What to Do if You Suspect Credit Card Fraud by a Customer - man accepting a credit card from a woman

What to do if you suspect credit card fraud by a customer

Saturday, December 20, 2014

Identity theft is a pervasive problem in the modern age, and credit card fraud is one of the most common types. Scammers pose as well-meaning customers and cause financial harm not only to your customers, but to your business. 

Financial identity theft occurs when someone purchases from a financial institution that is not their own, resulting in a fraudulent charge. When the financial institution is an individual’s credit or debit card (or a similar payment tool like ACH, EFT, recurring charge, etc.), it’s credit card fraud.

Because merchants are often left paying the bill for fraudulent transactions, this article will focus on ways in which you as a small business owner can prevent your business from falling victim to scammers, and what to do if you suspect credit card fraud

Let’s first look at the common types of credit card fraud.

Common types of credit card fraud

Card-not-present: Card-not-present (CNP) is when someone obtains an individual’s information and uses it to make purchases either online or by phone. This information includes credit card and bank account numbers. Unlike an in-person transaction, the physical card and the cardholder are not in the merchant’s store when the crime occurs.

Credit card application fraud: This is when an individual’s personal information is obtained and then used to apply for cards with the intention to make fraudulent purchases.

Account takeover: Also known as “phishing”, attackers use emails posing as reputable companies to send malicious links or attachments that perform a variety of functions, including obtaining personal information. The account is then used to make unauthorized transactions.

Card theft: This is when physical credit or debit cards are stolen and then used to make in-person purchases. This is the simplest form of credit card fraud, and the type most preventable by merchants. 

How can you detect fraud as a merchant?

Every business wants to make transactions simple, quick, and seamless for their shoppers. But to protect yourself and your customers, it’s important to find a balance between smooth and quick purchasing and having safeguards to prevent fraud. As a business owner, you have the right to decline purchases at any time if you suspect fraud. Here are some red flags to be aware of:

  • A customer unable to remember their billing zip code or PIN.
  • Shipping to an address that differs from the billing address. 
  • An online purchaser who won’t or can’t answer your clarifying questions.
  • Rush shipping on large orders. 

If you see red flags such as these, confirm that the cardholder making the purchase is the rightful owner.

What to do if you suspect credit card fraud

Verify ID: One of the easiest ways to combat credit card fraud is to match the personal information on the card with the information on their ID. 

If the customer cannot present ID, ask for another form of payment. If they cannot provide an alternate form of payment, do not follow through with the transaction.  

Contact the customer directly if it’s an online purchase: An easy way to fight off fraudulent online transactions is to reach out to the customer with an email or phone call and ask for additional information to verify their purchase. Just the act of reaching out will usually determine if the transaction is fraudulent.

Here are some effective ways to phrase the conversation: “To fulfill your order, please verify…

  • the name of your bank.”
  • your name as it appears on the card.”
  • your address as it appears on file.”
  • the last 4 digits of your social security number.” 

If the customer cannot verify any of this information, or chooses to not reply, decline the sale. 

Take advantage of anti-fraud tools on your merchant account: With Heartland’s payment gateway, you can choose to have undesired Address Verification Service (AVS)/Cardholder Verification Value (CVV) result codes automatically reversed. An AVS is the billing zip code attached to the card holder’s credit card account. The CVV are the three (or four with American Express) digit codes found on the back of credit or debit cards. If a suspected fraudster cannot provide the code, the payment will automatically be reversed.

Check with your payment processor: Contact Heartland support or your payment processor for questions regarding your merchant account in the face of suspicious transactions.

Hold shipping items or delay services: Holding shipping items or delaying services for at least 48 hours when you suspect fraud can give the rightful cardholder time to report the incident. For example, let’s say a purchase comes through that seems too good to be true, like if someone were to buy your entire stock of one of your least popular items on an expedited basis. In a situation like this, it may be a good idea to delay shipping the product until you have determined that the purchase is valid.

Verify billing address: One effective way to keep out potential fraudsters is to simply verify their billing address. If their shipping address is different from their card’s billing address, send a letter containing random numbers or images to their billing address. Then ask the customer to report back through a phone call, text, or email what the letter contained. If they are the rightful cardholder, they will be able to do this. Fraudsters will most likely not respond. Verifying a customer's billing address is a powerful way to lure out fraudsters who do not live at the address at which they are claiming to reside. 

Contact card issuers/authorities: If you feel you’ve caught someone in the act of credit card fraud, or if your instinct is telling you to take one last verification step, do the following:

Refrain from telling the customer your concerns because this could come off as accusatory if the customer is the rightful cardholder. This could also create a dangerous encounter if the fraudster feels they’ve been figured out.

Call the toll-free number on the backside of the card; or if the purchase is online, call the card issuer’s toll free number. Tell the operator, “I have a Code 10 authorization request.” “Code 10” signifies that you as the merchant suspect possible fraud – either that the payment card has been stolen or tampered with, or that the customer is not who they claim to be. The operator will guide you through a series of yes or no questions. The credit card issuer will then contact the cardholder and verify if the purchase is fraudulent.

They’ll then instruct you on what to do next. Code 10 operators are trained to guide you through contacting law enforcement, if needed. If they are able to verify that the purchaser is the cardholder, they’ll instruct you to complete the purchase. If the Code 10 operator is unable to verify this information, then follow the instructions they provide. Depending on the circumstance, they may ask you to go through with the purchase, wait for the fraudster to leave, and then immediately call your payment processor to cancel the transaction.

If at any time you feel unsafe, contact the police.

Decline the sale: As business owners, we can sometimes let our guard down. This is precisely what fraudsters want. If you sense something is off about a purchase and the customer is unable to provide the necessary information, decline the sale. To avoid an awkward situation, apologize and tell them the card was declined and you’re unable to accept it, but that you’d be happy to take another form of payment. 

We’ve discussed what credit card fraud is, the different types of card fraud, what red flags to look for, and the steps to take if you suspect fraud. Hopefully, after reading this article, you are better informed about credit card fraud so you can help protect your business.

Ready to work with a payment processor who can help you prevent credit card fraud?

Heartland helps nearly 1,000,000 entrepreneurs make and move money, manage employees and engage customers with human-centered technology solutions that allow them to rise above the daily grind and lead their businesses into a brighter future. Learn more at heartland.us.