10 Tips On How To Prevent Credit Card Fraud As A Merchant

Types of Credit Card Frauds Happening With Merchants

 1. Card-Not-Present (CNP) Fraud

This is the most prevalent type of fraud affecting e-commerce and remote transactions. In CNP fraud, criminals use stolen credit card details, often obtained through data breaches, phishing, or dark web marketplaces, to make unauthorized purchases online, by phone, or via mail order.

Impact on merchants: 

Because the cardholder is not physically present, merchants bear the liability for chargebacks when fraud is detected. Fraudulent orders are often flagged after the product has already shipped, resulting in both financial loss and lost inventory.

2. Card-Present Fraud

Although less common in EMV (chip-enabled) environments, card-present fraud still occurs, particularly in situations where merchants use outdated or compromised point-of-sale (POS) systems. Criminals may use counterfeit magnetic stripe cards, stolen cards, or cloned chip cards.

Methods include:

• Skimming: Devices are secretly attached to card readers to capture card data.

• Card cloning: Data obtained through skimming is used to create counterfeit cards.

Impact on merchants:

If chip card functionality is not used when available, liability for fraud shifts from the card issuer to the merchant.

3. Chargeback Fraud (Friendly Fraud)

In this merchant credit card fraud, a legitimate cardholder makes a purchase and later disputes the transaction with their bank, claiming they didn’t receive the product or never authorized the charge. In some cases, this is done deliberately after receiving the goods or services—a form of “digital shoplifting.”

Impact on merchants: 

Chargeback fraud can be difficult to prove and often results in the loss of both the merchandise and the revenue. Excessive chargebacks can also put a merchant’s payment processing privileges at risk.

4. Account Takeover (ATO) Fraud

With ATO fraud, a fraudster gains unauthorized access to a legitimate customer’s account, often through credential stuffing, phishing, or data breaches. Once inside, they make unauthorized purchases, update shipping addresses, or withdraw loyalty rewards.

Impact on merchants:

ATO fraud can lead to chargebacks, inventory loss, eroded customer trust, and increased operational costs for merchants, while also exposing vulnerabilities in security systems and damaging brand reputation.

Here, fraudsters pose as legitimate merchants to set up fake merchant accounts and process stolen card information. This scheme is commonly associated with high-volume fraud attempts and can be difficult to trace until significant damage has already been done.

Impact on legitimate merchants: 

Beyond direct losses, this type of fraud can distort industry risk profiles, leading to stricter compliance requirements or increased scrutiny for honest businesses.

6. Triangulation Fraud

This more sophisticated scheme involves three parties: a legitimate customer, a fraudulent seller, and a stolen credit card. The fraudster sets up a fake storefront offering popular products at competitive prices. When a customer places an order, the fraudster uses stolen credit card information to purchase the product from a legitimate merchant and has it shipped to the buyer.

Impact on merchants: 

The merchant processes what seems like a valid order, only to face a chargeback later once the true cardholder disputes the transaction.

Here are 10 simple tips to protect your business from credit card fraud:

1. Use a PCI-compliant payment processor: 

PCI-compliant payment processors follow industry-standard security protocols to protect sensitive customer data. By using a PCI-compliant payment processor, you can ensure that your customers' credit card information is protected.

2. Verify the identity of the cardholder: 

Another impactful way to prevent credit card fraud is by asking for the cardholder's name, address, and phone number and matching it to the information on the credit card, you can confirm that the person using the card is indeed the cardholder.

3. Check the card's security features: 

Modern credit cards come with various security features, such as holograms and signature panels, to help prevent fraud. Be sure to check these features before accepting a credit card payment.

4. Use a chip reader: 

Chip readers use a technology called EMV that is much more secure than the traditional magnetic strip technology. Chip cards and chip-enabled readers are much more difficult to clone or counterfeit.

5. Use AVS and CVV: 

Address Verification Service (AVS) and Card Verification Value (CVV) are additional credit card fraud prevention tools that check the billing address and security code of the card, respectively.

6. Monitor for suspicious activity: 

Keep an eye out for red flags, such as multiple small transactions or large purchases from a single card, which could indicate fraud.

7. Train employees: 

Employees should be trained to recognize and report suspicious activity. Make sure they understand your business's security protocols and are well-versed in card fraud prevention.

8. Use anti-fraud software: 

Anti-fraud software can help detect and prevent suspicious transactions by analyzing patterns and identifying potential fraud.

9. Limit physical access to credit card data: 

Restrict access to credit card information to only the necessary employees and ensure that this information is stored in a secure location.

10. Review your account statements regularly: 

Reviewing your account statements regularly allows you to catch any fraudulent transactions quickly, and stop them from getting worse.

By following these tips on credit card fraud prevention for merchants, you can help protect your business from credit card fraud. Remember, the key is to be proactive and stay informed about the latest security measures and fraud prevention techniques. Implementing these strategies can help reduce the risk of fraud and protect your customers' information, as well as your business's bottom line.