How to Protect Your Business from Credit Card Fraud

With more than 389,000 reports of US credit card fraud in 2021, there’s no doubt this type of scam continues to impact American consumers. However, while most individuals think of the repercussions of credit card fraud from the perspective of the cardholder, it’s also businesses that lose out.

Merchants are liable for many types of credit card fraud, meaning it’s small businesses that must refund customers when someone uses a stolen credit card to pay for goods or services. So, while accepting credit cards helps business owners increase payment convenience for their customers, reducing exposure to fraud is also critical.

This guide explores credit card fraud, its impact on your business, tips for preventing credit card fraud, and more. Let’s get started!

Credit Card Fraud’s Impact on Your Business

From a business owner’s perspective, excessive credit card fraud can be devastating. Let’s explore four issues arising from credit card fraud:

Financial Loss

First, if a cardholder contacts their bank to file a chargeback after a scammer uses their credit card, your business will likely need to refund the transaction amount to the cardholder. Your business will be out of pocket if the scammer already has the product.

Chargeback Fees

Next, it’s not just refunds that impact your business’s finances — chargebacks often carry significant fees. Payment processors want compensation for dealing with chargebacks filed against your business. However, if you prove the chargeback is false, most processors will refund the fees.

Payment Processing Penalties

If refunding customers and paying chargeback fees wasn’t enough, there may be other penalties too. Many payment providers will charge higher processing fees to businesses with excessive chargeback ratios. Additionally, you may lose your payment processing agreement altogether if you receive too many chargebacks!

Reputational Damage

Lastly, if your business doesn’t use fraud prevention tools to block scammers, it will negatively affect your reputation. You don’t want your business to be renowned for accepting fraudulent credit cards!

Top 4 Tips for Preventing Credit Card Fraud

Now that it’s clear that credit card fraud can cause harm to your business, it’s time to fight it. Below, let’s explore four tips for preventing credit card fraud:

1. Accept EMV Payments

EMV payments involve the use of “smart cards” — cards with integrated circuit chips. This type of card is much more secure than traditional magnetic strip cards. Scammers can copy magnetic strip information to create fake cards, whereas replicating a chip is more challenging.

EMV Payment Credit Card Terminal

In fact, many credit card processors no longer cover fraud losses if it results from non-EMV payments, so it’s more critical than ever to require this type of credit card from customers. This is only applicable to in-person payments. 

2. Use 3D Secure Payment Technology for Online Transactions

3D Secure payment technology uses two-factor authentication to reduce fraud exposure for online payments. While 3D Secure programs vary depending on the card network, they typically require customers to input a code into a payment gateway to verify they’re the cardholder.

For example, Mastercard SecureCode requires cardholders to pre-register a code (similar to a pin code) which is used to verify online payments. Other protocols use text or email verification codes to achieve the same goal.

3. Use CVV Verification, IP Address Verification, and Other Fraud Prevention Tools

It’s not just 3D Secure programs offering extra security for online payments; your business can also use CVV verification, IP address verification, and other authentication tools to reduce exposure to fraud.

These tools verify that information supplied by a customer matches the correct information in a corresponding database. While this isn’t failproof, it significantly reduces the chances of fraudulent payments.

4. Never Fold to Pressure from a Customer

Lastly, if you believe a customer is being suspicious, there’s no need to fold to pressure in the heat of the moment. Make sure to complete any verification steps before processing a payment — don’t let a customer’s anger prevent you from making the correct decision.

In fact, if a customer reacts badly to extra security measures, this may further indicate fraud!

Closing Thoughts: Investing in Fraud Protection Saves Your Business Time and Money

Research suggests for every $1 in fraud losses, a business suffers an additional $2.60 in losses from hidden costs (such as chargeback fees, etc.). Protecting your business from credit card fraud is essential in protecting your bottom line. Never underestimate the power of extra payment security, especially for card-not-present transactions, such as online shopping.

Fortunately, there are many POS systems and online payment gateways with advanced security tools to protect merchants against fraudsters. Always prioritize working with a POS provider that prioritizes payment security!

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