The Keys to a Good Merchant Descriptor
Many cardholders use their statements—both the online kind, which are updated in real time, and the ones that get printed and mailed out to them at the end of each month—to make sure that nothing untoward is going on with their credit cards.
When fraud really does occur, cardholders usually only find out about it when they read their statements and spot unfamiliar transactions. The problem is that when merchant descriptors are cryptic or unclear, even legitimate charges can appear unfamiliar and seem fraudulent.
When cardholders dispute legitimate charges, this leads to “friendly fraud” chargebacks. Friendly fraud can be done intentionally; this practice is sometimes called cyber-shoplifting.
Many instances of friendly fraud, however, are carried out innocently enough, by cardholders who genuinely fail to recognize their charges and call up their banks to report them as fraudulent. While friendly fraud can happen for a wide range of reasons, confusing merchant descriptors are one of the most common (and fixable) causes.
What is a Merchant Descriptor?
When you look at a statement of charges for a credit or debit card, you will see a brief description of each transaction listed next to its amount and date. This is the merchant descriptor, which provides a little bit of information about where the charge was made and what it was for.
Merchant descriptors are typically set up when a merchant first enrolls with their payment processor, and new merchants who are eager to get started on taking sales and processing cards aren’t always thinking about how this information will be presented to cardholders days or weeks after they make their purchase.
There are three different types of merchant descriptors:
- Pending descriptors, also known as soft descriptors, are the descriptors that appear next to pending charges that have been authorized, but are still awaiting settlement. Sometimes these will look virtually identical to the static descriptors, but some payment processors will use their own name and contact information in pending descriptors, rather than the merchant’s.
- Static descriptors replace pending descriptors once transactions are settled. These are the permanent descriptors that get printed on month-end statements.
- Dynamic descriptors are an option offered by some payment processors. They may allow the merchant to substitute different descriptor information depending on the product, service, or location involved in the transaction.
The typical merchant descriptor consists of about 20-30 characters and includes the merchant’s name as well as contact/location details that may include their phone number, URL, city, state, zip code, and country.
Some issuers will display additional information about the merchant alongside their billing descriptor when cardholders look up their statements in their online banking portal. This is highly useful for helping cardholders identify their charges, but it is done at the issuer’s discretion and is not under the merchant’s control.
How Can Bad Merchant Descriptors Cause Problems?
The greatest danger with merchant descriptors is that the cardholder isn’t able to make the connection between the information in the descriptor and the store they shopped at, so they jump to the conclusion that the charge is fraudulent and call their bank to dispute it.
This situation often arises when a merchant sets up an account with a payment processor under the company name they’re using at the time, but never updates the descriptor with the store name they’re now doing business as. For example, a cardholder who buys a bouquet at “Downtown Flowers” might become very confused weeks later when they see a charge from “CITYBLOOMZ LLC” on their statement.
While cardholders can usually sort these issues out by calling the phone number in the descriptor, some may be hesitant to call a number that they believe to be associated with a possible fraudster. If the cardholder insists to their bank that they don’t have any recollection of making the charge, the merchant ends up with a friendly fraud chargeback with a “Transaction Not Recognized” reason code.
What Makes a Good Merchant Descriptor?
The single most important thing a merchant can do to reduce friendly fraud from merchant descriptor confusion is make sure that the merchant name in the descriptor matches the name of the store that customers will be familiar with.
If you haven’t checked or updated your descriptor in a while, look it up and think objectively about whether or not it provides enough recognizable information to cardholders.
Merchants who operate different brands and storefronts may wish to look into using dynamic descriptors, if their payment processor offers that option.
Including a phone number is always a good idea, but if you have the space, including your URL provides another easy way for cardholders to look you up and jog their memory. It may even be worth investing in a shortened form of your domain name for this purpose.
Remember that not every issuer will display your merchant descriptor in exactly the same way. To identify potential problems, try making some test transactions with multiple issuers to see how your descriptor looks with each of them.
Friendly fraud chargebacks can be hard to prevent. They originate from ordinary transactions made by legitimate customers, so oftentimes the only thing you can do is fight them with compelling evidence after the fact.
The ones that result from unclear merchant descriptors are the exception to this rule. If you follow the best practices for merchant descriptors, you can eliminate a great deal of the confusion that leads to friendly fraud chargebacks.