How to prevent fraud when taking card payments over the phone

Follow the merchants' guidelines, verify delivery and consider verification services

Your Business Credit with Elaine Pofeldt

Elaine Pofeldt is a journalist whose articles on entrepreneurship and careers have appeared in Fortune, Working Mother, Money and many other publications. She is a former senior editor at Fortune Small Business magazine and an entrepreneur herself, as co-founder of 200kfreelancer.com. Her book, “The Million-Dollar, One-Person Business,” was released in 2018. She writes "Your Business Credit," a weekly column about small business and credit, for CreditCards.com.

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How can I prevent fraud when taking card payments by phone?

There are several steps you can take when accepting "card not present" transactions to prevent being a victim of fraud.

Start by checking out the merchant guidelines provided by card issuers. Then make sure you and your entire team are familiar with the guidelines for card acceptance from the major card networks.

Other ways to protect yourself include considering verification services.

Expert Q&A

Check out all the answers from our credit card experts.

 Dear Your Business Credit,

I have a restaurant business in which we have take out and delivery orders. In many cases the customer would like to pay over the phone with a credit card number. We stopped using this method for fraudulent uses.

There were several occasions where the customer claimed they did not make the purchase when, in fact, they did. How can I take payment without going through this issue? – David

Dear David,

I’m sorry to hear about the fraud you’ve suffered. It’s very disheartening to hear about people taking advantage of hard-working small-business owners like yourself.

It would be nice to be able to assume everyone is trustworthy, but, as you’ve seen, it’s better to err on the side of being careful. Forter’s Fraud Attack Index has found that the fraud rate in the food and beverage industry has increased by 60 percent in the past year. Factors such as increased use of online ordering have contributed, but phone orders are part of the problem, as well.

Fortunately, there are options available to you besides turning down “card not present” telephone transactions.

See related: 7 merchant tips to understanding EMV fraud liability shift

Know the rules for ‘card not present’ transactions

As a first step, check out the merchant guidelines that card issuers give you.

These are not gripping page-turners, but it’s important to read the rules for “card not present” or “card absent” transactions. So, treat yourself to a latte to get through them.

Know the rules for credit card acceptance

Also, make sure your entire team is familiar with the guidelines for card acceptance for each of the major credit cards and is trained to follow them to the letter.

It is possible that the people who’ve placed fraudulent orders by phone were not the actual cardholders, even though you thought they were.

Rigorous verification can help you identify fraudsters before you process a transaction.

Here are the merchant guidelines:

Guidelines for accepting absent-card payments

Each card issuer has slightly different merchant guidelines. To give you an idea of what you should be doing, here’s an example:

  • Visa says that at a minimum, the merchant should collect the cardholder’s account number, name as it appears on the card, expiration date and statement address.
  • Visa also suggests asking for the card’s start date, if there is one, and recording this and obtaining proof of delivery.
  • If the order is coming in by phone, Visa also suggests recording the time and date of your conversation and details of the conversation.

For all card-absent transactions, Visa also suggests asking for the card verification value (CVV2) that three-digit number in the signature area.

Card issuers also offer additional services to help in verifying people’s identities, so if you’re suffering from a lot of fraud, it’s worth inquiring about them.

‘Proof of delivery’ tips

American Express offers detailed suggestions on what the proof of delivery — a courier receipt — should include, and it’s not a bad idea to obtain this proof for every type of card used:

  • The date the merchandise was delivered.
  • Full name of the recipient.
  • The full shipping address, including the apartment number.

This can help you if there is a chargeback. American Express says it will not accept a chargeback solely on a cardholder’s claim if you have verified the address completely and have a signed proof of delivery, as described.

How to protect yourself against fraudulent purchases

If you’re especially worried about fraud in a certain situation, consider calling the cardholder to confirm the purchase.

Be sure to independently verify the phone number, either through records of a previous order or your own research online.

If a customer asks why you need to verify the information, explain that you are trying to protect cardholders from potential fraudulent activity, as Visa recommends.

Tip

Tip: Online orders are another type of "card not present" transactions prone to fraud. If your business processes online purchases, you can prevent fraud by following certain rules and using common sense. Read "How a business can fight fraudulent online orders" to learn more.

Fraudulent card purchase: What to do

If you are worried that, despite these measures, there is fraud going on, put the customer on hold and call the number on the back of the card -- ask the customer for it -- and ask for a Code 10 authorization. The operators at that number will guide you through what you should do.

Do these steps take extra time? Yes, but it’s worth taking an extra minute or two to process transactions, so you don’t end up giving your product away to crooks.

One fraudulent transaction can wipe out a whole day’s profits if your business is small or a transaction is unusually large.

Consider verification services

Of course, as a merchant, your time is money. The major card issuers offer other verification services for a fee, so it could be worth inquiring about them if you live in a market where there is a lot of fraud.

If a card cannot be verified and a card issuer produces another one, don’t forget to verify that one, as well.

Crooks may steal more than one person’s credit card number or more than one card number from a victim.

Keep a ‘gray list’

It is not a bad idea to keep an internal “gray list.” This is a record of chargebacks or disputes by delivery address.

If you have repeated problems at a particular address and suspect fraud, you may want to discuss this with relevant card issuers before processing more transactions there.

As a merchant, it’s no fun to have to think about crime, but unfortunately, there are a lot of crooks who’ll be happy to treat themselves to lunch —on you — unless you’re proactive.

Good luck!


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Updated: 03-19-2019