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Business Owners: Don’t Be Tricked by These Credit Card Processing Scams!

June 18, 2018

As a consumer, you may be well aware of the numerous ways in how you can become a victim of fraud. However, did you know that even small businesses can fall prey to unscrupulous criminals? Given the frequency with which fraud is increasing, all companies that process credit card payments should exercise caution when accepting payments from customers, especially small and medium-sized organizations that don’t have the resources to deal with the effects of such scams. Provided below are three ways in which criminals commonly execute credit card processing scams, as well as some tips as to how you can avoid them.

Force Authorization Scam

Let’s say a merchant has remitted goods or services to a certain buyer, and now wants to finalize the sale by accepting payment via a credit card. Further, let’s assume that the customer’s credit card is declined. In that case, the merchant can call the cardholder’s issuing bank to obtain an authorization code to override the decline.

In case of forced sales transactions, any combination of digits forming the code can override the denial. When a fraudster presents a card to the merchant for payment and it is declined, he may tell the business owner that something like this happens quite often. He may then provide a combination of alphanumeric characters and ask that it be entered as the authorization code.

Now if the merchant listens to the fraudster and enters the fake code instead of calling the cardholder’s issuing bank for the valid code, the transaction will go through. Nevertheless, upon realizing that the transaction was fraudulent, the merchant will not be able to file a dispute. He will have to bear the chargeback, as well as costly fines.

The best way to avoid being scammed in such a manner is to never accept the code provided by the client in case of a credit card declination, and instead, allow the terminal to obtain an approval code to force the transaction.

Wire Scam

In these scams, the fraudster places a larger than usual order with the merchant. Then, the criminal overpays for the order via a fraudulent transaction and asks to have the excess money wired to a third party.

For example, let’s say a trickster orders $3,500 worth of merchandise from a toy shop, pays $5,000, and asks that the excess money ($1,500) be wired to a third party for product pick-up and delivery purposes. Since the transaction is fraudulent, the merchant will not receive the $5,000 that he was supposedly paid by the criminal via his credit card. Moreover, if the seller transfers $1,500 to the third party as instructed, then what was to become the sale of a lifetime can instead cost the merchant $1,500, plus fines and fees for conducting a fraudulent transaction. To avoid being tricked in this way, never accept money to be wired to anyone else for any reason.

Gift Card Credit Card Processing Scams

In this instance, criminals skim credit card numbers to create counterfeit cards. Or they may first steal merchandise and then return it in exchange for gift cards.

It has been observed that in 13% of cases, store employees are responsible for gift card fraud. For example, employees may issue pre-paid store cards or gift cards to relatives or friends who have not paid for them. There was also an instance where company software allowed employees to add funds to a gift card in a cash transaction and then void the cash transaction, leaving the funds on the card. 

To prevent such scams, you must put in place security measures to prevent the theft and unauthorized use of cards. Moreover, consider implementing a policy that requires both a receipt and an ID for all returns.

In case you ever feel that you’ve been defrauded by a criminal, refund the transaction immediately; do not provide the buyer with the products or services. Then, contact your payment processor’s risk department for advice.

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Ari Page Ari Page is the CEO of Fund&Grow. He resides in Spring Hill, Florida with his wife and two children.

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