Credit Card Fraud: How To Safeguard Your Business

Fraud is an ever-present threat in the world of payment processing, and small to mid-sized businesses (SMBs) are among the most vulnerable. With chargebacks on the rise—projected to increase by 113% between 2018 and 2025—merchants must take proactive steps to protect themselves from fraudulent transactions.

A real-life example? Meet Joe, a business owner thrilled to receive his biggest order in months. But excitement quickly turned into suspicion when red flags appeared: the customer used three different credit cards for a single order, requested to pick up the materials directly from the supplier, and changed the shipping state twice. Before Joe could intervene, the scammer was already en route to pick up thousands of dollars in materials.

Situations like Joe’s are becoming all too common. First-party misuse, also known as friendly fraud—where customers knowingly dispute legitimate transactions to obtain refunds—accounts for up to 78% of chargebacks. Fraud is not just a financial loss; it impacts business operations, damages reputations, and increases processing costs.

Recognizing the red flags of fraudulent transactions

Merchants need to stay vigilant for warning signs that indicate potential fraud, including:

• First-time customers placing unusually large orders

• Customers attempting to use multiple credit cards for a single purchase

• Orders that contain several of the same high-ticket items

• "Rush" or overnight shipping requests, especially to international addresses

• Transactions with similar account numbers or multiple cards linked to one billing address

• Multiple transactions on the same card within a short period

• Orders placed from IP addresses associated with free email services

How to protect your business from fraud

To mitigate fraud and chargebacks, consider these best practices:

1. Verify cardholder information

• Use Address Verification Service (AVS) and Card Verification Value (CVV) checks to ensure the provided billing address and security code match the cardholder’s information.

• Collect and confirm key data points, including email addresses, phone numbers, device details, and IP addresses.

2. Strengthen your business policies

• Establish clear return and refund policies and communicate them to customers.

• Require proof of delivery via signature confirmation, especially for high-value orders.

• Limit high-ticket purchases for first-time customers unless additional verification is provided.

3. Monitor for unusual behavior

• Be cautious of very small transactions, as fraudsters often test stolen cards with low-value purchases before making large-scale transactions.

• Data enrichment tools analyze customer behavior, such as checking if an email is linked to social media accounts or a phone number is associated with suspicious activities.

4. Utilize advanced fraud prevention technology

• Leverage AI-powered fraud detection tools that analyze transaction patterns in real-time.

• Implement risk-scoring systems that flag potentially fraudulent customers based on their purchasing behavior.

• Consider velocity rules to detect high-frequency transactions on the same card or shipping address.

Taking action against chargebacks

Even with the best preventive measures, some chargebacks are inevitable. When disputing a chargeback:

✅ Collect all transaction details, including invoices, receipts, and customer communications.

✅ Verify chargeback dispute deadlines to respond promptly.

✅ Prepare a clear written response that directly addresses the reason code for the chargeback.

✅ Submit the dispute documentation through your payment processor and follow up as needed.

Conclusion

Fraud prevention is not just about reacting to suspicious transactions—it’s about building proactive safeguards into your business operations. Every merchant will encounter fraud at some point, but you can significantly reduce your risk by implementing the right policies, monitoring customer behavior, and leveraging fraud detection technology.

If you're a small business looking to streamline and secure your payment processes, ECI's NET1 Payment Processing Solution offers tools to help protect your business from fraud and chargebacks.