Strengthen your department’s defenses against credit card fraud

In recent years, credit card fraud has loomed larger in the business credit community, whether it’s during counter transactions or online ordering. It is critical that credit teams know what credit card fraud looks like, even as it changes each day with advancing technology, to effectively spot and stop it wherever it may appear.

Why it matters: To prevent credit card losses due to fraud, it is critical that credit managers not only recognize the red flags that indicate possible fraud but also create a proactive approach that makes it easier for all departments to identify itat the onset.

As fraudsters take advantage of developing technologies, credit managers will find themselves fighting them on new fronts. “Credit card fraud is rising, especially in e-commerce environments, both due to the growing role of artificial intelligence and the increase in online purchasing,” said Mark Tapia, vice president of business development for United TranzActions (Miramar, FL). “There’s also been an increase in data breaches where credit card information is exposed and sold on the darknet.”

The best defense against credit card fraud is to learn the warning signs so that the transactions can be stopped before they happen, rather than trying to reduce losses retroactively. “Every scenario is unique like a snowflake,” said Michelle Kelly, CCE, CCRA, CICP, senior credit manager at Mansfield Oil Company (Gainesville, GA). “Maybe the credit card doesn’t match the name of our customer. That’s not bad in and of itself, but you need to figure out that person’s relationship to the business by doing research. Does the address match the one on file or is it states away from the business address? Are they trying multiple credit card numbers?”

There is no single indicator that will always determine if a transaction is fraudulent, but there are a series of inconsistencies or anomalies that should catch a credit manager’s attention. “Look out for mismatched billing and shipping addresses, repeated transaction attempts in rapid succession and the use of multiple cards for one order,” said Tapia. “If a customer’s order looks unusual, maybe deviating from their standard purchase, that can also be a red flag.”

Another common thread among fraud tactics is a sense of pressure, with the supposed customer stressing the urgent need for materials. “A sense of urgency is one of the things we look for in fraud,” said Leila Wolfe, CBF, credit manager at Ferguson Enterprises (Nashville, TN). “The customer may give the sense that the transaction needs to be done right away. That’s when I pause and say, ‘I’m going to have to call them back,’ so I can contact someone I know and confirm whether it’s a legitimate purchase.”

Effective protection against credit card fraud relies on multiple safeguards. “I suggest companies implement a layered fraud strategy,” Tapia said. “Using Address Verification Services (AVS) and Card Verification Value (CVV) validation can help ensure a card is legitimate when processing transactions without a card. Other tools they can use are velocity controls, which place limits on transaction amounts and their frequency.”

Credit managers can also consider tokenization, the act of replacing a customer’s credit card number with a meaningless token, to protect a customer’s payment details. “Instead of storing a credit card number in your system for future payments, you can replace that card with a token provided by your service provider,” Tapia said. “Then you don’t have to worry about anyone ever being able to intercept the card number. It’s important to add preventative measures to protect sensitive data stored within your company.”

While your credit procedures could be airtight, seemingly accounting for any trick a fraudster may pull, they must be continuously reevaluated and updated to account for the rapidly evolving business environment.

“Processes should be reviewed at least annually,” Kelly said. “Not only is fraud getting more advanced, but regulations and laws change. We have to think like the fraudsters to figure out how to outsmart them. People will find a way to steal and commit fraud if they try hard enough and we need to be ahead of that the best we can. We have to stay aware and teach our team members what signs to look for. It doesn’t do any good if a manager is taking all these classes if they are not taking the time to train their people.”

The bottom line: As credit card fraud becomes increasingly harder to spot with more business being done in digital spaces, it is important that credit managers build fraud protection into their credit processes and commit to continuously reevaluating and building onto procedures as fraud evolves.