August 16, 2023

Merchant Services

Fraudulent Charges and Avoiding Them

Merchant Services

Fraudulent activity is one risk of doing business. Unfortunately, in recent years credit card fraud has been on the rise in the US. Therefore, your business must have solutions that can protect your business from fraudulent charges. You can implement some solutions yourself, but you will need a third-party payment processor to help you. 

How do Fraudulent Charges Work?

These fraudulent credit card charges are also referred to as chargebacks. Unfortunately, chargebacks are just one of many fraudulent activities your business can be victim of. The cardholder will contact their bank when your business accepts a fraudulent credit card purchase. If the bank determines this was fraudulent, they will start a chargeback. 

The funds from the transaction in question will not be available to you. You can choose to dispute or accept the chargeback. If you accept the chargeback or the bank rules that it was fraud, the funds will return to the cardholder. You lose the sales revenue and will have to pay a chargeback fee to your payment processor

How can Fraudulent Credit Charges Hurt Your Business?

Credit card fraud can cut into your profits as you can be held liable for fraud with certain transactions. For example, your business is not liable for online purchases and purchases that use an EMV card reader. But your company would be liable if an EMV card reader was not used. This liability also applies if your business allows an EMV card to be swiped rather than using the chip. Your business will be responsible for paying for another‚Äôs crime. 

Fraudulent purchases can be doubly costly as you are unlikely to receive the fraudulently purchased item, and you have to refund the cardholder. In addition, if your business sees many fraudulent purchases, your bank may implement additional fees or fines on your business. This makes these charges all the more expensive for your business. Chargebacks can have both immediate and long-term costs for your business. 

Over the past few years, the number of chargebacks in the US has significantly increased. In addition, over 60% of merchants report an increase in first-party fraud by cardholders. 

Roughly the same percentage of merchants state this is a problem with their business. Very few surveyed by the 2022 Chargeback Field Report felt their company was succeeding when dealing with fraudulent purchases.  It is critical that your business has a solution to deal with the rising problem of credit card fraud. 

In 2020 alone, fraudulent charges cost merchants over $30 billion, and merchants won chargeback disputes less than a quarter of the time. You also do not want your customers to think your business is not secure with their credit card information. If it is known that your business deals with a high degree of fraud, they may wish to do business elsewhere. 

With the high costs of fraudulent charges combined with the difficulty of winning chargeback disputes as a merchant, you must protect your business from fraud from occurring in the first place. 

What can be done to Protect Your Business from Fraudulent Charges?

Customer Verification

Verify customer information such as an address, name, and contact information. If there are any changes, double-check to avoid fraudulent purchases. If the shipping address and billing address it is good to verify. Especially if the addresses are far from each other. Add signature requirements to deliveries to ensure that the right person received the delivery

Double Check Refunds

Double-check your refunds often to ensure they match verified and legal purchases. Your business can lose a lot of money if you give refunds for transactions that did not occur in the first place. 

Be Vigilant for Scams

Be careful of shipping scams requiring you to contact one shipping company and use several different credit cards for the order. This is just one example of various scams that can take money from your business. Keep an eye out for usual activity in your transactions that could be evidence of fraudulent activity. 

Increase Security Measures

Ensure your payment processing, and POS adheres to PCI compliance standards. Your payment processor should do this for you automatically. However, some do charge extra fees for this service. 

You can require CVV numbers for card not present purchases. By providing this three or four-digit code, you can add an extra layer of security to your online transactions. Never take card information over email. Criminals can easily take this information from insecure forms of communication such as email. 

Update Your Payment Descriptor

You can also update your payment descriptor that appears on credit card and bank statements. By making it something customers can easily recognize and including a help number they can call with questions you can reduce your chargebacks by up to 30%

High-Risk Bank Account

If a high degree of fraud is an inevitable component of your business, you may wish to have an account with a high-risk bank. These banks are more suited to dealing with processing a high number of fraud disputes.

How can Treati Protect Your Business?

Treati can work with your business to prevent you from losing money due to fraudulent activities and chargebacks. Treati adheres to the highest standards of security and is PCI Compliant. Unlike some other payment processors, we will not charge you additional fees for PCI Compliance.  

Treati also offers a wide variety of EMV card readers for in-person payment systems. Hardware with us will give you strong security for in-person transactions and help you avoid fraudulent charges. 

Treati also works with top-of-the-line partners to help your business deal with chargebacks. CardConnects‚Äô Chargeback Team works with Treati and provides an excellent experience dealing with chargebacks. Treati also partners with ChargeSentry and will work to win every chargeback dispute and save your business money. 

When you are in a higher-risk industry with a higher degree of fraud, Treati offers payment processing for high-risk businesses. We can also work to find you a high-risk bank account to further reduce the costs of processing fraudulent charges and chargebacks. 

Treati also allows you to create custom solutions for your business. For example, suppose there is an integration that you think could provide your business extra protection from fraudulent activity. In that case, we will be happy to work to make the best solution for you.