12 Tips for Merchants to Fight Credit Card Fraud at the Point of Sale

Credit card fraud

It’s well documented that accepting credit cards is good for business, but there is one snag to accepting credit cards that every retailer knows and fears: fraud.

Credit card fraud can come in different forms, but they are avoidable if you know what to look for. These 12 tips will help you fight credit card fraud.

1) Educate Your Employees About Fraud

You need to be aware of fraud to avoid it, but so do your employees. You both make up the first line of defense. Train your employees well to know the signs of potential fraud and remind them periodically to always stay alert.

2) Compare Signatures and Ask for Identification

Very few retailers take the time to glance at the signatures anymore, but it’s simple and quick. Check for misspellings and make sure the name on the card matches the signature. Address the customer using the name on the credit card. If he or she doesn’t respond, ask for a photo ID and compare those signatures.

3) Ask to See the Card

Look for the card’s security features, such as a clear hologram with a moving picture and the Bank Identification Number above or below the first four digits of the account number. Check the numbers themselves for signs of alteration and look for signs of tampering on the signature strip.

4) Be Wary of Customers Who Keep the Credit Card Separate From Their Wallet

Most legitimate customers will keep their credit cards in their wallet along with some form of ID. Fraudsters are more likely to keep the fraudulent credit card separate from their wallet, so they do not have any means of ID with them.

5) Watch Out for Customers Who Are Distracting

They may either be very talkative or very angry. Or they may wait until the last second before closing time to make a big purchase. Either way, they could be a potential fraudster trying to rush the clerk and keep their attention off the card authorization process.

6) Think Twice Before Manually Entering Damaged or Worn Cards

Fraudulent cards are often damaged on purpose so the magnetic strip cannot be swiped. Instead, the customer may insist the clerk manually key in the card number, which bypasses the antifraud features of the magnetic strip. Always swipe the card, no matter how damaged. If the card can’t be read, ask for another form of payment.

7) Do Not Accept “Letters of Authorization”

Some fraudsters will present a letter from the cardholder that authorizes the use of their credit card. This should never be accepted as a form of verification. No one is allowed to “borrow” another person’s card, regardless of relationship. Only the cardholder is authorized to use their credit card.

8) Take Note of What the Customer is Purchasing

Have they purchased more than one of the same expensive item? Did they make their selections quickly, without thought to size or color or price? Or maybe they want a costly rush delivery to a different address, or they want to carry their purchase out of the store when it’s something normally delivered (such as large appliances or furniture). All these could be signs of a potential fraudster looking to leave your store quickly with their “hot” card and goods.

9) Use the Address Verification System (AVS)

Address Verification is most common with card-not-present situations (like online purchases), but it can also be used when the card is present at the POS. In addition to the usual checkout process, the terminal asks for the customer’s billing ZIP code. The transaction will reject if the ZIP code entered doesn’t match the one on file.

10) Know Your POS System and Equipment

Sophisticated criminals can access information on the magnetic strip of a credit card when it is swiped at checkout. This process is called “skimming,” and it requires an actual attachment to the terminal that reads the card. To combat this, make sure you know what your payment processing equipment looks like and how it should work. If you see an extra device or notice malfunctioning software, you know to investigate further before continuing to accept credit cards from customers.

11) Keep Accurate Records of Credit Card Transactions

Some fraud situations result from legitimate cardholders who make authorized purchases, only to fraudulently dispute the charges later. You can fight this kind of fraud if you are armed with the right information. Your acquiring bank can assist you with the process, but at minimum you will need the customer signature and evidence that you swiped the card and received an authorized approval.

12) When in Doubt, Call

If you feel something is not quite right, do not hesitate to call the card issuer for authorization. Keep the card with you and move away from the customer to make the call. You may feel you’re risking a sale by making the customer wait, but even if they are legitimate cardholders, it’s for their protection as much as yours.

Avoiding fraud is critical in ensuring safe transactions at your business. For more information, you can check out Community Merchants USA’s resources on fighting fraud.

