“Fraud” is a word that makes many business owners cringe. Even if you don’t want to think about the realities of theft, you have to be smart about the way you do business or you risk getting taken advantage of. Whether most of your transactions are performed online or you have an actual brick-and-mortar shop, you need to have safeguards in place to prevent against deceptive consumers.
Credit card fraud can be a financial drain for well-meaning business owners who must then turn around and refund transactions that were dishonest. If you’re getting taken advantage of on a regular basis, you might have to raise your prices to cover the losses, and faithful customers may balk at these higher costs, preferring to take their business elsewhere.
There is a growing trend in the online merchant world known as “friendly fraud.” This is a deceptive practice in which a customer makes a purchase, receives the merchandise and then contests the charge, often claiming the charge was unauthorized or they never received the product, so they can receive the goods for free. Not only does friendly fraud make the merchant suspicious of new customers, he or she still has to pay back the bank for the order. Even if an investigation takes place and the merchant wasn’t found at fault, there is still a chargeback fee to consider.
Consider the case of an Internet retailer who received chargebacks on his account totaling nearly $1,200. According to the merchant, the customers signed for the products and filed the chargeback the next day. When the retailer spoke to one fraudster on the phone, he was told that the buyer wanted to return the merchandise, so she called her credit card company and they suggested she file a chargeback. The woman received her money back and was still in possession of the merchandise. The online retailer contested that this practice was theft and threatened to file a criminal complaint.
As a small business owner, there are several steps you can take to guard your business against online merchant theft. If you are an online retailer, require that buyers provide a CVC code on their credit card purchases. This is also known as Card Verification Code. This data can help reduce the incidence of fraud. You can also require a signature for goods. This can help prevent consumers from claiming that they never received the merchandise. Lastly, keep all communication records with your customers, whether it’s a phone call or an email exchange.