Point of sale fraud: credit card fraud protection

What is credit card fraud?

Credit card fraud is the criminal act of using stolen or fake credit card information to complete a transaction, such as purchasing an item or obtaining a cash advance.

There are many different types of small business credit card fraud. Account takeover fraud, for example, occurs when someone steals another person's credentials to make unauthorized transactions.

If not handled properly, credit card fraud can cost businesses valuable revenue, sensitive information, and consumer trust. As the Federal Trade Commission reported, consumers lost more than $5.8 billion to fraud in 2021 — a more than 70% increase from 2020.¹

What are the types of POS fraud?

There are three main types of POS fraud to watch out for:

• Chargeback fraud: Also known as friendly fraud, this occurs when a fraudster makes a purchase and then attempts to get a refund or chargeback through their bank or credit card issuer.
• True fraud: This happens when a scammer uses stolen payment information to complete an unauthorized transaction.
• Card testing fraud: When a thief steals and tests a batch of credit cards by making small purchases to see which ones are still active.

To help identify POS fraud, frequently check your transactions and keep an eye out for unusual activity.

How does fraud occur on POS systems?

Fraud can bypass POS security through:

• Bugs: Bugs can be planted within POS devices to hack their systems and capture payment information.
• Recording devices: Cameras can be inserted to view and steal credit card details.
• Lack of security: Encryption tools and other security solutions can help secure transactions and safely send customer information to the payment processor.

Why is fraud protection important?

Online fraud prevention is important because if your business receives a fraudulent payment, you could be held financially responsible for the loss.

Nobody knows your business as well as you. You know your biggest customers and are familiar with their buying patterns. Because no payment processor will ever surpass your knowledge in these areas, your involvement in fraud protection is essential.

How to protect your business: in-person fraud prevention

Protect your business from in-person fraud with these POS system security tools and techniques:

• Swiping cards: Swiping cards can help reduce the chance of fraud since each magnetic stripe includes built-in security features that are not available for manually entered transactions.
• Phone payments: A virtual terminal is a secure tool that was specifically designed for businesses that accept payments via phone, fax, or mail order.
• Keyed and scanned payments: When you manually enter card numbers, the transaction fee is slightly higher, and payments may not be available right away. To help protect yourself against fraud, enter the customer's zip code for each payment.
• Equipment safety: Point cameras towards your POS system as a safeguard and raise awareness by teaching staff members about how POS fraud commonly occurs.

How to protect your business: online fraud protection

POS fraud prevention strategies:

• Post your return policy. Post your returns policy in a visible place on your website so customers can read it before they pay for their orders. Also, include your return policy on the sales receipt.
• Use invoices. You can also include your return policy on your invoice. The invoice should display the date, description of the item or service, number of items purchased, amount, and customer's signature.
• Verify your credit card statement name. Make sure customers can recognize your business name on their debit or credit card statements. If customers don't recognize a charge on their statement, they may think that the charge was fraudulent and open an unauthorized chargeback.

Using PayPal for fraud management

Learn more about PayPal fraud protection.