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How to protect your business from credit card fraud
Expense Management

How to protect your business from credit card fraud

10 min read

You probably already know the dangers of credit card fraud to individuals, but this kind of fraud can also impact businesses. Learn more about why this happens, how it works, and how to help prevent credit card fraud.

Highlights

  • Credit card fraud occurs when an individual steals credit card information and uses it to make unauthorized purchases. If they make these purchases at your business, it could have a negative impact.
  • Disputed charges can cost your business money, not only in lost revenue and merchandise, but also in chargeback fees.
  • It’s important to take precautions against fraudulent activity in your business by properly training staff, maintaining high standards for cybersecurity, and more.

What is credit card fraud?

Credit card fraud is any unauthorized use of a credit card. In other words, it’s when a person uses stolen credit card information to obtain products or services without actually paying for them. Sometimes this is the result of a stolen physical card, but often this data is taken digitally and used for online purchases.

This can impact not only the people whose information was stolen, but also the businesses where the purchases were made.

How does credit card fraud affect businesses?

This kind of fraud can impact your business when fraudsters use card details to purchase items from the company.

A thief might steal someone else’s credit card and rack up many different charges at online stores, leaving the original owner of the card to deal with the bill. When that owner notices the fraudulent charges on their statement, they can reach out to their credit card company to dispute it. Then a chargeback is initiated.

What is a chargeback?

A chargeback is essentially a transaction reversal. When a cardholder disputes a transaction, the credit card issuer will withhold the funds from your business. You can choose to accept the chargeback, or you can dispute it and provide the transaction documentation. However, if the card company rules in favor of the cardholder, you will lose those funds entirely.

In addition to losing the funds, merchants may also receive a chargeback fee for every disputed transaction. It’s even possible that if you receive too many chargebacks, the issuers could consider you to be “high risk,” and then increase your chargeback fees over time.

Because of this, it’s in your company’s best interest to avoid fraudulent activity.

How to avoid credit card fraud from customers

There is no single step that you can take to prevent credit card fraud as a merchant. Credit card fraud prevention takes multiple different levels of planning and awareness. Follow the steps to protect your business:

1. Learn how to spot counterfeit cards

Retail staff are often trained in identifying counterfeit bills, but counterfeit cards are also a real possibility. Here are some possible signs to look out for:

  • The account number does not match the card issuer (4=Visa, 5=Mastercard, etc.).
  • The numbers on the card are crooked.
  • There is an altered or erased signature.
  • There is a damaged magnetic strip.

2. Pay attention to suspicious behavior

Fraudsters will sometimes try to make a purchase with damaged cards in order to bypass usual credit card protections, or they may ask to make a purchase using only a credit card number, but no physical card.

If, in addition, they are buying a large number of expensive—but seemingly random—items, and then want a second batch after the first purchase is approved, then you have reason to be suspicious.

3. Make sure credit cards are present for in-store pickup

When using a stolen credit card, a fraudster’s address won’t match the address of the person they stole from, and this can sometimes cause delivery issues. Unfortunately, they have methods for getting around that. A thief will sometimes place an order online, then pick up the items in-store—without the credit card they used to make the purchase.

You can make it a store policy that credit cards used to make a purchase must be present for online purchases with in-store pickup, or that a matching ID is required.

4. Stay up to date on PCI compliance

PCI compliance helps keep cardholder data safe, improves credit card processing security, and helps protect your business. It’s a win-win for you and your customers, and mandatory for most merchants, so make sure you keep up with the latest standards.

5. Require CSC and AVS for all online orders

Checking your customers’ CSC (also called a CV2 or CVV) can help verify that shoppers are using their own credit card. These are the three or four digits on a credit card that exist separately from the credit card number and expiration date.

You can also work with an address verification service (AVS). This is a tool that compares the billing addresses submitted with purchases to the actual billing data recorded by the card issuer’s bank. This can help detect fraud before the purchase goes through.

6. Use an EMV-enabled card reader for all in-person purchases

Your business is less likely to be held liable for fraudulent purchases if you have a card reader that reads a credit card’s chip, as opposed to a reader that only uses a magnetic stripe for purchases.

7. Follow cybersecurity best practices

There are a lot of practical steps you can take to make your company more secure:

  • Keep all of your systems updated and patched.
  • Use anti-malware protection
  • Use strong, unique passwords for every login (and every employee).
  • Use two-factor or multi-factor authentication whenever possible.
  • Train staff to avoid phishing emails.

Protect your business

You can’t prevent all fraudulent activity, but with the steps above you can prepare your business and better understand the risks involved in accepting credit card payments. Be sure to work with your finance team, financial advisor, or accountant to make sure you are taking the most up-to-date precautions to avoid fraud.

Keep your business finances organized with Divvy. Schedule a demo today.

The information provided on this page does not, and is not intended to constitute legal or financial advice and is for general informational purposes only. The content is provided “as-is”; no representations are made that the content is error free.

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