5 Common Mistakes That Put Your Business at Risk of Fraud

In 2015, there was roughly $21.84 billion in payment fraud worldwide, with companies and consumers in the United States dealing with 38.7% of that fraud. Whether your business takes credit card payments in a brick and mortar store or processes them as a part of an e-commerce business, it is very important for you to take a pro-active approach toward fraud prevention.


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Accepting a fraudulent purchase can end up being a costly mistake. If a charge turns out to be fraudulent, you could:

  • Lose merchandise and the payment you already processed
  • Damage your company’s reputation if fraud happens too often
  • Increase your payment processing fees

The more chargebacks you have as a result of alleged or confirmed fraud, the riskier you will seem to payment processors and even potential customers.

Keep your business’ assets and brand safe by avoiding these five common mistakes made by merchants when it comes to payment processing.

1. Failing to Maintain PCI DSS Compliance

The Payment Card Industry Data Security Standard (PCI DSS) sets minimum standards for businesses that accept and process credit card payments. These standards are in place for a good reason.

Every year, the techniques that people use to hack into processing systems and online secure storage become increasingly sophisticated. As security technology advances so do the technology intended to get around security measures. That means that security technology needs to be updated frequently in order to reduce the risk of fraud.

shutterstock_547889602Staying in compliance with the PCI DSS can make a major difference for your company’s risk of fraud. You will be much more vulnerable to fraud if your systems don’t meet minimum standards for safe processing and storage of personal financial information.

Because these standards are ever-changing, it’s important to work with a payment processing company that you trust to help you stay in compliance. Fraud protection and chargeback protection are both services worth investing in!

2. Not Taking Steps to Verify Identity

While you cannot require a customer to produce photo identification to use a credit card, there are other ways to help make each transaction more secure.

  • Online purchases: Request the three-digit security code on the back of the card. This helps reduce the risk that someone simply wrote down or purchased credit card numbers.
  • In-person purchases:  If the buyer refuses to provide ID, take care to ensure that your staff knows to verify and compare signatures between the sales receipt and the back of the card getting processed.

Make sure your staff understands the importance of getting a proper signature before releasing merchandise. If someone is signing credit card receipts using a name or signature that doesn’t match the card, a chargeback could be more likely.

Having careful fraud prevention procedures at checkout can reduce your risk of accepting fraudulent payments.

3. Keeping Mediocre Transaction and Shipping Records

The less information you have about a transaction, the harder it will be to fight back against a chargeback. If you have clear information about where the item was shipped and when it got delivered, you may be able to prove that the items were actually delivered to the customer’s billing address.

shutterstock_320491529-minRetaining specific information about purchases can also help you track fraud. You may be able to locate specific addresses or IP addresses associated with multiple fraudulent purchases. That, in turn, could help law enforcement take legal action against the individual(s) defrauding your company.

4. Not Looking Carefully at Mismatched Addresses for Online Purchases

When you make sales online, one major red flag is the purchase that ships to a location other than the billing address. While you certainly do not want to refuse gift shipments for customers, keeping careful records about these purchases can help reduce your risk of falling victim to fraud.

If the purchase involved shipping a product to a different address and name, you can limit risk if you:

  • Use a secure server that logs the IP addresses of purchasers
  • Ask for the three-digit security code from the rear of a card

While not foolproof, doing the above steps can help mitigate some of the risk involved with online credit card payments.

5. Placing Too Much Trust in Employees

shutterstock_424656073Of course, you want to trust your employees. After all, these people are the ones who are on the ground each day, making your business a success. However, you should have internal systems and monitoring in place to ensure that no one is engaging in fraud internally.

It only takes one bad apple determined to manipulate your system for profit to cost your company thousands.

A cashier, for example, could allow a customer to complete gift card returns without a receipt, potentially accepting back stolen merchandise for someone’s profit. A server could also purchase a credit card skimmer, collecting hundreds of individual credit card numbers over the course of weeks.

To prevent employee fraud, be sure to:

  • Keep Good Records: Updated security systems, active management and careful analysis of shipping, return and refund records can help decrease these risks to your business.
  • Limit Access to Data: If your business is online, you should ensure that no employee has unlimited access to payment information or stored personal financial information from customers.

Just like with card readers or shoplifting and return rings, digital financial records can prove a real temptation for some unscrupulous people. If you do not have proper security protocols in place, a single employee could steal and use or sell the private financial information of your customers without you ever realizing it has happened.

Better Safe Than Sorry

There are risks of fraud you should look for with every credit card transaction. However, you can (and should) take steps to limit the potential for fraud. Not only does this protect your customers, it can help protect your business, too!

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