may decline the sale to protect their business from similar charge back activities. Hence, the merchant can either not work high-risk customers or make high-risk customers sign a purchase agreement preventing a charge back. These agreements can be provided to merchants instantly online or otherwise, and such DETAILED DESCRIPTION

The present invention is a database that lists customers with excessive charge back habits. The database lists charge backs, fraudulent orders, and sales that result in a refund due to disagreement with the customer. The database allows thousands of other merchants to enter information on "trouble" customers in the charge back system database.

Two main parts of the present invention are a reporting part and a search part. The reporting part has the ability to receive negative customer information, while the search part has the ability to allow members to search for a potential customer before finalizing a credit card transaction with that customer. The reporting part and the search part allow communication with the database. Preferably, the present invention has a database focusing on three types of transactions: charge backs, refunds, and fraudulent orders.

Each member has access to other members' data allowing for informed decisions on the part of the merchants. When members receive a charge back, they enter the customer's information into the database along with a short description of the charge back case. The description includes a record of the customer's name, address, city, state, zip, country, phone number, email address, transaction date, report date, report type (refund, charge back or stolen card), dollar amount, and report note with a description of that particular charge back case. The credit card number and expiration date can also be included in the record placed in the database.

The database then proceeds to contact the customer involved in the dispute. First, an email will be sent to the customer letting him or her know that his or her information billing phone number, and geographic IP location. The goal is to profile charge back problems as best as possible to avoid merchant financial hardship.

A "wall of shame" or similar list is generated from the database and is displayed, preferably, on the administrator's website so that the customer name and email address for the highest volume charge backs or most recent charge backs are revealed.

The database also includes a record of all searches performed, and in this way, can provide positive reports on customers on whom searches were done but low or no charge back, refund, and/or fraud history exists. For example, a customer might be searched by 10 merchant members of the present invention, and if that customer has no charge backs, refunds, and/or fraud history, then that customer would be earmarked as a positive customer. Thus, the more purchases a customer attempts to make, the more often merchant members of vhe present invention will search that customer's charge back, refund, and/or fraud history; and then, that customer will receive successively higher recommendations for being searched and having a no bad actions in their record.

The present invention is not limited to the sole embodiments above.

agreements are specifically tailored to the risk level presented by the charge back customer.

Part of the present invention focuses on violation of privacy issues, and thus, to avoid illegal use of individuals' information, all merchants using the present invention would need to display a seal and or disclaimer linking to the administrator of the present invention. The link is preferably placed in the terms of service information provided by each merchant to its customers. The present invention checks the link on each merchant member's web site to ensure that it is in place before reporting can occur from that merchant member. In this way, the present invention keeps within the bounds of privacy laws.

IP verification is also a provided so that the geographic location and/or IP address is consistent with the billing address of the credit card. This is important because a hallmark of charge backs is stolen credit card numbers. If an online merchant can verify that the credit card is being used from an IP source far from the billing address of the credit card owner, then the merchant can either decline to sale ahead of time (avoiding a charge back), or alternatively, the merchant can provide such potential customer with forms to ensure identity, etc. so that the charge will not be revoked. Similarly, phone number verification is employed so that the credit card is matched to a billing phone number.

A useful feature of the present invention sorts customers with a charge back history based upon any and/or all of the following factors: the type of good being purchased, the type of credit card being employed, the email address (i.e. a hotmail, verizon, etc. based email address), actual and alias email names, IP address, credit card

Claims

CLAIMSWe claim:

1. A database comprising: at least one name; at least one address associated with said name; a means for providing credit card charge back information associated with said name or said address; and a means for contacting an individual with-said name or said address.

2. A database comprising: at least one credit card number; at least one of the following associated with said credit card number: IP address, geographic location, history of charge back transactions; and a means for contacting an individual associated with said at least one credit card number.

3. The database of claim 2, further comprising a dispute resolution means between a merchant and an individual associated with said at least one credit card number.

4. The database of claim 2, further comprising a means for providing communication between a merchant and an individual associated with said at least one credit card number.

5. The database of claim 2, further including a means for recovering outstanding fees from an individual associated with said at least one credit card number.

6. The database of claim 2, further comprising terming an individual associated with said at last one credit card number as a "good customer" or a "bad customer".

7. A database comprising: at least one credit card number; a history of charge back, refund, and fraudulent orders associated with said at least one credit card number; and a means for providing a user access to said at least one credit card number and said history.