Your Business Credit

How to prevent fraud when taking card payments over the phone

With fraud attacks on the rise, it's best to be offensive rather than defensive against such transgressions


If your business takes card payments by phone, there are steps you can take to prevent fraud. Start by knowing – and following – the card networks’ merchant guidelines.

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

Check out all the answers from our credit card experts.

Ask Elaine a question.

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.

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.

According to Forter’s most recent Fraud Attack Index, “attacks against online food and beverage businesses (including restaurants, delivery services and merchants in this industry) have shown an increase in fraud for the second year in a row.” The numbers from Q4 2018 show there was an increase of 79 percent.

Factors such as increased use of online ordering have contributed, but phone orders are part of the problem, as well. Rigorous verification can help you identify fraudsters before you process a transaction – so you’re not just another statistic.

Here are the merchant guidelines:

  • American Express (page 21)
  • Mastercard (page 74)
  • Visa (page 44)

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.

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.

See related: Debt, fraud risks for mobile payment generation

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 you unless you’re proactive.

Good luck!

Editorial Disclaimer

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

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