Protecting your small business against credit card fraud

More susceptible to fraud than their larger competitors, small business owners must be diligent when it comes to safeguarding their stores

// By Michelle Auger, Senior Policy Analyst, Canadian Federation of Independent Business

You’re standing at the checkout line. When it’s your turn to pay, you reach for your credit card without thinking twice, tap, and you move on with your day. Transactions like these happen millions of times a day, and we don’t think about it. Unfortunately, scammers do, and Canada’s small businesses are increasingly becoming a target of credit card fraud.

Prevalent challenge

In Toronto, credit card fraud was among the top five fraudulent activities within a recent six-month timeframe, according to Toronto Police As a small business, you can be very susceptible to fraud, and it’s important to be able to recognize and take proactive steps to protect your business. CFIB data revealed that a cyberattack costs small businesses $26,000 on average, including the value of lost time.

Chargebacks

For a small business owner, one of the most common and most expensive types of fraud is called chargeback fraud. Generally, chargebacks happen when a customer makes a purchase using their own credit card, receives a product and later files for a chargeback. A chargeback takes place because of a processing technicality, a customer dispute or fraudulent activity. Customers can ask for a chargeback when they didn’t receive a product or service, didn’t recognize the charge on their credit card statement, when they were billed twice or were a victim of fraud, or when they believed the product or service was damaged or not as described. A chargeback fraud, on the other hand, has an ill intent behind it from the start.

While business owners will try and follow all the rules set by payment processors (such as customer verification, clear refund policy, following Payment Card Industry (PCI) rules, ensuring credit cards are signed, adhering to security standards, etc.), chargebacks continue to happen. Merchants do not have many options when it comes to fighting back against chargebacks and often feel that the process is biased against them.

Targetting point-of-sale terminals

Break-and-enters have a new target, too – businesses’ point of sale (POS) machines. Earlier this year, the Toronto Police reported an increase in break-and-enter crimes, with thieves stealing debit machines from small businesses. Once criminals steal a POS machine, they can issue themselves thousands of dollars in fraudulent refunds. More than 300 small firms had their terminals stolen last year. For retailers with a brick-and-mortar store, whether in Toronto or elsewhere in Canada, that’s also something to be mindful of.

Some of the ways retail businesses can protect themselves from credit card fraud include:

•Creating awareness and training their staff to recognize fraud

•Knowing their rights and responsibilities when accepting debit and credit cards

•Looking into e-commerce solutions that provide proper security for online transactions

•Requiring customers picking up product to provide the credit card that was used to authorize the transaction

•Setting up new passwords on POS terminals

•Always ensuring their POS systems are chip-enabled. Businesses can do this by contacting their acquirer/payment processor

The federal government should also play a part in addressing the unfairness in the credit card industry by:

•Expanding the Code of Conduct to include guidance on ensuring disputes can be challenged by merchants in a fair and simple manner

•Working with credit card companies to increase the security of payments in order to end costly chargebacks. This includes clear guidance on what merchants can do to avoid receiving a chargeback

•Ensuring that credit card companies/processors abstain from imposing a chargeback if a merchant has been found to have done everything correctly

Fee reductions arriving

Credit cards may be handy for consumers when it comes to a convenient way by which to make purchases while shopping, but they come at a high price for small businesses. The good news for those establishments accepting credit cards is the fact that fee reductions are coming later this fall. CFIB has long been fighting for fairness and changes in Canada’s payments industry, so we were pleased when the federal government acted on one of our long-standing asks and worked with Visa and Mastercard to lower credit card fees for small firms.

Now, under the newly introduced deal, small businesses with up to $300,000 in annual Visa sales and $175,000 in annual Mastercard sales will qualify for a 0.95% average interchange rate for in-store sales and a 0.1% cut in e-commerce fees.

We continue to encourage Ottawa to expand the agreement to additional credit card providers and to review size thresholds to benefit more small and medium-sized businesses.

Being fraud aware

Credit card fees in Canada are one of the highest around the world. Lower rates could lead more business owners to accept credit cards or encourage their customers to use them, so being fraud aware is that much more important.

To report a fraud, contact the Canadian Anti-Fraud Centre, the RCMP or your local police department.

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Michelle Auger is a Senior Policy Analyst at the Canadian Federation of Independent Business (CFIB), Canada’s largest association of small and medium-sized businesses with 97,000 members across every industry and region, 22,000 of whom are operating in retail.