Following merchant acceptance guidelines and putting in place a sound process for card-not-present transactions is the best way to proactively fight fraudulent charges that may result in a chargeback.
Dear Your Business Credit,
We recently accepted an order over the phone from a new customer, out of state. She paid by credit card. We delivered the merchandise via UPS.
A month later, a chargeback letter from our bank came. Apparently, the customer gave us a credit card that is not hers. We tried to call and email her but there was no answer.
How can I win here? Please advise us what to do. – Rowena
It doesn’t seem likely that the customer who made the unauthorized purchase is going to respond to you and suddenly pay up. She would not have used someone else’s credit card if she intended to pay for the purchase herself.
In a situation such as this, I would inform the credit card company of what happened immediately by responding to the chargeback.
See related: How do I stop a chargeback for a legitimate purchase?
When a fraudulent charge results in a chargeback
If you have any details on the customer, such as her name and contact information, let the credit card company know. I would also suggest filing a police report so the police can investigate.
State laws vary on how cases involving identity theft are treated and what the penalties are, if the perpetrator is caught. Your local police can give you further insight into how the process works in your state.
Time to review your not-present-transaction protocols
I am sorry to tell you that you may not be able to recover the money you lost in this case if you did not follow the card issuer’s transaction authorization procedures to the letter. Merchants sign agreements to follow those rules in order to accept the cards, and the card issuers push back if merchants have not held up their end of these contracts.
You can, however, win in this situation by changing the way you handle phone orders in the future. The major credit card issuers publish rules on how to handle “card not present” transactions. They are designed to prevent fraud.
Take this as an opportunity to study and memorize them and offer training to your team on how to follow them to the letter so you can reduce the chances of something like this happening again.
Create a defense plan against fraudsters
It’s easy to let down your guard when things get busy. Fraudsters know that and take advantage of it. Take back your power from them by developing a great defense plan.
As a handy reference guide, here are links to fraud-prevention guidelines from the major credit card issuers.
Beyond learning these rules, train yourself to trust your gut instincts when processing a credit card transaction.
If you are dealing with a new customer, make sure to request a form of identification and any other document that helps you verify their identity.
In cases where your inner alarm bells are starting to sound and you suspect someone is using a stolen card, put the customer on hold, call the credit card company and ask for a Code 10 authorization.
For more information on how this works, see my previous column “What merchants should do when they suspect card fraud.” If the card issuer cannot approve the transaction, tell the customer it has been declined.
It’s a shame that people take advantage of small business owners through fraudulent use of other people’s cards, but the good news is there is plenty merchants can do to protect themselves.
Fraud prevention does require vigilance, but it beats having to try to recover money you’ve lost to a crook.