If you’re in the business of selling online, chances are you’ve either been scammed or you’ve thwarted an attempted scam against your business. Because it’s our business to help small businesses accept payments online, from time to time we’re witness to a number of different types of credit card fraud and online scams.
We’d like to share some tips and stories from this experience with the aim of helping your business minimise exposure to them.
Credit card fraud
The most common form of online credit card fraud is where someone uses a credit or debit card they’re not entitled to for a purchase, known as an ‘Unauthorised transaction’.
The typical way this works is a scammer obtains stolen card details and targets particular online stores to make a purchase from. The typical targets for this type of scam are businesses selling high value products that can be easily resold, such as electronics.
Recommendations
Whilst there is no sure way to avoid these fraudulent transactions, there are some strategies your business can take to reduce your exposure to losses:
- Understanding risk for small businesses accepting payments online.
- Easy Card Authentication helps you verify the person making the purchase is the true cardholder.
Friendly fraud
Friendly fraud occurs when the true cardholder makes the purchase but they choose to dispute the transaction with their bank anyway. Their objective is to obtain the goods at no cost, by receiving their funds back through the dispute process, at the merchant’s expense.
You might wonder why the card issuing bank would allow a cardholder to dispute a legitimate transaction, but often the cardholder will provide a story which is simply not true. Common examples of this are claiming the goods were not received (when they actually were), or that the merchant didn’t have their authority to charge the card.
Recommendations
- Build relationships with your customers, so they’ll likely be more loyal to a small business in the long run.
- Keep detailed records of your correspondence with customers, including evidence of the transaction and fulfilment (signature on delivery is more useful when dealing with disputes).
- Make sure the refund policy and method for requesting a refund is clear to customers. Otherwise, customers might find disputing a transaction with their bank easier than asking for a refund.
- Take the time to understand consumer law and don’t make your refund policy too restrictive. Just covering your right to refuse a refund in your policy doesn’t mean your customer isn’t entitled to a refund, or that you will win a dispute if one arises.
Money forwarding
Money forwarding is an audacious scam where the scammer is aiming to receive a deposit of funds in their nominated bank account. They do this by trying to convince a small business with card processing facilities to process a payment for more than what the total of the goods or service come to.
- The scammer targets a service provider (rather than a retailer selling goods), and represents themselves as a customer who says they’re unable to speak on the phone for one reason or another.
- A purchase of services for some time in the future will be negotiated, usually that’s of high dollar value. One tell-tale sign of this scam is that the scammer will almost always confirm early on that the merchant accepts card as a form of payment.
- Once terms for payment are agreed, the scammer will expand on their story to include reasons why they can’t make it to the phone and (this is the key) they will usually introduce some other complexity that results in them wanting to overpay their invoice. For instance, they might claim to be moving into a new house but, because they’re stuck in hospital, they don’t have any way of paying their removalist. They will then ask if they can pay the “removalist” fees using the merchant’s card processing facility and provide bank details so that the merchant can forward the extra payment amount on to their “removalist”.
- Once this extra amount is sent on to this bank account, the scammer disappears, never to be heard of again, and never ends up using the service they have paid for. This scam works because the scammer is using a stolen credit card and then, when the true cardholder discovers the transaction on their card, they will dispute it with their bank and recover the full transaction value back from the merchant.
Recommendations
Never accept an overpayment for your goods or services. Never forward funds on to a bank account and always remember that, as a merchant, you are responsible for each transaction you process. Take extra steps to ensure you really know your customer — if you suspect a potential scam ask for ID and insist on calling them to confirm the order.
Finally, scamwatch.gov.au is a fantastic resource to keep abreast of current scams across the industry. We suggest subscribing to their email newsletter updates.
