Credit card fraud is running rampant and affecting millions of cardholders across the globe.
While individual victims are usually able to recover their stolen money via reimbursement and chargebacks, the merchants on the other end of the fraudulent purchases are often left hanging.
The reality is that credit card thieves and fraudsters are rarely caught, and even when they are caught they don’t usually have the funds necessary to pay back the costs that they’ve incurred. Because of this, credit card fraud often impacts merchants more than the individual victim when all is said and done.
Let’s take a look at some of the ways that credit card fraud affects businesses.
Card Present Fraud
A “card present” transaction is when a purchase is made in person with the physical card. There are a lot of security measures in place for these transactions, including using chip reading technology that provides an ID for each transaction.
So what happens when a customer uses a stolen credit card to make a purchase in person? Well, as long as the merchant observed all of the necessary security precautions, like utilizing a chip-enabled terminal, the merchant will not be liable for fraudulent purchases. Instead, the cardholder’s issuing bank will be held liable for the losses.
Of course, there is always the threat of card skimmers using a merchant’s point of sale technology to steal customer credit card information. A card skimmer is a device that’s installed at POS locations like gas pumps and ATMs. When word gets out that a merchant’s location was the site of card skimming activity, that can hurt business and put mistrust into the minds of potential customers.
Card Not Present Fraud
Unfortunately, the story is much different for online merchants dealing in “card not present” transactions. Like the name implies, card not present means that a physical card isn’t being used to make a purchase. Online transactions involve entering credit card information at checkout and therefore are not protected by security measures such as chip-readers and the like.
That means that online merchants are not able to offer physical security measures to ensure fraud-prevention measures at the time of sale. As a result, online merchants are held liable for any charges incurred on a stolen credit card.
The process happens like this: A credit card thief uses stolen card information to make a purchase or multiple purchases from an online merchant. The real cardholder notices unauthorized charges on their account, so they contact the account issuer (could be the credit card company, the bank, or a third party like PayPal), and then the account issuer forces a reverse of the charges in what is called a chargeback.
A chargeback essentially forces the merchant to return the funds to the account. Ultimately, the merchant loses out on both the product that was sold and the cost of the product. Unless the fraudster is caught, which again is very unlikely, the merchant has little option other than simply taking the loss.
On top of the loss from chargebacks, merchants will often even face fees from their own credit companies as a penalty for allowing the fraudulent transaction to occur.
There are cases when a merchant can dispute a chargeback, but this is only effective when it can be proved that the chargeback itself is fraudulent. Otherwise, the merchant is the only real loser in the case of online credit card fraud.
How Online Merchants Can Protect Themselves
If you are an online merchant, it’s pretty much inevitable that you will experience credit card fraud in some capacity. What makes the difference is how prepared you are for it.
There are security measures that can be taken on your end. For instance, multi-factor authentication for potential transactions is all but necessary, though it is a balancing act because you don’t want customers to get frustrated and turn away from purchasing your products.
It’s also important to encrypt any customer data that’s stored on your end. A lot of information is stolen via merchant data breaches, and encryption can add an extra layer preventing would-be fraudsters from obtaining that information.
Cyber insurance can be an added measure to protect against chargebacks, but it’s not cheap and it’s up to you to decide if the added costs are worth it.
Protection against credit card fraud is always a tricky proposition, given how the tactics of fraud are constantly changing and evolving to adapt to new security measures. The best defense is to partner with a team of experts who know how the minds of fraudsters work and how to defend against them.
Fight Fraud with Fraud.net
Fraud.net is a proven expert in the field of anti-fraud security. We can help protect your business from credit card fraud and more. If you or your company are looking for the ultimate fraud defense platform, sign up for a free demo today.