Spotting And Preventing Credit Card Fraud

While we as a nation are making strides in preventing credit card fraud, it still happens. You can take steps to identify and prevent bad transactions by arming yourself with more knowledge and staying alert during every transaction.

Virtually every business must accept credit cards to attract and keep customers but accepting credit cards makes your business vulnerable to the scourge of credit card fraud. Even with the introduction of more secure chipped cards, credit card fraud continues to rise – estimated at a worldwide loss of $24.26 billion in 2018. That’s an increase of about 19% in 2018 and unfortunately, it is still climbing.

So what can you do to detect and prevent your business from accepting fraudulent payments? As expected, chipped credit cards have reduced point-of-sale (POS) fraud since their introduction, shifting the majority of bad transactions to card-not-present transactions such as online and telephone purchases – more than 80% more likely than POS problems.

Who Pays for Credit Card Fraud?

Not surprisingly, credit card fraud – really a form of identity theft – harms businesses and consumers alike. Identity theft is the third largest kind of fraud across the country, closely following phone scams and debt collection swindles.

The card issuers and the originating merchants assume responsibility for the money stolen with fraudulent transactions. Counterfeit cards in POS transactions account for most card issuer losses while merchants are more affected by card-not-present transactions.

Thanks to federal laws and financial institution policies, consumers are protected from liability when illegal purchases are made with their stolen/compromised credit cards. No business is immune to credit card fraud but there are ways to detect fraud and protect your business

Here are some easy ways to build a protective shield around your business against credit card fraud.

Switch to Chipped

Europay MasterCard Visa (EMV) is the worldwide standard for processing credit and debit transactions with improved real-time security in POS situations. Accepting chipped cards is a major way to bullet proof your POS transactions.

It is widely accepted that the United States has more POS fraud than elsewhere because the US was the last major country to adopt EMV. While other first world nations had chipped cards a decade before the US, the Fraud Liability Shift wasn’t in force here until October 2015. Countries adopting EMV earlier had a dramatic decrease in counterfeit fraud. For instance, the United Kingdom experienced a 70 percent decrease in fraud for the period 2005 to 2013.

By switching to chipped cards, your business joins the global fight against fraud, in addition to:

Protecting your business transactions
Locking down your customers’ data
Sidestepping credit card liability
Supporting other merchants by following a consistent standard

Watch for Warning Signs

As you and your employees accept credit cards in face-to-face transactions, be alert for telltale signs that the person in front of you is not who they claim they are. While not all of these signs indicate fraud, some are typical of people attempting to use a fraudulent credit card:

Taking the credit card from a pocket instead of a purse or wallet
Buying a large quantity of high priced items
Getting a strange variety of items, such as a range of sizes of clothing or items with a big variety of values
Presenting a big bundle of items just before closing time
Suggesting you should key in the number by hand because the chip or swipe stripe doesn’t work, that the card hasn’t been reading properly
Pre-empting the call to the bank for excessive purchases by handing you their phone, claiming they have already called the bank for the approval code

With any of these scenarios, they could be legitimate but it’s also a good time to check your instincts and gut feelings. If it feels wrong, it could very well be wrong!

If you have any one or more of these, consider reporting a potential fraudulent transaction to your financial institution.

Accept Online Payments Safely

Although chipped card payments are shown to reduce card-present fraud, unfortunately chipped cards are not effective for preventing online fraud.

Online transactions and payments mean you must take additional precautions against fraud. Despite not being able to see the cardholder, there are other warning signs indicating a fraudulent charge:

Orders with several of the same items, especially when it would be odd to purchase more than one, for example large appliances, watches, electric scooters, etc.
Purchasing high value items with high resale value
Rush or overnight orders, particularly (again) of high value items
Orders with invalid AVSs (Address Verification Service) or CIDs (Customer Identification, three-digit codes)
Receiving an order from countries you don’t sell to for something the shopper can buy in their own country
Multiple purchases on a single day
Multiple high priced purchases from the same IP address
Orders shipped to one address but paid for with several cards
Many transactions on one card with one billing address but different shipping addresses
Numerous declined attempts before getting authorization

Just because you can’t see the cardholder doesn’t mean you don’t watch for fraud. It is in your business’s best interest to be vigilant for online, card-not-present fraud, along with card present fraud!

Establish a Clear Procedure

One of the best ways to protect against card fraud is to establish and enforce a clear procedure that your employees follow every time they take a credit card for a purchase. Most businesses have them; it’s in the enforcement that you protect yourself and your business.

Insist your employees check ID with every credit/debit card purchase.How many times have you been a purchaser and you’re not asked for your ID? When you ask for a customer’s ID, you are following this rule:
A merchant may request cardholder identification in a face-to-face environment. If the name on the identification does not match the name on the card, the merchant may decide whether to accept the card. If the cardholder does not have or is unwilling to present cardholder identification, the merchant must honor the card.
Visually inspect the credit card. Look for any tampering or damage to the credit card that could signal a stolen credit card.
Use Address Verification Service (AVS)to confirm the purchaser’s billing address/Zip code with the issuing financial institution. If the billing address validation fails or doesn’t agree with what’s on file, you can decline the card.
Compare the receipt against the card itself.You might spot differences that send up red flags. Compare the names, last four digits of the account number, and card signature to what’s on the transaction receipt.

Report Fraud ASAP

Regardless of how cautious and protective you are, your business could still experience credit card fraud. If that happens, act quickly to prevent as much loss as possible.

If you have a fraudulent in-person transaction occurring:

Call the card issuer’s authorization center and say you have a “code 10 authorization request”
Remain calm and don’t upset the person attempting to purchase with the fraud card. You can’t be sure of someone’s reaction and your first concern should be keeping everyone safe
Keep the card in your hand to address any questions the authorization center may ask
Respond to the operator’s questions in a calm, low tone. If you can go to a different phone, that might be preferable. Simply answer Yes or No and follow their instructions
Never confront or try to stop the customer under any circumstances
If warranted, the operator will alert store, mall or local police while you wait on the phone

If you detect a fraudulent in-person transaction, the following resources can help: