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:

• Your credit card processor, such as International Bancard
• Your business’s financial institution
• Local law enforcement authorities
• Legal counsel

With payment technologies evolving from cash and checks for Baby Boomers (and older) generations to contactless and mobile payment options, offering the right payment choices for your customers is complicated. 

The obvious and durable choice, cash is still with us, despite predictions of a cashless society.

A 2014 Federal Reserve report says cash is still a strong favorite for all age groups. Consumers use cash more often than other forms of payment, including debit or credit cards for the following reasons:

1. Cash is best for lower value transactions
2. Cash is useful for specific types of purchases
3. Cash is sometimes the only alternative
4. Cash is the preferred payment choice for Gen Y
5. Cash is the best payment option for lower income individuals
6. Cash is hack proof

Besides liking the feel of folding money in our pockets, each generation has a preferred way of paying for things, traceable to what was available as they came of age.

Baby Boomers and Beyond

Baby Boomers and older people are now retiring in large numbers, and many have learned to use more advanced payment methods, such as online payments. However, this generation is the biggest user of paper-based checks and American Express to date. In fact, about 68 percent of people over 65 still write out checks and mail them to pay all their bills. Higher wealth individuals tend to prefer American Express for its prestige and acceptance worldwide. This age group sticks to what it knows best – checks and cash have been monetary staples since coming of age in the 50s and 60s.

Middle Aged Generation Xers

The “kids” of the 1970s and 1980s are now easing into middle age and cling to their credit cards. They grew up as credit cards proliferated and made “slide-and-sign” payments popular. Gen Xers are in their prime earning years, have longer credit histories, and better opportunities for increasing income. Credit cards allow the Gen Xers to live comfortably, buying what they want and what they need. Curiously, some Gen Xers find chipped EMV (Europay, MasterCard and Visa) cards confusing. 

Generation Y Rocks On

Consumers born in the 1980s to mid 1990s have it all: they grew up accustomed to cash, checks, and credit cards and they’re adept at digital technologies including mobile payments and PayPal. Yet, Generation Y’s young adults still lean heavily on cash – possibly because they are still in school, working off student loans, in low-paying or early professional jobs. 

Generation Z (Millennials)

The first generation of the 21^st Century, born in 1995 or later, is fully digital, having played with cell phones from birth, so electronic payment methods including PayPal and smartphones with tap-and-go apps are natural for this group. This generation has been surrounded by social media and mobile technology from the time they could walk; their online information access affects how they see the physical and digital world. With easy access to the Internet and its plethora of products/services, Gen Z approaches buying much differently than previous generations.

Generation Zers like combining technology with a brick-and-mortar store experience. They browse online, then head to a store to make the purchase. Although it’s tempting to generalize about Gen Z and their purchasing habits, this demographic is still evolving as they mature.

If your online or brick-and-mortar business caters to one or more of the age groups described, you will want to focus your marketing and payment options on their preferred methods. However, if you serve many generations, making it easy for everyone to buy from you will serve your profit goals more successfully.  

My question: since we have used up X, Y and Z in the alphabet, what will the next generation be called?

For more information about credit card and merchant services processing, contact Mike Krause, mike@salessensepayments.com, 585-704-6453.

Credit cards are a way of life, especially in the United States, although other countries are equally heavy credit users as we are. Here are some interesting facts about credit cards from when they started transforming the payment industry in 1950, only 69 years ago!

• It costs a credit card company about $80 to acquire a new customer, factoring in the marketing and processing fees, factoring in TV and radio commercials, telemarketing, print ads and direct mail.
• The word Visa is itself an acronym that stands for Visa International Service Association, founded in 1958, headquartered in Foster City, California 
• Merchants accepting credit cards spend $7 billion each year in credit card processing fees. Providing the ability to use credit cards to its customers generates approximately 15% higher sales from consumers who prefer to carry plastic for purchases rather than cash or checks.
• Across the United States, people in Alaska generally carry the most credit card debt, averaging $13,000; Ohioans have the least debt, about $5,500. 
• Averaging across the United States, a person’s or family’s average credit balance is just over $6,300 and Americans overall pay more than $100 billion in interest and fees each year.
• To you and I, a deadbeat is someone who doesn’t pay their bills on time. However, in the credit card industry, deadbeats are those careful spenders who pay off their credit balances each month. Financial institutions prefer financially irresponsible card users who aren’t paying off their balances each month, enabling the bank to charge them interest and generate profits. In fact, conscientious financial “deadbeats” cost banks money if they aren’t paying interest charges and qualify for reward programs and cash-back incentives