Don’t Let Credit Card Fraud Cost You: How to Spot Fraudulent Transactions

When we hear about credit card fraud, it’s most often in terms of consumers, and the affect that the crime has on their finances and credit report. Thankfully, for most people, a fraudulent transaction on a credit card usually results in an investigation, a reversal of the charges, and in most cases, a brand new card with a new account number. Few, if any, people are left holding the bag, so to speak, on fraudulent credit card purchases; most credit card issuers limit liability for consumers to $50, as long as the fraud is reported within the terms of the credit card or payment application agreement.

The same cannot be said for the merchants where those fraudulent transactions are made. Both online and brick and mortar businesses lose millions of dollars every year due to fraudulent credit card transactions. In 2013 alone, ecommerce businesses lost an estimated $3.5 billion to fraud — nearly $10 million per day. The banks may be reimbursing customers for the purchased made on their cards, but for the companies that provide goods or services to the criminals, they have lost inventory and time.

Credit card fraudulent activities

And the costs of fraud are about to become even higher for many businesses. As of October 1, 2015, businesses that accept credit cards are required to have the equipment in place to accept “chipped” cards. Cards that have chips are believed to be more secure, since all of the transaction information is converted to a single-use code that is transmitted to the processor, thereby keeping the information on the magnetic strip secure. After October 1, merchants that aren’t able to use chipped cards will be on the hook for any fraudulent transactions that occur at their business. In other words, you’ll not only be out the value of the purchase, but you’ll also be expected to reimburse the customer for the costs associated with the fraud.

Clearly, business owners must learn to identify the possible signs of fraud, before they lose money.

Red Flags to Watch Out For

According to several banks and security agencies, these are the most common signs that something is amiss:

Lack of identification

If you’re accepting a card in person, make it a matter of policy to ask for identification, even when the card is signed. If the identification doesn’t match, or the customer cannot or does not want to provide it, do not accept the card.

Mismatched Bill to and Ship to Addresses

There are plenty of legitimate reasons that customers may have different bill to and ship to addresses; for example, you may not ship to a PO Box, or they may be ordering a gift. However, it’s common for criminals using stolen credit cards to ship items to vacant homes or other addresses that will be difficult to verify. If an order shows different billing and shipping addresses, require phone numbers for both addresses so you can verify that the address is legitimate.

You can also subscribe to an address verification service, which will confirm the billing information provided before you authorize the transaction. Using the street number and ZIP code, the system confirms the billing address provided with the bank’s records and supplies a code that you can then use to authorize the transaction — or deny it if there are questions.

Many boxes
photo credit: Matt Cornock

Order Anomalies

Often, criminals will order large amounts of merchandise on stolen cards that they can turn around and sell. If you receive an unusually large order, especially when it is from a new customer or requesting overnight delivery, be suspicious.

Usually these transactions are made so that the merchandise will be shipped before the fraud is discovered, and there is no way to cancel the order, so make it a matter of policy to verify, then ship. Call the telephone numbers on the order to confirm, and if it is an especially large order, ask the customer to fax you a copy of the front and back of his or her card.

CVC2 and CVV2 Problems

Anyone who has made an online purchase is probably familiar with the CVC and CVV codes, the three digit codes that appear on the back of the card above the signature line. When a merchant submits this code along with the card number, expiration date, and transaction amount, the bank can verify if the information matches or if there are anomalies. An anomaly doesn’t mean that the transaction should be denied, but you may want to exercise more caution than usual.

By understanding the signs of fraud, you can protect your business from fraud and the subsequent losses. It’s always better to be safe than sorry, so even if it requires a few extra steps, take the time to confirm and verify credit card transactions.