What to do if you suspect card fraud by a customer

Check card issuer's guidelines, then deny the sale

Your Business Credit columnist 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, a website for independent professionals. She writes "Your Business Credit," a weekly column about small business and credit, for CreditCards.com.

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Question Dear Your Business Credit,
As an online vendor, I sometimes have clients use credit cards that I am fairly certain are not theirs. For instance, the client lives in another country and the credit card is from the U.S. I am frustrated with the fact that nine out of 10 times I can’t reach the credit card owner, and many times they don’t read their statements. I had someone call the other day who had a charge from June that wasn’t hers.  Luckily the person who used the card didn’t get what he wanted from us.  

I guess the big question here is, as a vendor how do I protect myself and the credit card holder? – Michael 

Answer Dear Michael,
Ugh! It’s not easy to run a small business. Having to weed out customers who may be misusing someone else’s credit cards can really add to the challenges.

That said, identity theft is a huge problem, and it can sting small merchants who aren’t careful. If you don’t properly authenticate each transaction, you may have to eat the charges under the card issuer's rules.

The simplest solution is to turn away business when you cannot verify that the person using the card is the actual cardholder, under the procedures outlined in the credit card company’s rules. 

Visa, for instance, has published guidelines for e-commerce merchants that outline what to do to avoid fraud. One recommended strategy is to confirm a transaction by sending a note to the cardholder’s billing address, not the shipping address. That way, if someone has stolen the card number and is shipping the merchandise somewhere other than the cardholder’s home, the thief will not get the note and be able to verify the transaction.

Visa also warns merchants to be alert for suspicious behaviors, such as “multiple transactions on one card or a similar card with a single billing address, but multiple shipping addresses.” These could represent organized activity, rather than one individual at work, according to Visa.

The suggestion I liked best from Visa’s guidelines is to trust your instincts.

“If a sale seems too good to be true, it probably is,” the guidelines say. “We hear all too often that what a merchant thought was a great sale turned out to be fraud.”

So take the time to check out that huge order that is being shipped halfway around the world to a customer with whom you’ve never done business. A little bit of extra work may protect you from being the victim of a fraud scheme.

Of course, there could be circumstances in which you can’t verify whether a transaction is legitimate. In such cases, you will have to find a tactful way to decline these sales so that you don’t offend people who might be honest customers.

I know from running my own small business that it is hard to turn away sales. If you’d like to reduce the number you need to decline, consider signing up for the additional card verification services offered by the predominant cards you accept. Fees vary, but if these verification services save you from eating even one big loss to fraud, it will be money well spent. 

See related: Protecting your business from credit card fraud, Should we charge our customers to use credit cards?, Chargebacks hit merchants not ready for EMV chip cards

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Updated: 03-24-2019