Are You Safe from Credit Card Fraud? Four Steps to Security

Considering the slump the economy has been in the past several years, it’s no wonder thieves are getting more creative in their attempts to steal electronic payment information. Phishing scams are a common method used by fraudsters to trick users into revealing credentials through deceptive emails, texts, or phone calls. It may have been quite simple to get set up and processing with your merchant account provider, but keep in mind there are data security standards that must be adhered to in order to avoid potentially crippling fines if there were to be a data security breach at your company.

According to VeriFone, one of the largest manufacturers of processing equipment, “a single lost, stolen or compromised customer record costs your company $197.” Imagine how that cost can multiply if your security breach allows the hacker access to dozens of accounts! Hackers infiltrate corporate databases and steal thousands of card numbers, which are then sold on the dark web. This threat is real and its repercussions have put many an honest entrepreneur out of business.

Also, don’t let the fact that you own a small business lull you into a false sense of security. Visa and MasterCard have stated on many occasions that over 80% of data compromises involve small merchants just like you, and many incidents stem from costly payment processing mistakes small business owners make. Most small businesses think they’re too small to target, and it’s just that kind of mentality that gets them into trouble (lack of security, old equipment, non-PCI compliance, etc). In 2024, credit card fraud was the most reported form of identity theft, with more than 440,000 cases noted in the United States, and the Federal Trade Commission (FTC) received more than 480,000 reports of credit card fraud related to identity theft in the U.S., up 8.4% since 2022. Credit card fraud can occur through various methods, including card-not-present (CNP) fraud, application fraud, account takeover, and skimming. Card-not-present (CNP) fraud involves scammers using stolen credit card information to make purchases online or by phone, making it difficult to verify the buyer’s identity. Application fraud occurs when criminals use stolen personal information to apply for credit cards in someone else’s name, which can go undetected until the victim checks their credit report. Account takeover fraud happens when scammers steal personal information and contact credit card companies pretending to be the cardholder to gain control of the account, often changing passwords and PINs to lock out the real owner from their account online. Credit card skimming is the theft of personal information from the magnetic strip of a card, often using devices attached to card readers at ATMs or retail locations.

So let’s go over some tried and true ways to help your business stay out of harm’s way and ensure your customers’ data safety, starting with choosing a processor that avoids the common red flags of unreliable credit card processors. Review your bank account and credit card statement monthly or set up real-time transaction alerts to monitor for suspicious activity. Regularly monitoring your credit card statements can help you detect unauthorized transactions early. Many credit card issuers and financial institutions offer real-time alerts for transactions, and some now rely on AI-powered fraud detection tools to help you quickly identify unauthorized charges. Use strong, unique passwords and enable two-factor authentication on financial apps to enhance security, especially when accessing your account online. Detecting fraud involves monitoring for suspicious activity, such as unauthorized charges or changes to your account online. Advanced fraud detection technologies, such as artificial intelligence and machine learning, are used by financial institutions to detect suspicious activity and prevent fraud.

Understanding Credit Card Fraud

Credit card fraud is a serious threat to businesses and individuals alike, and it often goes hand-in-hand with business identity theft risks. This type of fraud occurs when someone gains access to your credit card account information—such as your credit card account number, expiration date, or security code—and uses it to make unauthorized purchases or commit other fraudulent activity. Credit card fraud can happen in many ways, including physical theft of a card, card skimming at point of sale terminals, phishing scams, hacking into online accounts, or even through a large scale data breach at a financial institution.

There are several forms of card fraud to be aware of. Physical theft involves someone stealing your actual credit card or debit card and using it for unauthorized transactions. Account takeover happens when identity thieves gain access to your existing credit card account and change account details or make fraudulent charges. New account fraud, or application fraud, occurs when someone uses stolen personal information to open new accounts in your name, making identity theft protection for businesses an essential part of your security strategy. Mail fraud can also play a role, with criminals intercepting credit card statements or new credit cards sent by your card provider.

The consequences of credit card fraud can be severe, including financial loss, damage to your credit reports, and the hassle of disputing fraudulent charges. That’s why it’s crucial to detect credit card fraud early and reduce the risk of chargebacks, holds, and freezes on your merchant account. Regularly review your monthly statements and bank statements for suspicious transactions or unauthorized activity. Set up account alerts and transaction alerts with your credit card issuer to be notified of any unusual account activity. If you notice anything suspicious, contact your card issuer immediately using the customer service number on the back of your card to report fraud and request a new credit card.

