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How small businesses can detect, address, and prevent credit card fraud

Credit card fraud is a growing concern for businesses of all sizes, but it can be especially damaging for small businesses. Here's a comprehensive guide to help small businesses combat this pervasive issue.


Fraudulent transactions can result in financial losses, damaged reputation, and operational disruptions. To safeguard their operations, small businesses must adopt proactive measures to detect, address, and prevent credit card fraud.


Detecting credit card fraud


Early detection of credit card fraud can save businesses from significant losses. Here are some key strategies:


1. Monitor transactions for red flags


Small businesses should be vigilant about transactions that exhibit unusual patterns, such as:


  • Large or multiple high-value purchases in a short timeframe.

  • Mismatched billing and shipping addresses/postcodes.

  • Orders placed with rush shipping requests.

  • Transactions originating from high-risk countries known for fraud.


2. Leverage fraud detection tools


Many payment processors and Point of Sale (POS) systems include built-in fraud detection features, such as:

 

  • Address Verification Service (AVS): Compares the billing address provided by the customer to the one on file with the card issuer.

  • Card Verification Value (CVV): Requires the three or four-digit security code on the back of the card for online transactions.

  • AI-Powered Fraud Prevention Tools: These tools analyse customer behavior and flag anomalies in real time.


3. Train staff to spot suspicious activity


Employees should be trained to recognise potential fraud indicators during in-person and over-the-phone transactions, such as:

 

  • Customers who appear nervous or distracted.

  • Cards that are declined repeatedly.

  • Transactions where the customer refuses to show identification.

  • Distraction tactics whereby the customer attempts to confuse the employee with noise, actions and peculiar behaviour.

  • Urgency: if a customer is trying to rush the sale for whatever reason, employees should never skip on protocol for the sake of haste.

  • Herd mentality: if the customer has brought in an entourage of people who are trying to pre-occupy staff members during a transaction, employees should remain calm and focused on the sale and blank out any human diversion attempts.



Addressing credit card fraud


Once fraud is suspected or confirmed, businesses must act swiftly to mitigate its impact:

 

1. Decline suspicious transactions


If a transaction raises concerns, it is safer to decline the payment and ask for another form of payment or additional verification, such as a government-issued ID.

 

2. Report the incident


Notify your payment processor immediately to initiate a fraud investigation. Additionally, file a report with local law enforcement or Action Fraud and share relevant details to aid in tracking fraudulent activities.

 

3. Engage with affected customers


If fraud affects a legitimate customer, communicate transparently and assist them in resolving the issue, such as by refunding fraudulent charges and providing guidance on reporting the incident to their card issuer.

 

4. Secure compromised systems


If the fraud stems from a data breach, isolate affected systems, consult cyber security professionals, and notify all impacted parties promptly, including customers and regulatory authorities.

 

Preventing credit card fraud


Prevention is the most effective strategy for mitigating credit card fraud. Here are measures small businesses can implement:

 

1. Implement secure payment practices


  • Use EMV (chip-enabled) card readers to reduce counterfeit card fraud.

  • Adopt end-to-end encryption and tokenisation to protect sensitive payment data.

  • Require strong authentication for online transactions, such as multi-factor authentication (MFA).


2. Regularly update security systems


  • Keep POS software, firewalls, and antivirus programs up to date.

  • Conduct regular vulnerability assessments and address identified risks promptly.


3. Educate customers


Encourage customers to protect their payment information by:

 

4. Establish clear policies


Develop and enforce policies to prevent fraudulent activity, such as requiring ID verification for high-value transactions or suspicious purchases.

 

5. Partner with reputable payment processors


Choose payment processors that prioritise security and offer advanced fraud prevention tools. Opt for providers with transparent dispute resolution processes to address chargebacks effectively.

 

Conclusion


Credit card fraud is an evolving threat, but with the right strategies, small businesses can significantly reduce their risk.


By detecting fraudulent activities early, addressing incidents promptly, and implementing robust preventive measures, small businesses can protect their financial health and maintain customer trust.

 

Investing in fraud prevention might seem costly, but the potential savings in avoided losses and preserved reputation far outweigh the expense. Prioritise security, stay informed about emerging threats, and create a fraud-resistant business environment to thrive in today’s competitive market.


 

Reporting

Report all Fraud and Cybercrime to Action Fraud by calling 0300 123 2040 or online. Forward suspicious emails to report@phishing.gov.uk. Report SMS scams by forwarding the original message to 7726 (spells SPAM on the keypad).

 

Comments


The contents of blog posts on this website are provided for general information only and are not intended to replace specific professional advice relevant to your situation. The intention of East Midlands Cyber Resilience Centre (EMCRC) is to encourage cyber resilience by raising issues and disseminating information on the experiences and initiatives of others. Articles on the website cannot by their nature be comprehensive and may not reflect most recent legislation, practice, or application to your circumstances. EMCRC provides affordable services and Trusted Partners if you need specific support. For specific questions please contact us by email.

 

EMCRC does not accept any responsibility for any loss which may arise from reliance on information or materials published on this blog. EMCRC is not responsible for the content of external internet sites that link to this site or which are linked from it.

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