How to protect your business from payment fraud
This guide explains the different types of payment fraud, how they work and the steps you can take to protect your business from them.
What is payment fraud?
Payment fraud is a growing problem for businesses, so it’s important to equip yourself with the knowledge and tools to reduce the chances of it happening to you.
It occurs when someone intentionally uses fake or stolen payment information, such as credit card details, to make a purchase. It can lead to huge financial losses for companies and can happen in a number of ways.
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Fraudsters can use information from credit cards, debit cards, or bank accounts to make payments. They may employ any of the following methods:
Identity theft: This is where a fraudster steals someone’s personal information, such as their name, address or credit card details. They can use this information to open new credit accounts or make unauthorised purchases
Skimming: This involves using a device installed on a payment terminal to steal credit or debit card information. Criminals then use the stolen details to make fraudulent payments and cash withdrawals
Phishing attacks: These typically involve emails, text messages or social media posts with links to fake websites that enable fraudsters to collect customer data
Account takeover fraud: This happens when a fraudster tries to log into your online banking or email accounts to make fraudulent transfers and payments
Chargeback fraud: This occurs when a customer makes a purchase using a credit or debit card but then disputes the transaction with their card provider or bank, claiming it was unauthorised, in order to get a refund. The business then has to pay out, even though the transaction was legitimate
Card fraud can happen online, over the phone or in person.
Card-not-present fraud occurs when someone makes an online or phone transaction without showing their physical card. All they need to make the purchase are the card details.
Card-present fraud, on the other hand, occurs when someone steals a physical card and uses it to make unauthorised transactions.
What are some of the signs of payment fraud?
It’s important to keep an eye out for the following signs as these could indicate payment fraud:
Unusual spending patterns: For example, if a customer who usually only makes a single purchase once a month suddenly puts in several orders in one go
Orders from high-risk countries: Watch out for orders from countries where you don’t usually conduct business. They could be genuine, but you should investigate first
Urgent orders: Requests for priority shipping could be a red flag. Fraudsters want to receive goods urgently so they can dispose of them quickly
Several small or one unusually large order: Some fraudsters might place many small orders, hoping they will go unnoticed, while others might request an unusually large and high-value order. These can be worth checking out
How can you protect your business against payment fraud?
Use fraud detection software
Fraudsters often use bots to hack accounts and find stolen payment details. But fraud detection software can block these bots from targeting websites and mobile apps, and monitor transactions for signs of fraud, such as unusual spending patterns. Usually, this type of software is easy to install and shouldn’t need any IT management.
Use anti-virus software
Ensure you have anti-virus software installed on your computer to help identify and remove viruses and malware that can steal data.
Boost credit card security
If you accept credit card payments, ensure you have robust security measures. Approaches include using a secure network, such as a virtual private network (VPN) and a security token. This reduces the risk of skimming and card fraud.
Ask for additional verification
If you spot anything unusual, it’s best to ask for additional verification. You can ask the customer for ID, such as a passport or driving licence, or you can verify their shipping and billing address to check they match the details on the credit card.
Limit access to sensitive information
It’s important to carefully consider who in your company should have access to sensitive information, including customers’ credit card and bank account details. Access to this information should be restricted to employees who actually need it.
Use strong password protection
Be sure to implement robust password protection and change passwords regularly. Passwords should be at least 10 characters and include a combination of letters, numbers and symbols. Don’t use obvious names and words.
Regularly monitor accounts
Check your business accounts regularly for suspicious activity. Look for unusual transactions or unusual spending patterns.
Keep up to date with security measures
Check you’re using the most up-to-date security measures and software updates to be sure you have the most effective fraud prevention tools.
Educate your team
Hold regular staff training sessions so that they understand how to spot the signs of payment fraud. It’s important to cover how to recognise fraud, including phishing emails, and have a policy in place on what to do if fraud occurs.
Stay informed
It’s important for you to stay as up-to-date as possible on the latest scams. Do your research and check for news of any new frauds that could affect your business.
Do credit card companies offer fraud protection?
Yes, many credit card companies and payment networks offer fraud protection. Mastercard and Visa, for example, both offer zero-liability protection. This means that the financial institution that issues your card won’t hold you responsible for any unauthorised transactions carried out on your card. This applies to purchases made in store, over the phone, online or via a mobile. It also covers withdrawals at an ATM.
However, keep in mind that this protects the cardholder – it won’t protect a business if they accept a fraudulent transaction. The cardholder must also have used reasonable care in protecting the card from loss or theft and report the loss or theft to the card provider quickly. With Visa, your bank or card provider must replace any money taken from your account as a result of an unauthorised payment within five days.
Similarly, American Express offers a Fraud Protection Guarantee, which also means you won’t be held responsible for any fraudulent transactions carried out on your card.
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About Rachel Wait
Rachel has spent the majority of her career writing about personal finance for leading price comparison sites and the national press, including for the Mail on Sunday, The Observer, The Spectator, the Evening Standard, Forbes UK and The Sun.