Detecting Credit Card Fraud

Day-to-day transactions are becoming less reliant on cash and more on credit cards. 2016 total non-cash transactions increased 10.1% from the previous year. While this means consumers can spend more money, this also opens them up to the risks of credit card fraud. And merchants share those risks. Luckily, there are ways to mitigate credit card fraud in your business. Below, we’ll go over credit card fraud detection techniques and tools you can implement in your business.

What is credit card fraud detection?

Credit card fraud detection is when a business takes steps to prevent stolen money, products, or services obtained via an illegitimate credit card transaction. Credit card fraud can happen both by the cardholder themselves or by someone else. There are many ways a business can detect credit card fraud, which we’ll go over in a bit.

Why fraud detection is important?

How much does credit card fraud cost businesses? In 2018, merchants lost $2.94 in revenue for every $1 in fraud. According to the NRF, fraud is the top payment-related challenge retailers have in their business. In short, credit card fraud is rampant, expensive, and harmful to your bottom line.

How can merchants spot and prevent credit card fraud?

Merchants who take steps to prevent and detect credit card fraud will protect more of their assets. Here are five tips you can implement on a daily basis:

#1 Watch for suspicious behavior

If you have face-to-face interactions with your customers, sometimes it’s as simple as observing their behavior. At a certain point in your business, you get a general feel for how people engage with your space. Anyone who deviates from the norm isn’t necessarily a fraudster, but it can be the first red flag to watch for.

#2 Examine the credit card

Whether or not a customer is displaying suspicious behavior, you always want to double check the credit card. Ask for photo identification and make sure it matches the name on the card. Use a fraud detection system like an Address Verification Service (AVS) to mitigate fraud. Essentially, customers enter their billing address, and the system cross checks it with the address on file with the issuing bank. If there’s a mismatch, the transaction won’t go through. Other physical indicators to look for on the credit card include a weird size or shape, misshapen letters, damage, and anything that generally looks abnormal or out of place.

#3 Provide great customer service

Sometimes, credit card fraud is done by the cardholder themselves. This is known as friendly fraud, which is when a customer contacts their bank for a refund for a charge from a merchant for a legitimate transaction. This may happen both intentionally and unintentionally. If you offer proactive, quality customer service, customers are more likely to contact you directly with issues (helping to mitigate chargebacks). They’ll also see that your staff is paying attention to the sales floor, which could mitigate intentional external theft.

#4 Learn the different types of fraud

One of the first steps to detecting fraudulent activity is to keep abreast with the latest on credit card fraud. You need to know what you’re up against. The most common activities involving fraudulent credit card transactions include:

  • Lost or stolen credit cards. People can get away with fraudulent charges and unauthorized transactions by using a stolen credit card before the original card owner has had the chance to report it.
  • Chargeback fraud / friendly fraud. Chargeback fraud occurs when the shopper files a chargeback on a legitimate transaction. This type of fraud isn’t always intentional. There are cases when the consumer doesn’t recognize the charge on their statement, so they call their credit card company to dispute it.
  • Counterfeit cards. This is when a fraudster creates a fake card using someone else’s credit card details. Usually, fake cards are produced by skimming a real card through a magnetic swipe device and then using the stolen information to come up with a new card.
#5 Upgrade your software and hardware

When it comes to your payment processing technology, it’s absolutely critical to use tools with strong anti-fraud features. Look for PCI compliance, which is a set of industry standards that ensure companies process or transmit customer payment information in a secure way.

As far as your card readers go, use an EMV chip reader. These are known to be more secure than the traditional swipe reader. Swipe readers are vulnerable to credit card skimming, which is when a fraudster swipes a card that can hack into the system and export all of the information for the credit cards that have been swiped using that same reader.

Moving forward with fraud prevention in your business

Fraud is a large scale issue that merchants face every day. There is no one-size-fits-all solution to eliminating credit card fraud in your business. In addition to saving our members hundreds of dollars a month in credit card processing fees, Midwest Merchant Services offers breach protection to help safeguard your business against fraudsters.

Contact us today and learn why merchants love Midwest Merchant Service’s membership approach to payment processing.

As one of the top-rated credit card processors in the market, we’re able to save merchants $450+ a month in payment processing.

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