Part 3: Safe and Smart: Teaching Customers How to Make Secure Online Payments

DISCLAIMER NOTE: The information provided in this article is for informational and awareness purposes only and should not be construed as legal advice. 

In the previous installments of this series to help teach your customers how to keep themselves protected from payment fraud we’ve covered the scale of fraud that exists, the types of fraud that are prevalent, how to identify fraud, protect themselves against it, who is liable, and the steps to take if they are a victim.

In this final installment, we’re going to get into some real-world examples to show how it has happened to others, as well as to explain how they could have prevented it in the first place. We will close with a summary to help remind merchants of how best to educate their customers in ways to protect themselves from becoming victims of payment fraud and help their customers feel more secure about doing business with them.

Real-life examples of Payment Fraud (and how it could have been prevented)

The Prison Guard

A prison guard was alerted that he had become the victim of fraud when the fraud unit of a national jewelry store franchise called to let him know that someone was attempting to open a credit account in his name. Thankfully the store in question refused to open an account when they realized the person attempting to open the account was an identity thief, but the damage had already been done.

When he called the credit bureaus, the prison guard learned that multiple credit checks had been run in his name, and three separate credit accounts had been opened and charged $1,200, $3,700, and $3,900 all in the same month. He then filed a report with the police and placed a fraud alert with the credit bureaus.

After his own investigation, the prison guard was led to believe that his information was stolen after he purchased a vehicle from a local car dealership.

How this could have been prevented

Both personal data and ID theft are big businesses today, and your sensitive information runs the risk of being stolen to be used in payment theft and identity theft any time you give it. Whether through purchasing a third-party credit monitoring service or diligently checking bank, credit, and credit reporting statements, the only way to truly prevent payment fraud in your name today is to keep an eye out for fraudsters using your information after you submit it to any outside organization.

The Widow of a Former State Representative

The widow of a former Texas state representative learned that she had been the victim of fraud when creditors began contacting her about missed payments. With over $70,000 worth of payment fraud committed in her name, the thief had charged $12,000 to a platinum Visa account, purchased a Toyota vehicle, opened a telephone bill with AT&T, and attempted to open a Sallie Mae account for student loans in her name.

The widow discovered that the 24-year-old identity thief had previously lived in the same apartment complex as she did, which makes it likely that the widow’s personal information may have been stolen through the mail. The widow filed a police report for ID theft and told the creditors to repossess the vehicle as she’d never bought it in the first place.

How this could have been prevented

Fraud is a major issue today because thieves can steal your information in the physical world (as with the widow’s mail) and use it in both the physical (buying a new car) and virtual worlds (payment fraud through stolen identity credit cards).

Most banks and credit card companies will allow for requesting digital statements rather than physical ones being mailed to you, which may prevent the ability for someone from stealing them from your mailbox to open fraudulent accounts and commit payment fraud in your name. As with the prison guard example, a credit monitoring company could have alerted the widow in this situation when the first account was fraudulently opened in her name.

Vice President of Commerical Lending

A bank VP of commercial lending realized that something was wrong when he began to receive unsolicited credit cards in his name and a letter from a major department store declining a request to open a new credit card account since he already had one with the store in question.

Checking his credit bureau reports, the VP discovered that his name had been used to apply for 40 different credit accounts, including with multiple retailers, Visa, and Mastercard. His information had also been used to buy a sports car, open four credit cards with $10,000 lines of credit each, rent an apartment, and spend $2,000 at a major warehouse retailer. Thankfully the sports car dealer had photocopied the thief’s driver’s license and phony social security card, giving the police a picture of him (he was arrested for fraud).

How this could have been prevented

Because he was already a high-income earner, the credit bureaus didn’t automatically alert the VP that high-dollar items were being purchased in his name. The VP does not know where his information was stolen from, and it very well may have been a data breach that occurred with a company that he legitimately does business with. The only way to prevent something like this is to diligently check bank, credit card, and credit reporting bureau statements, or to have a credit monitoring service that does it for you.

Summary of What We’ve Learned

Payment fraud is a major issue for merchants, and the scale is only growing. Although most of the liability protection is on the side of the consumer, there are actions that merchants can take to protect themselves from the various types of fraud that are hard at work trying to steal your revenue.

The largest segments of payment fraud often take place online, because those transactions don’t require a physical card to be present and displayed to the merchant. There have been many types of technology developed for both offline (chip technology) and online payments (IP address or geolocation verification), so merchants should stay up to date with those advancements in anti-payment fraud hardware and software.

Educating your customers about the lessons outlined in this series can also help to prevent payment fraud, as it is stopped in its tracks if their card information can’t be stolen in the first place. By learning how to protect themselves, your customers can in effect help to protect you from payment fraud as well.

Reducing payment fraud is an “all in” effort for which your customers will appreciate your help and guidance.

Merchants Guarding Against Payment Fraud

Unfortunately for merchants, most legislation and policies for banks and credit card companies are designed to protect consumers, without much liability protection for merchants. From what we’ve outlined in this series, the most important steps for a merchant to take to help reduce their accidental acceptance of fraudulent payments are:

• Insist that in-person card payments have the physical card present (don’t accept customers merely giving you a card number and information in person)
• Use payment systems that can accept chip-enabled credit and debit cards
• Ensure that your website or payment processing systems for digital payments are secure
• Outline specific chargeback policies on your website
• The Payment Card Industry Security Standards Council (PCI SSC) sets guidelines to help keep global online payments safe. Merchants can stay up-to-date with their published guidelines, or ask their payment processors for the latest guidance on how to protect themselves from payment fraud.

Most importantly, use the lessons and tips outlined in this series to help educate your customers about how to protect themselves in the digital payment sphere, and make them feel more confident about doing their business with you in the process.