Experts' Corner

Prevent Credit Card Fraud This Holiday Season

The holidays are a time for glad tidings and good cheer. Unfortunately, the season also brings a surge in credit card fraud. Not only does this criminal activity hurt consumers, but it also erodes trust and robs businesses of hard-earned profits. Due to the widespread use of credit cards, it’s little wonder they are the primary method used by criminals to commit financial fraud. Consumers and businesses are most commonly targeted by those seeking to steal money or make unauthorized purchases.

While there are specific steps consumers can take to help secure their information, businesses can also follow best practices to protect themselves against theft by credit card. The measures will differ for card-present transactions versus online transactions. However, any precautions you take should be established procedures employees consistently follow when accepting payments.

In-Person or Card Present Payments
One of the primary reasons the U.S. leads in credit card fraud is due to the slow adoption of the
EMV (Europay, Mastercard, and Visa) credit card with a smart chip. It is currently in use by 20 billion people worldwide. EMV cards provide a more secure form of authentication than magnetic stripe cards because there is essentially a computer system embedded in every card.

Payment terminals can detect that the card is EMV compliant, that the card does not have a pre-issued PIN, and will validate the transaction. Outside the U.S., chip-and-PIN is the most common type of card. The PIN function is a secret four-digit code that is only known to the cardholder.

How EMV Liability Shift Impacts Merchants
Although upgrading to EMV is not the law, as of 2015, the liability for card-present fraud can now be the responsibility of the card-issuing bank or merchant.The fraud burden falls to the merchant if the card is “swiped” using the magstripe instead of “dipped” using the chip.This applies to businesses that have an EMV terminal and those who have not upgraded to EMV at this point. However, there is a sense of urgency by banks and companies in the U.S. to install devices that accept the cards.

Warning Signs of Possible In-Person Fraud
Here are a few things to watch for when the person making purchases is not be the rightful owner of the credit card. Signs of potential fraud include:

  • The person takes credit card out of pocket instead of wallet or purse
  • Purchase of a large number of expensive items
  • Attempting to rush you to finalize the purchase near closing time
  • Trying to convince you not to insert chip or swipe card by saying the card is damaged

Shopping Online Increases Fraudulent Payments
Online shopping presents the most significant opportunity for fraud. Hackers can obtain credit card numbers through unsecured or imposter websites, as well as through data breaches. The financial information can then be used to make online purchases without a physical credit card. This illegal activity is called
card-not-present (CNP) fraud and is 81 percent more likely to occur than point-of-sale fraud. In fact,
CNP fraud accounts for 45 percent of all fraudulent charges.

Although businesses can’t see the cardholders engaging in eCommerce transactions, they need to take extra precautions to ensure the fraudulent activity is not taking place. Warning signs may include:

  • Orders that include several of the same items that are odd to purchase in multiples
  • Numerous big-ticket items that have high resale value
  • Orders that fail address verification or CID 3-digit number on the back of the card
  • Rush or overnight orders
  • Multiple purchases on the same day
  • Orders made on multiple cards that are shipped to the same address

Four Ways Merchants Can Help Prevent Fraud
Creating processes and procedures that sales associates can easily follow will reduce the possibility of your business becoming a victim of credit card fraud. These four steps are non-confrontational ways to protect credit card holders and verify the person’s identity.

1. Check identification with every credit card purchase. When the name on the ID does not match the name on the card, the business owner can decline the transaction. However, if the cardholder refuses to present identification, the merchant must honor the card.
2. Check the Credit Card for Damage. Stolen cards may show signs of damage or tampering.
3. Use Address Verification Service (AVS) to confirm the address. It’s a reasonable expectation that the billing address will match the card-issuer’s address on file. If the address fails to match, the merchant can decline the purchase.
4. Carefully review return receipts. Check the person’s name, account number, and signature against the transaction receipt for conflicting information.

Report Fraud When It Happens
Employee safety is always the highestpriority when businesses encounter fraudulent situations. Instruct associates to remain calm and avoid alarming the person presenting the card. Contact the card issuer’s authorization center to ask for a code 10 authorization request. Answer all of the operator’s questions with a simple “yes” or “no,” then follow the instructions he or she provides.

Under no circumstances should the employee attempt to apprehend or confront the customer.
If needed, the operator will contact the police as the employee waits on the phone.

Which Consumers Are the Typical Victims?
While the elderly are considered the most likely credit card fraud victims, it is people ages 20 to 49 since they tend to have more credit cards and active accounts. Thirty-five percent of consumers have been victims of credit card fraud, and the likelihood increases as you age.

  • Credit card fraud increased 72.4 percent in 2019, from 2018
  • With over 270,000 reports, credit card fraud was the most common type of identity theft.
  • The Capital One data breach in 2019 affected 100 million consumers in the U.S.

The U.S. is the global leader in credit card fraud.Payment fraud has caused losses of $24.26 billion worldwide, with the U.S accounting for 38.6 percent. Its apparent credit card fraud will not go away soon. However, with EMV technology, the outlook has significantly improved. In 2016, in-person transactions accounted for just 2.4 percent of credit card fraud; in 2018, that number declined to 1.4 percent. Ecommerce is the new frontier for hackers and scammers due to the unprecedented growth in online shopping. Merchants who train store associates to watch for signs of fraudulent activities significantly reduce the chances of becoming victims.

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