April 27, 2010

How to protect your business from credit card fraud (1 of 3)

Credit card fraud affects almost every business in Canada and accounts for 15 percent of all fraud in Canada. While this is a daunting statistic, measures are in place to reduce the risks presented by credit card processing.

Your business is not liable for credit card fraud if you can prove you were diligent in trying to detect fraud, this article will outline some common types of fraud and how you can protect yourself against them. Having a large number of chargebacks (reversed credit card transactions due to fraudulent activity) increases the risk assessment of your business, resulting in higher credit card processing rates.

In this three-part series, we will discuss:

• Common types of credit card fraud
• What to do if you business is targeted
• How to protect your ecommerce business from credit card fraud

Common types of credit card fraud

Today, we will discuss common types of credit card fraud and how to protect your business.

Lost or Stolen Card

Criminals who obtain lost or stolen credit cards may use them to purchase goods or withdraw money. Visa Canada, MasterCard Canada, and most other major credit card providers closely monitor the use of their accounts for fraudulent activity. They will freeze an account with suspicious activity until the issue can be investigated.

Protect your business by:

• Checking each purchaser’s signature to ensure it matches the one on the back of the card.
• Asking for identification from suspicious purchasers.

Upgrade to the new chip and PIN technology to protect yourself further. By October 2010, MasterCard Canada and Visa Canada will not accept liability for fraudulent activity committed against a vendor who has not adopted the chip and PIN technology.

Skimming

Skimming is a process used to create operational credit cards with stolen account information. This is how it works:

1. A payment terminal is illegally altered to record account information during credit card processing .
2. Information gathered through the altered terminal is transferred onto a magnetic strip.
3. The fraudulent magnetic strip is used to create a false credit card.

Protect your business by:

• Looking closely at holograms.
• Refusing credit cards that seem suspicious.

Switching to the new chip and PIN technology will further decrease your exposure to skimming risk, as chip and PIN enabled cards are not processed using the magnetic stripe.

Fraudulent use of the card without the card present

This primarily affects online businesses and businesses that accept payment over the phone or via fax. Illegitimate websites or telemarketers may collect credit information by promoting an often non-existent or exaggerated product, and then use the credit card information to create new cards or make fraudulent charges. Stolen or lost cards may also be used in transactions without the card present.

Protect your business by:

• If possible, only accepting credit cards from trusted and verified customers.
• If this is not possible, ask for the expiration date and the card security code.

VersaPay’s virtual terminal is designed primarily for merchants who process payments without the card present.

In our next post, we’ll talk about what to do if your business’s credit is targeted.

If you have questions about how to protect your business from fraud, speak with a VersaPay Relationship Manager.