Credit card image via Shutterstock

12 Comments ▼

Anita Campbell - CEO


Anita Campbell Anita Campbell is the Founder and Publisher of Small Business Trends and has been following trends in small businesses since 2003. She is the owner of BizSugar, a social media site for small businesses, and also serves as CEO of TweakYourBiz.com.

12 Reactions

  1. I didn’t even know that merchants could still key in the number. It’s been so long since I’ve seen it happen (and luckily haven’t had any of my cards go bad).

    • Anita Campbell

      Sure, it’s possible, Robert.

      But I actually think distraction may be one of the biggest issues. I was at an art fair over the weekend, and it was getting near the end of the day. One of the vendors told me the last hour of the show is when they were extra careful, because that’s when the fraudsters tend to come out. Someone will appear eager to “buy” quite a few things, time is short, the vendors are tired and let their guards down, and it’s those transactions where they are more likely to have issues come up. And it’s not just with credit cards or debit cards, but they also tend to have problems with bad checks near the end of a show, too.

      - Anita

  2. Martin Lindeskog

    Anita: Is the smart chip card implemented on the North American market yet? That will handle a part of the problem.

    Futuristic scenario: You pay with your smartphone and confirm your payment with touching the screen with your finger. The phone is connected to the card company and a control list with your unique fingerprint.

    • Anita Campbell

      Hi Martin,

      The chip-embedded cards and mobile-only solutions haven’t caught on quite the way they have in other parts of the world. When I ran a U.K. operation in the late 1990s, they were already using smart cards for various purposes, and used mobile devices to a far greater degree than in the U.S. at that time. The U.S. has come along more slowly — but things have accelerated here, too.

      Both MasterCard and Visa have products along those lines. I mentioned them in an earlier article in this series:
      http://smallbiztrends.com/2013/07/mobile-payments-need-to-know-retailer.html

      - Anita

      • Martin Lindeskog

        Anita: Thanks for the link. I remember that we have talked about this before! :) It is great if Community Merchants USA will highlight developments in different parts of the world and spread the information to merchants in the United States of America. We could see great synergy effects then.

        One thing that I have wondered about is the so called security code (3 digits) back of the card that you have to use during an online purchase. How safe is that code? I have heard about people who have scratched off the numbers on the back of card in order to be safer. Is that a good move?

  3. I don’t see #6 being feasible. In fact, I see a complete hissy fit being pitched if a cashier refuses to manually enter a card. People are conditioned that the cashier will manually enter it if it doesn’t swipe. Maybe it got demagnetized – but for a cashier to glibly hand it back and be like, “Nope, not gonna enter it”…? I see the manager being called and the line being backed up. Some people only HAVE one card, by the way. It could be their only form of payment. But I definitely don’t see anyone saying they won’t manually enter the card in.

    • Anita Campbell

      Hi Heather, I agree that it can be an issue not to manually input numbers. That’s where judgment and well trained staff come into play.

      Speaking from personal experience, we always looked at the totality of the situation. Is the person a regular customer? Then of course, I’d manually punch in the numbers. What’s the customer buying? If it’s a relatively small purchase and everything else seems legit, then no problem.

      But if there are other circumstances raising red flags — large or bulk purchases, the store’s almost about to close, the person appears nervous, and so on — then more caution is in order.

      Retailers and merchants encounter risks in many forms simply by opening the doors for customers everyday. It’s up to the business owner to decide how much and what types of risks the business is willing to take.

      Unfortunately, in some situations there may not be easy answers.

      - Anita

  4. Having had the opportunity to previously work in the credit card industry, 6 yr of which were working credit card fraud, the best advice I’ve given my clients is when in doubt call for an authorization. It’s better to lose a sale if the customer gets huffy over cutting corners and dealing with a fraudulent card.

  5. You can definitely still manually punch in the card number. It’s always worrying to give that information over the phone for food delivery. If you get a worker that cares enough to write it down, they could easily use all your information online.

  6. There are some few other ways merchants can be cautious. Every credit card has a particular hologram on it that changes color in the light, so merchants must check this to ensure the card is real. A non erasable signature line is another feature on the card by which a fraud credit card can be identified. I am thankful to Anita for this great handy article which has really allowed us a lot to know about and ways of identifying a false credit card.

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