How Transaction IDs Help Prevent Fraud & Chargebacks
Transaction IDs play a pivotal role in digital commerce, yet very few merchants fully understand their significance. Many confuse them with payment IDs or transaction numbers, and some believe they could lead to data breaches and fraud.
Banks and financial institutions are uniquely placed to educate their merchants and customers about the vagaries of the transaction process. This includes the much-misunderstood role of the transaction ID.
What is a Transaction ID?
A transaction ID is a sequence of numbers generated during the electronic transfer of funds from a consumer to a merchant. The number is used to identify a transaction for recordkeeping purposes.
Transaction IDs are generally located on a receipt or invoice adjacent to other transaction data such as the merchant’s name, billing address, transaction date and time, and order number. CRMs and point-of-sale software sort relevant information tied to a transaction via this number.
Although it often happens, transaction IDs are not to be confused with purchase orders or payment ID numbers. Both of these numbers are private to the business making the sale and aren’t likely to be included in a processor’s invoice. Transaction identification numbers, by contrast, are issued by the processor facilitating the purchase and are randomly assigned.
The Function of Transaction IDs
Payment processors and merchant service accounts use transaction IDs to access and track transaction information. By using a Transaction ID number, these agencies can quickly locate a specific transaction record in the event of a refund or dispute.
Additionally, transaction IDs are required to answer several important questions, such as (but not limited to):
- The original listing price of the item in question
- How much was transferred from the customer’s bank during a transaction
- The payment method used (credit, debit, alternative payment options, etc.)
- Authentication methods used to verify the buyer
- Payment gateway information from the processor (Payment ID)
Marketing and sales present additional applications for transaction IDs. Learning what customers buy and how often is crucial information for merchants. After all, knowledge is power. Transaction IDs can help merchants discern winning sales strategies from duds and also identify and isolate any issues that could present friction during checkout.
Are Transaction IDs Traceable?
To put it bluntly: no.
There is no such thing as a “transaction ID tracker.” Also, the likelihood that one could ever be developed and used effectively to engage in fraud is very slim.
Merchants should be made to understand that transaction IDs are randomized numbers specific only to individual transactions. They are private, heavily encrypted, and tough to track or duplicate.
This is not to say that transaction IDs cannot be used to commit fraud. This is still possible; however, in order to trace a transaction ID, someone would need the exact alphanumeric code associated with that transaction, as well as access to the relevant system. Therefore, it would be extremely challenging for fraudsters to access or use this information.
The Role of Transaction IDs in Chargeback Management
All merchants could benefit from maintaining a lower chargeback ratio. Thus, the speed with which transaction data can be accessed and shared with financial institutions, combined with the accuracy of that data, can make this possible. Without the data made available by the transaction ID, consumers could file any number of disputes without sufficient evidence.
Lastly, merchants can also vastly improve the quality of their chargeback responses by developing and maintaining systems for ease of access and retrieval of transaction ID numbers. Having the transaction ID will prove critical to successfully navigate the representment process.
Merchants will need to provide compelling evidence that the disputed transaction was legitimate and should be upheld by the bank. Without transaction IDs, merchants would be entirely at the mercy of disputes and chargebacks resulting from missing transaction details.
