What merchants need to know about risk and fraud

Below are some of the common issues fraud can generate for your business, including:

• Revenue setbacks. Businesses impacted by fraud are often responsible for fulfilling chargebacks and covering other financial costs to repair the damage.
• Increased fees. If your business frequently deals with chargebacks, your payment processor could increase fees to offset potential risk. 
• Tarnished image. You risk damage to your reputation if you accept fraudulent transactions, as customers who file a chargeback at a business are less likely to buy from that business again in the future.
   

• Account takeover. Account takeover can occur when a fraudster gains access to customers’ credentials through a data breach or phishing scheme and makes fraudulent purchases. It can be difficult to detect since the purchases often look legitimate.
• Stolen cards. Fraudsters can use a stolen or lost card, obtained through theft, data breach, or purchased on the dark web, to buy from your business. 
• First-party misuse. First-party misuse occurs when a customer requests a chargeback after receiving the goods or services they purchased. This is one of the most difficult types of fraud to prevent. A recent MRC and Visa report found that, in 2023, 34% of businesses fell victim to first-party misuse.³
   

A common outcome of fraud is a chargeback. Chargebacks occur when a cardholder disputes a transaction posted to their account, claiming the transaction was unauthorized or the result of fraud, a good or service purchased was not received, or the good or service received was not as described. Chargebacks can be costly for your business. Not only could you lose the disputed amount, you could also lose the product or service and might be charged additional fees by your processor.

Fortunately, there are many steps you can take as a business owner to protect against fraud. You can help prevent account takeover by implementing two-factor authentication and requiring customers to choose strong passwords when creating their accounts. You can also request regular password changes from your customers. 

As a business owner, you know your customers best. Fraud often presents itself as activity that looks outside of the norm. With the right technology, you can track customer’s IP addresses and get a sense of where they are located. Pay attention to geographical inconsistencies that don’t make sense for your customers, such as billing addresses and shipping addresses that don’t match the IP location. It’s also helpful to look at the products purchased, timing, and transaction values to identify suspicious patterns.

First-party misuse can also be managed by implementing better tracking tools to confirm the arrival of an item or by having return and refund policies easily accessible to your customers. If you sell products or services online, make sure you provide clear descriptions for cardholder statements, including customer service contact information. Customers will be less likely to file a chargeback if they have these resources available.

In addition to the tactics we’ve covered above, here are some other things you can do to secure your business:

1. Use a secure gateway with fraud prevention and detection tools and software 
2. Train your employees to detect and prevent fraud
3. Monitor transactions for suspicious activity
4. Keep all sensitive data secured
5. Stay informed about new fraud trends
    

Authorize.net offers an Advanced Fraud Detection Suite (AFDS) that can help you identify, manage, and prevent suspicious and fraudulent transactions. Using AFDS can reduce costs for your business, protect profits, and maximize the flexibility of your fraud strategy.

Learn how by contacting us or call us at 1-888-323-4289.