Preventing credit card fraud in your small business

Losses due to credit card fraud can add up to over R 450 million per year in South Africa. It is also known to be the root cause of many grey hairs.

To help you understand card fraud, we’ve asked our VP of Risk & Data, James to explain how fraud happens and what you can do to protect your business.

Card fraud discussion with James Kramer

What happens when a customer uses a fraudulent card?

Let’s illustrate the fraud process using 2 characters – The Grinch and The Cat:

1. The Grinch steals a card from “Cat in the Hat” (Because Cat has no pockets).

2. The Grinch then purchases 2 Thneeds from your business for a total of R2000 using Cat’s card.

3. Cat reports his stolen card and the amount charged to his bank (Catitech).

4. The R2000 must now be paid back into the Cat’s account. The question now is who is liable?

If you as the business owner are at fault then your account will be debited for the R2000. This is called a chargeback. If you are not at fault then Cat’s bank (Catitech) will have to cover the loss.

So when would the business owner be at fault?

There are 3 situations where you may be at fault:

1. If you cannot prove the transaction was valid

To prove a transaction was valid you must have the receipt. Luckily Yoco stores all your receipts for you and includes transaction times, GPS locations and signatures. This is all used to protect you in the event of a fraudulent transaction.

2. If the customer (The Grinch) used a defaced chip and PIN card

This is a trick bad guys use as some card terminals will ask you to swipe the card if it cannot read the chip. Once a card is swiped, however, the PIN is no longer needed. If you allow a transaction with a defaced chip card to go though you could be at fault because you by-passed the cards chip security feature. Please take careful note of this and ensure you only allow the transaction to proceed if you know the customer well or if you confirm his/her ID matches the name on the card.

3. A suspiciously high number of fraudulent transactions are done in a short space of time.

Unfortunately, some businesses have been caught colluding with criminals to help them commit fraud. Because of this, if you are the victim of a high number of fraudulent transactions, an investigation will be opened.

What can you do to limit your risk of card fraud?

As with all things prevention is always better than cure. A bit of vigilance upfront can save you a lot of time, effort and grey hair down the line.

Limit card fraud by being vigilant

The first step is to reduce card fraud is to reduce swipe and sign transactions as much as possible by asking your customer if they have a chip and PIN card. If you absolutely have to do a swipe and sign transaction then make sure you check the customers signature on the back of the card with the signature they sign the receipt with. If the signatures don’t match then you should not let the transaction proceed (and don’t let them leave with the goods).

Other activity that could prove the person is not the legitimate card holder includes:

  • If the person purchases an unusual amount of expensive items.
  • They make random purchases, selecting items with little regard to size, quality, or value.
  • The customer doesn’t seem to know what their credit card limit is and keeps reducing the purchase amount until they are within the limit.
  • He/she charges expensive items on a newly valid credit card.
  • If photo identification cannot be provided.
  • The customer hurries you at closing time.
  • The customer purchases a large item and insists on taking it immediately, even if delivery is included in the price.

If you have any questions or would like to know how Yoco is working to help businesses be more secure, get in touch with us at hello@yoco.co.za.

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