What Can Merchants Do: Preventing Credit Card Fraud

Kimberly Rotter

Kimberly Rotter | Blog

May 27, 2015 | Updated Apr 27, 2016

Modern electronics have made retail fraud infinitely more complicated and costly for the commercial victim, as well as irresistibly more attractive for the thief. Not too long ago, bogus $100 bills and bounced checks were the major ways in which goods and cash were illicitly pocketed. Electronic systems (and the advent of debit cards) now make it quick and easy to detect insufficient or non-existent funds, and paper currency counterfeiting is relatively uncommon (less than 3 bogus bills for every 10,000 genuine notes), though still a potentially expensive nuisance for merchants who fall prey.

The advent of credit cards, however, in all of their myriad configurations and levels of security, has exploded the rip-off factor and raised financial losses nationwide to the billions of dollars. According to a recent study by Javelin Strategy & Research, worldwide credit card fraud reached $11 billion in 2014, up from $8 billion in 2012.

As in any war between the good and the evil, countermeasures exist at multiple levels. There are many ways to thwart the ever-present probes by villains who seek to exploit weaknesses, inattention, carelessness or ignorance on the part of the merchant. At the most basic level of defense is plain and simple watchfulness. And common sense. Look for suspicious behavior. Trust your instincts. If it doesn’t look right, it probably isn’t.

Suspicious Customer Signs

  • The shopper seems to be grazing, not paying any attention to what they are buying or seeming to care about size, value or price.
  • At checkout, the customer pulls a credit card directly from a pocket, not a wallet or purse.
  • Blank look when asked for a photo ID, or excuses about having left their driver’s license somewhere.
  • Customer shows up in the store near closing time.
  • A harried demeanor or pushes you to complete the sale because they are late for an appointment (or other excuse).
  • Buys a large product but declines delivery.
  • Shows no interest in, and perfunctorily dismisses, warranty coverage on big-ticket items.
  • Customer signs his or her name with difficulty. A forged signature tip-off is when the individual is obviously slow and purposeful when they sign on the sales slip.

Suspicious Card Signs

  • Embossed card is missing one or more special features, like the stylized “D” in a Discover card.
  • The card just seems to be a counterfeit. Experienced staff handle countless credit card transactions and have an instinct for a card that doesn’t seem quite right. Perhaps the expiration date, card number, embossed name or other detail looks to have been tampered with.
  • Signatures on the card and sales draft are notably different.
  • Card is expired.
  • Ultraviolet image or hologram is missing.
  • Signs of meddling in the signature panel, like a word exposed by an erasure.
  • The magnetic strip is damaged or appears to have been tinkered with.

Check out these additional tips from Visa »

What To Do If You Suspect Fraud

If you or your employees suspect fraud at any time during the purchase process, call the issuer’s authorization center at once. Telephone numbers for major credit card issuer authorization centers should be permanently stored near every point of sale. The process is designed so as not to alarm the would-be customer.

Train the staff to follow a few essential procedures when a suspicious card is offered in the store:

  • Keep calm. Carry on normally in conversational tone and body language.
  • Do not alert the person who has presented the card
  • Retain the card in your hand if possible.
  • Answer the authorization center operator’s questions in a normal-sounding, business voice. Responses will not require any more complicated conversation than “Yes” and “No.”
  • Follow the authorization center’s instructions.
  • Never confront the suspicious customer or try to make an arrest.
  • If police help is needed, the authorization center will make the call while you wait on the line.

Follow Basic Rules On Every Transaction

  • Retain the transaction slip and merchandise behind the counter until a sale is complete. This stops anyone from stealing the store’s copy of the sales draft or running out of the store with the stolen goods when authorization is declined.
  • Never accept a letter claiming that the customer has permission to use the card. Only the person to whom the card was issued can use the card.
  • Absent a special merchant agreement, don’t accept credit card payments over the phone, by mail, fax or on the Internet. Special merchant agreements are available and can be obtained from companies like Global Payments or similar services.

Other Merchant Fraud Traps

Fraudsters who do not have merchant accounts of their own often ride seasonal schedules. Their method is to attempt to cozy up to your business. They may offer a kickback in exchange for depositing transactions through your account. Don’t do it. Protect yourself by processing only your own transactions. Also:

  • Be wary of feverish telemarketers hawking supplies connected with credit card issuers or other related financial institutions, but who are not associated in any way with the actual credit card issuer. Buy equipment only from authorized, known vendors.
  • Educate staff in correct credit card procedures for all transactions, and enforce compliance. It only takes a careless, corner-cutting moment to chalk up a heavy loss.
  • Inefficient accounting has caused more than its fair-share of woes. By reconciling receipts you quickly identify potential account problems.
  • No skimming. Staff must know about attempts to coerce them into harvesting account data from the magnetic strip on the reverse of credit cards. Criminals use miniature devices to skim off the information in order to manufacture counterfeit cards. The implementation of EMV technology in all U.S.-issued cards will help reduce this menace.

What You Need To Know As A Merchant

Accepting credit card payments is no small financial matter. Today’s retailer must know – and staff must be taught – how to fully and accurately deal with a complicated but absolutely necessary list of transaction requirements:

  • Learn to detect and avoid counterfeit and stolen cards
  • Understand card issuer responses
  • Quickly, safely accept eCommerce online payments from customers
  • Process card payments efficiently and in compliance with industry standards
  • Dodge transactions that lead to loss or penalty
  • Navigate returns and exchanges
  • Reduce chargeback risk

Protecting yourself from fraud entails knowing a lot of information, using it correctly and persistently. It is a full-time preoccupation but you also have a full quiver of arrows to fire back.

  • Follow the merchant procedures recommended by the payment processor and the credit card issuers. Failure can result in loss of your merchant account.
  • Know about Address Verification System (AVS), available in the United States.
  • Put Card Verification Methods (CVM) to work, like the signature box.
  • Keep a database of prior fraud attempts, problem customers and charge back records (called a Negative File).
  • Pattern Detection (PD): Check whenever multiple orders are shipped to the same address but different credit cards are being used. Call your customers. This is not only a good way to detect fraud, but also a valuable part of your customer service.

What do you think about these tips for staying safe? Are there any that you use that you didn’t find here? Let us know in the comments below!

Find more resources for merchants on our page: Accepting Credit Cards as a Merchant »
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