Protecting Your Business from Credit Card Fraud
Credit cards are the most relied on form of payment. Today, cash is slowly on the decline as online payment technology is on the rise. Consumers are able to spend more but unfortunately, this means an increased risk of fraud. U.S. merchants are more likely to encounter this fraud as the country is responsible for nearly half of the world’s credit card fraud.
So what can a small business owner do to combat potential threats to protect both their business and customers? Below, we will explore ways to detect credit card fraud in your business. These techniques can easily be applied and they can make all the difference.
What is credit card fraud detection?
Credit card fraud detection is the process of taking steps to prevent stolen products or money through an unauthorized credit card transaction. Fraudulent transactions don’t just happen by someone other than the cardholder, but in fact, cardholders are often the ones behind credit card fraud.
Why fraud detection is important
Credit card fraud costs businesses millions per year. It’s been estimated that credit card fraud cripples the U.S. economy by 9.7 billion per year. Fraudsters are known to stop at nothing to scam their way into fortune. As of recently, attempted fraudulent transactions rose 35% in April 2020, at the very peak of the Coronavirus Pandemic. The real problem is that to put it simply, credit card data is cheap. A fraudster can steal thousands of dollars before even being discovered. This means that if you are an experienced crook, there is no incentive to stop stealing. It’s important to detect credit card fraud because it will ultimately hurt your bottom line and customer confidence.
What you can do to prevent credit card fraud
It may seem a bit intimidating but taking matters into your own hands can protect your business in the long run. Merchants who take action end up protecting more of their assets, which is important to the success of their business.
1. Keep an eye out for suspicious behavior If you are a brick-and-mortar business where you take payments in person, it can be as easy as observing customer behavior. A seasoned merchant should be able to spot when a customer is acting suspicious. When a customer seems to catch your attention in a negative way, this should be your que to keep an eye on them. No one should be obviously nervous or anxious during a transaction. 2. Examine the credit card It’s always good to examine the presented credit card, regardless of customer behavior. You should be asking for a photo ID during every transaction to make sure it matches the name on the card.
Another great tip is to use a fraud detection system like Address Verification Service (AVS) to mitigate fraud. Merchant services providers like Redde offer AVS tools that can help verify cardholder identity. Customers essentially enter their billing address which causes the system to then cross check it with the address on file with the issuing bank. If the provided information doesn’t match, the transaction won’t go through.
3. Identify high-risk transactions Depending on the goods you sell, some items are more likely to attract fraudsters. Here are a few examples of what to look out for:
4. Call your provider’s risk department If a certain transaction made you feel a bit uncomfortable, just give your payment provider’s risk team a call. They will ask you a series of questions about the transaction to learn more about the situation. The risk department will then be able to help verify the cardholder’s identity. They can then tell you if the transaction was approved or if it was declined. They can even help you decide what’s the best action to take if things don’t add up.
5. Understand the different types of fraud Understanding the different types of fraud is by far the easiest way to familiarize yourself with how to combat it. The most common fraudulent credit card transactions include:
- Chargeback fraud / friendly fraud. A chargeback is when a customer calls their issuing bank and requests a charge reversal. Chargebacks are for consumer protection to save customers from bad products or services provided by the seller. Chargeback fraud occurs when the shopper files a chargeback on a legitimate transaction. This means the seller did nothing wrong, but the customer still requested a transaction reversal. This fraud can sometimes be unintentional. In some cases, a consumer may not recognize a charge on their statement, so they call their bank to file a dispute.
- Lost or stolen credit cards. This is when someone uses a stolen credit card to incur fraudulent charges well before the original cardholder notices.
- Counterfeit cards. Fraudsters are creative and they will stop at nothing. They often create fake cards that include someone else’s details. Fake cards are typically created by skimming real cards through a magnetic swipe device. However, since the implementation of EMV, skimming through in-person payments have nearly stopped. But merchants that haven’t switched over to EMV are even more at risk than before. Since they haven’t implemented this new way of accepting payments yet, fraudsters are lurking to skim what they can from their outdated technology. You can most commonly find magnetic payments still used at gas stations or vending machines.
- Card Testing. A very common type of fraud in the eCommerce space is through card testing. A fraudster will “test” stolen credit cards by using an online store’s checkout page. They attempt to make small purchases on a website to determine if the card is good. If the transaction is successful, they’ll know that the card is valid, which then leads to even bigger purchases.
6. Train staff on fraud detection techniques The above information is great to know as a business owner, but it will only work with consistency. Chances are that as a business owner there may be times when employees conduct a transaction in your absence. This means you’ll want to share the same knowledge with your employees that you’ve come to know to protect your business from fraud.
7. Upgrade your software and hardware Your payment processing technology needs to have the right features to match your efforts as a business owner. Try using PCI compliance first. PCI compliance is a set of industry standards that make sure companies process payments in a safe and secure way. PCI compliance is your first defense against fraud that can help your business be less liable for fraudulent transactions.
When it comes to credit card readers, try using an EMV chip reader. Like mentioned before, this payment technology is more secure than the traditional swipe reader.
- Credit card fraud detection tools If you want to go one step further, you can try out fraud detection tools to ensure you are doing everything possible to protect yourself. Some of those fraud detection tools include:
AVS: AVS is Address Verification Service. Mentioned above, this helps match a customer's billing address to their address on file with their issuing bank. If the addresses don’t match, the transaction will be declined.
CVV verification: If you purchase goods online, you should be familiar with CVV. CVV is the three (sometimes four) security digits on the back of your credit card. This adds an additional layer of protection on your credit card. If someone stole a credit card number, they will need the CVV code to complete an online transaction using this verification.
Fraud scoring: Fraud scoring uses data to analyze the likelihood of fraud for different transaction characteristics, including IP address, shipment method, AVS code, and more.
Geolocation: Geolocation uses the credit card location to the location of the customer’s IP address, smartphone and sometimes even home address.
Redde Payments can help
We offer fraud protection technology to all our merchants. Through PCI compliance and best practices, you can protect your business from fraudsters. For more fraud prevention tips click here. We cover best practices for both POS solutions and card-not-present transactions, depending on which payment method you use. Contact us today and discover why our merchants prefer our service!
Related Article: Protecting Yourself from Phishing