Everyone involved in a given credit card transaction from you, the business owner, the banks, and the credit card processor are all exposed to unique risks when processing credit card transactions. 

By understanding where you’re exposed to risk, you can better protect your business and your bottom line.

As a merchant, you want to ensure that the credit card transactions that you process are for legitimate purchases and that they are not associated with any fraudulent activity. There are several different types of credit card fraud that you should be aware of. By understanding the different types of credit card fraud that might occur, you’ll be better equipped to know what to look for while processing transactions and protect your business.

Stolen Credit Cards

If you’re processing credit card transactions, it’s in your best interest to minimize the likelihood that someone is able to use a stolen credit card to make a purchase from your business. If you inadvertently process a transaction using a stolen credit card, then your business is at risk of a chargeback when the legitimate owner realizes that their credit card is being used without their knowledge. To help prevent the use of stolen credit cards you can use address verification or ask for the CVV (for card-not-present transactions), request photo identification, or check the signature panel to ensure that the person using the credit card is the actual owner.

Friendly Fraud

Despite the non-threatening name, this type of fraud is not “friendly” at all. In fact, it can be very damaging to your business. Friendly fraud occurs when a customer initiates a chargeback after making a purchase using their own credit card even if they have received the item or service. This may occur if the customer has unknowingly agreed to a recurring billing cycle, or if they are genuinely confused about what they were purchasing. Though friendly fraud is usually not coming from a place of malicious intent like most other forms of deliberate fraud, it can still be very harmful to your business. This is because the customer’s financial institution will cancel the transaction, refund the customer’s money, and the customer often keeps the item or service they received. This means your business has now lost out on a sale, are out product or hours, and have to incur the chargeback fee issued by the card brand.

Customer Dispute

A dispute occurs when a cardholder questions a payment made on their card with their card issuing bank. When a dispute occurs, your business will be charged a dispute fee, and the payment will be reversed. You will be able to respond to the dispute by submitting evidence to the card issuer demonstrating that the transaction was legitimate and that the customer agreed to the purchase. If the card brand sides with your business then the fee and the transaction amount will be returned to your account, but if the card brand sides with the consumer then the payment will remain refunded to the cardholder.

Issuer Dispute

The card issuer might open a dispute if the transaction seems suspicious to the card brand, or if the transaction was not authorized because the cardholder’s account is in collections and you did not obtain authorization to process the transaction.

Stolen Credit Card

If a transaction is processed for a credit card that has been stolen, then the original cardholder may file a dispute or a chargeback request after noticing that the unauthorized transaction was posted to their account. If the CVV, AVS, or customer details do not align with the details listed on the credit card, you can request additional details, ask for another payment method, or decline to process the transaction to help protect your business from the risk of processing a stolen credit card.

By being aware of the different types of credit card fraud that can occur you can take additional steps to verify the customer’s information prior to processing transactions and better identify when a transaction might be fraudulent. This will help protect your business from costly chargebacks and potential disputes.


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