Published November 29, 2021
If you’re a business owner, you want to protect yourself and your customers from threats like credit card fraud. But as newer, more effective methods for stealing personal information evolve, your point-of-sale security must evolve as well. The good news is that although it’s more common than ever to be a victim of credit card fraud, there is a diverse set of security measures that can protect you and your business.
Credit card fraud is the unauthorized use of a credit card (whether in a physical or card-not-present transaction) to make a purchase or assume a false identity. In 2019, credit card fraud rose to $28.65 billion worldwide, making it one of the most formidable threats to both consumers and business owners. As digital payment systems become increasingly versatile and widespread, thieves are coming up with innovative ways to steal information and make fraudulent purchases.
There are several types of credit fraud, including:
Card-not-present fraud is when a thief steals a customer’s credit card information and uses it to make purchases online or by phone. This kind of fraud is one of the most damaging for business owners, causing billions of dollars in losses for online merchants. As of a 2018 study by the Federal Reserve, card-not-present fraud remains on the rise, accounting for a majority of credit card fraud losses for businesses.
The magnetic stripe on the back of a customer’s credit card is vulnerable to theft by fraudsters with special equipment, often attached to gas station card readers, ATMs, or other POS systems. Despite increased security measures to prevent and combat skimming, it is still a considerable threat for cardholders.
Lost or stolen cards
It can take days – or even weeks – for someone to realize their credit card has been stolen. In that period, a thief can rack up several hundreds (or even thousands) of dollars worth of fraudulent purchases. By the time a person notices their card has been stolen, several businesses may have already absorbed the losses of illegal transactions, and could be forced to pay chargebacks to their card network.
Additional types of credit card fraud, including account takeover and application fraud, put both consumers and businesses at risk for devastating losses.
Credit card companies use complex algorithms and machine learning to detect fraudulent behavior. By using data such as the cardholder’s geographic location, as well as their spending and travel habits, an artificial intelligence program can distinguish a legitimate user from a fraudulent one. Companies also use techniques such as CVV verification (the numbers on the back of your debit or credit card), EMV chips, or address verification for card-not-present transactions.
Even with all of these security measures in place, business owners still have to perform their due diligence to prevent credit card fraud. For in-person transactions, this can mean observing the behavior of the customer and watching for any suspicious activity. It can also include examining the credit cards themselves, checking that the information on the card matches the person attempting to use it. The challenge can be even greater for card-not-present transactions, where a customer only needs the card information in order to make a purchase.
Luckily, business owners aren’t alone when it comes to credit card fraud detection. Finding a card management and POS system for your business can help stop fraudulent charges before they process.
Credit card management systems can give business owners control over their fraud detection solution, with real time alerts and data about fraudulent transactions. Using a combination of machine learning and relationships with financial institutions, a card management system can give you insight into the purchases your customers make, and help you prevent losses due to fraud. This means you can authorize and manage any transaction through a single platform.
You can also protect your business against credit card fraud through the use of encrypted POS systems. A fully integrated payment system ideally comes with its own robust security features. This could include the ability to process EMV chips, which are more secure than the magnetic stripe on the back of a payment card, and can prevent counterfeit chargebacks. Most importantly, a secure POS system will be PCI compliant, which means that is protected by a complex network of encryption that prevents fraud and keeps you and your customers safe.
When a consumer’s card is stolen and used to make purchases, the consumer is often protected by their bank or financial institution from any liability over $50. This usually means the charges are reversed, and the consumer can recover their stolen assets without being responsible for the fraudulent charges. This is great for the consumer – but this is often bad news for the business.
Learn more: Steps to take if you are the victim of credit card fraud
Whether or not the charge was legitimate, card networks will often find a business liable. This could mean that your business must pay back the charge without recovering any stolen merchandise. These losses add up, and can be a significant pain point, especially for small businesses. So how do you respond to credit card fraud within your business?
The first step you should take is report the fraudulent activity to your financial institution, and alert any affected customers. You may even have to temporarily pause all transactions until you can distinguish the legitimate from the illegal charges. Unfortunately, many businesses who are not protected from credit card fraud will have to pay the cost of chargebacks from fraudulent transactions. The good news is that additional screening and security measures are available to most businesses, whether for online or in-person transactions, and can prevent thousands of dollars of losses. The key is to put those measures in place before your business is affected by fraud, not after.
With the widespread prevalence of identity theft and credit card fraud, it’s difficult to avoid becoming a victim, either as a consumer or as a business owner. Still, there are several steps that you can take to protect yourself and your business from fraud. By implementing a secure security system and being diligent with your card payments, you can make thieves think twice about targeting your business.