Understanding the Impact of Credit Card Fraud on Businesses and Best Prevention Strategies

Introduction

Whenever fraudsters gain access to a customer's credit card and successfully use it to make a purchase, the business loses money and the customer's trust. To detect and prevent this effectively, businesses need to implement several strategies which are given in this guide.

What is Credit Card Fraud in Businesses?

Credit card fraud is the use of a stolen credit card or debit card to perform transactions. It is very common among businesses and causes a lot of losses through refunds and chargebacks.

“Global card losses attributed to fraud reached $33 billion in 2022, according to payments industry research company Nilson Report, with the U.S. market representing roughly 40% of losses. It has forecast a persistent threat that could reach nearly $400 billion in card fraud in the decade to 2032.” - CNBC

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Impact of Credit Card Fraud on Businesses

Credit card fraud affects businesses in the following ways:

1. Increased Cost

Fraudulent transactions can cause additional charges for small businesses through chargebacks and refunds. If this occurs repeatedly, the businesses may run out of capital and stop functioning.

2. Time Wastage

When businesses are affected by credit card fraud, they usually spend a lot of time to investigate, fight, and resolve these issues.

3. Damaged Trust

When a fraudster accesses a customer's credit card, they lose trust in the business and make purchases elsewhere. They may never return to make another purchase or recommend the business to others.

4. Increased Training Cost

To prevent credit card fraud, businesses need to train their employees on how to verify and recognize fraudulent transactions. This training increases cost as the employees would be paid for the time spent in training.

Types of Credit Card Fraud

There are several types of credit card fraud. Some are:

1. Physical Credit Card Fraud

This results when a fraudster gains access to a customer's physical credit card and uses it to make purchases without the owner’s consent. Detecting this type of fraud digitally involves tracking transaction patterns, like locations and spending amounts outside the usual as well as frequency of use. Digital tools like AI-driven fraud detection systems and real-time alerts can pinpoint suspicious activity, helping businesses identify and address fraudulent transactions promptly.

2. Chargeback Fraud

Chargeback fraud occurs when a customer performs a transaction with a debit/credit card and then submits a transaction dispute to the bank, claiming that they did not authorize or receive the services/goods paid for or are not satisfied with them.

3. Card-Not-Present Fraud

These transactions are carried out without a physical credit card and fraudsters obtain the information through phishing scams, data breaches, or the dark web.

4. Account Takeover Fraud

Account takeover (ATO) fraud results when a fraudster gains access to a customer’s online account and uses it to perform unauthorized transactions. This is usually done through credential stuffing or social engineering attacks.

5. New Account Fraud

New account fraud happens when a fraudster opens a new account with their information, stolen information, or synthetic information. Afterwards, he uses the account to commit credit card fraud and disappears.

Signs of Credit Card Fraud

Some factors to look out for during transactions that can help prevent credit card fraud are;

1. Unusual Transaction Patterns

When a customer's purchasing pattern suddenly changes, for example when they do not purchase the usual amount or at the usual time.

2. Rush or Special Delivery Orders

Fraudsters are usually in a hurry to get their orders so there won't be enough time to check the authenticity of the transaction. Businesses should apply extra caution when handling such orders.

3. Orders from High-risk or Unusual Countries

When a business receives orders from countries that they normally do not receive from, it can be a sign of credit card fraud or a customer using a VPN. Such transactions should be cross-checked.

4. Huge Orders

Usually, high purchases can also be a sign of credit card fraud especially when it involves expensive items. Businesses should be careful with such transactions.

5. Repeated Small Orders

When a customer makes small transactions repeatedly, it may be a sign of credit card fraud as fraudsters do this to stay unnoticed and raise their chances of success.

How to Detect and Prevent Credit Card Frauds

Strategies to implement to effectively detect and prevent credit card fraud are:

1. Verify Your Customer’s Identity

The identity verification method is very effective for fraud prevention in businesses as most fraudsters do not have access to other information aside from the credit card. It involves requesting identification during the process of account creation, such as a valid ID, a passport, or a driver’s license, and verifying a cardholder’s information to make sure it matches.

2. Use Fraud Detection Software

Fraud detection software such as Payment Fraud Analysis uses AI, machine learning technology, and real-time monitoring to analyze large datasets and detect unusual behaviors. It is very important in credit card fraud protection.

3. Request for Additional Verification

Whenever the fraud detection software notifies the business of fraud or when some of the triggers of credit card fraud are observed, it is important to request extra verification to confirm if it is a fraudster.

4. Have Cybersecurity Measures in Place

Businesses should set up cyber security measures to detect and prevent data breaches. This includes the use of two-factor authentication for payments, keeping customers' data in a secure location and, the practice of internal controls.

5. Train Staff on the Latest Fraud Methods

Training employees on the latest methods used by fraudsters and how to handle such issues is important for fraud prevention in businesses.

Conclusion

Credit card fraud in businesses is a very common occurrence and every business that wants to thrive needs to implement protection strategies. Therefore every business owner needs to make use of the services provided by Greip to prevent the consequences of Fraud.

FAQs

Q: How are credit card frauds performed?

A: Credit card frauds are performed by stealing cards, opening new accounts with information collected in data breaches and creating another account with stolen information.

Q: Who pays for credit card fraud?

A: If a customer’s card is reported as lost or stolen, the bank or you as a business, pays for the purchases made with the card.

References

How can credit card fraud affect small businesses

Credit Card Fraud, How to spot it and block it in your business

Business Credit Card Fraud Protection

Chargeback Fraud, The Silent Killer of E-commerce Businesses,and Here is How to Stop it