If your card is lost or stolen, report lost or stolen cards immediately to your credit card company. You should also consider placing a fraud alert on your credit reports with the major credit bureaus—Equifax, TransUnion, and Experian—to help prevent identity thieves from opening new accounts in your name. For added protection, a credit freeze can restrict access to your credit reports, making it harder for criminals to commit fraud.

In the event that you become a victim of credit card theft or debit card fraud, it’s important to report credit card fraud to your card issuer and the Federal Trade Commission (FTC) as soon as possible. Filing a police report and keeping documentation of all fraudulent transactions can help support your claim and protect your rights under federal law. Many credit card companies offer zero-liability protection, but acting quickly is key to minimizing damage.

To further safeguard your financial information, avoid making online purchases on public Wi-Fi, never share your credit card account number or security code with unverified sources, and always verify the legitimacy of websites before entering payment details. Consider using credit monitoring services to detect fraud early and receive alerts about changes to your credit accounts.

By understanding how credit card fraud occurs and taking proactive steps to protect your credit card account, you can help prevent unauthorized charges, safeguard your financial accounts, and maintain your peace of mind.

Four Steps to Prevent Credit Card Fraud and Identity Theft

1. Use an **Address Verification System (AVS)**This system is most often used in card-not-present and keyed-in transactions, like delivery or mail order. This system checks the billing address provided by your customer against the address the card’s issuing bank (the bank shown on the card itself) has on file. If the two addresses don’t match, the transaction declines due to the mismatch. AVS is available on many terminal models, so when picking out processing equipment, make sure your terminal comes with the AVS feature. There is a small fee per transaction to use AVS (usually about $.05), but it’s a small investment to keep yourself protected against fraud.

When choosing payment methods, consider using a credit card with an EMV chip, as it provides additional security against fraud compared to magnetic stripe cards. The presence of the physical card, especially with EMV chip technology, helps prevent unauthorized use and reduces the risk of certain types of credit card fraud, and it’s increasingly important as EBT and other cards move to chip-only EMV standards that require upgraded terminals.

1. Get the CVV Code! Card Verification Methods (Visa: CVV2, MasterCard: CVC2, American Express: CID) Card verification codes are the three or four digit numbers imprinted directly onto the credit card that help merchants validate transactions. This numerical digit is not part of the card’s magnetic stripe nor does it appear on credit card receipts. When you take an order online or over the phone, ask for your customer’s CVV code. In doing so, you have a greater chance of taking payments from legitimate customers in physical possession of their cards versus a hacker who may have acquired the card’s magnetic stripe information nefariously.

2. Don’t keep customer payment information on your premisesThis tip speaks for itself. If your business physically houses customer payment information on a server/computer at your location, you give hackers a reason to attempt to breach your company’s existing security measures; it makes you a target. Also, consider eliminating the use of wireless networking on equipment used to process transactions. Although it offers convenience, it also offers hackers another point at which they can attempt to intercept data. Additionally, implementing a dual authorization process for fund transfers can help businesses protect themselves from fraud by requiring two approvals before any transfer is completed.

3. Call your customerIf you’ve accepted a suspicious-looking payment via your website (think “big ticket item” or obscure country), take the initiative and call your customer to verify the information they’ve provided. Ask them to email or fax you a copy of their Driver’s License or State ID. Plus, while you’re on the phone, you can conduct voice verification. Does the person on the other end seem on-the-level? If not, don’t allow the transaction to go through.

If you suspect fraud or see an unfamiliar charge on your credit card statement, research it to ensure it’s not an authorized charge billed under a different company name. If you still suspect fraud, contact your bank or credit card issuer to freeze your account immediately and request a replacement card, and make sure your business is using secure payment processing solutions designed for small businesses to minimize future risk. When you suspect credit card fraud, reporting it quickly is crucial—after you report credit card fraud, your issuer will typically send you a new card with a new number, security code, and expiration date. You may also set up a fraud alert by contacting any of the three major credit bureaus, which can last from 1 to 5 years, to help prevent fraudulent accounts from being opened in your name. Monitoring your credit report regularly can help you identify and dispute any fraudulent accounts that may have been opened as a result of credit card fraud.

If you’re interested in learning more about what you can do to keep your company safe from unscrupulous data theft attempts, read up on PCI DSS(Payment Card Industry Data Security Standards) or PCI Compliance, and review what every business owner must know about PCI requirements. Along with the tips I reviewed above, they offer a wealth of information on how to stay compliant and use best practices when accepting electronic transactions.