Protecting your business from credit card fraud
Elaine Pofeldt is a journalist whose articles on entrepreneurship and careers have appeared in Fortune, Working Mother, Money and many other publications. She is a former senior editor at Fortune Small Business magazine and an entrepreneur herself, as co-founder of 200kfreelancer.com, a website for independent professionals. She writes “Your Business Credit,” a weekly column about small business and credit, for CreditCards.com.
Dear Your Business Credit,
I recently opened a gift shop and am accepting the major credit cards. I have one employee. What practices are most effective in avoiding credit card fraud? — Danielle
I’m glad you asked this question early in the life of your store. Many business owners don’t pay enough attention to fraud prevention — until it’s too late.
If your business makes a sale to someone who makes a fraudulent charge, you could lose the cost of the goods, according to Wells Fargo. There may also be charge-back fees to pay if the legitimate cardholder disputes the charge.
How can you prevent this? Wells Fargo recommends training your employees to detect whether a card is legitimate or not. One sign that a card is fraudulent is that it is missing the magnetic stripe on the back. You or your employee should also check to makes sure that the card is not expired and that the signature on the receipt matches the signature on the back of the card.
Some of your customers may not be happy to slow down long enough for you to scrutinize their cards, but if you explain that you check the cards to protect your clientele from fraud, they should understand. Personally, I am always grateful when a store scrutinizes my card and signature, because I know the employees would be likely to do the same if a criminal stole my card.
Occasionally, you may run into a card that says See ID on the stripe where the signature should be. The customer wants the cashier to look at their ID photo instead of comparing the signatures on the card and receipt — usually because they think they’re protecting themselves against forgeries. But Visa and MasterCard both stipulate that merchants should not accept unsigned cards. According to Wells Fargo, you may be liable for the charge if the customer has not signed the card.
If you’re considering asking for ID in addition to examining the card signature, be warned. Some card networks ban this practice, so you’ll need to check with them. Also consult your state attorney general’s office to make sure it’s legal in your state.
Be aware that credit card fraud isn’t always perpetrated by people we commonly view as criminals. A substantial amount is committed by family members of the victims, such as a teenage child or a relative with a drug problem, according to Experian. The victims don’t always report family members’ charges as fraudulent, but in case they do, it’s a good idea to stick with your credit card verification procedures for all customers and refuse to accept credit cards for a purchase from a family member who is not a cardholder.
There are some types of credit card fraud you need to tackle with technological solutions, because they involve the theft of consumers’ credit card information through your point-of-sale system. This kind of threat is growing. Verizon’s 2013 Data Breach Investigations report says more than 47,000 security incidents were reported by organizations around the world in 2012. Verizon was able to confirm that data was disclosed to perpetrators in 621 of the cases. Among those 621 cases, Verizon confirmed that the largest number, 193, happened at small firms with 1 to 100 employees. Among the confirmed breaches, 24 percent happened in retail environments and restaurants.
Point-of-sale fraud was one of the most common types of breaches among the 621 cases. A particular hazard to small business is what Verizon calls the POS smash-and-grab. It involves a combination of brute force password guessing attacks and malware. About 111 of the 621 verified attacks fell into this category.
There are many ways to prevent this type of fraud, according to Verizon. For instance, you probably hired an integrator to install your point-of-sale system. If you did not change the default password for your system, you should. For other suggestions, see Hackers up the ante for small-business data security.
Good luck with your business, and be safe!
Meet CreditCards.com’s reader Q A experts
Does a personal finance problem have you worried? Monday through Saturday, CreditCards.com’s Q A experts answer questions from readers. Ask a question . or click on any expert to see their previous answers.
To Her Credit
The Credit Guy
Speaking of Credit
Your Business Credit
Join the discussion
We encourage an active and insightful conversation among our users. Please help us keep our community civil and respectful. For your safety, do not disclose confidential or personal information such as bank account numbers or social security numbers. Anything you post may be disclosed, published, transmitted or reused.
If you are commenting using a Facebook account, your profile information may be displayed with your comment depending on your privacy settings. By leaving the ‘Post to Facebook’ box selected, your comment will be published to your Facebook profile in addition to the space below.
The editorial content on CreditCards.com is not sponsored by any bank or credit card issuer. The journalists in the editorial department are separate from the company’s business operations. The comments posted below are not provided, reviewed or approved by any company mentioned in our editorial content. Additionally, any companies mentioned in the content do not assume responsibility to ensure that all posts and/or questions are answered.
Three most recent Your Business Credit stories:
- How to know when a credit card charge is a scam As a small-business owner, fraudulent transactions can be disastrous to the bottom line. When accepting cards online, there are some ways to protect yourself.
- How reimbursement works for airline miles purchases If you purchase airline miles for a business trip with your own card, how do you calculate the value for reimbursement.
- Can I transfer my balance from a personal to a business card? Some business cards allow you to transfer a balance from a personal credit card to a business credit card, but it comes with a liability risk.
Did you like this story? Then sign up for CreditCards.com s weekly e-newsletter for the latest news, advice, articles and tips. It’s FREE. Once a week you will receive the top credit card industry news in your inbox. Sign up now!