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Posted Date: 01/4/2016

Tis the Season for Credit Card Fraud

Cleveland Brown, CEO, Payscout

Retail fraud was up 94% in 2015 when comparing total revenue lost to fraud to a comparable period in 2014. For every $100 of fraud, retailers were forced to spend $223. The liability shift which took place in October 2015 meant that merchants that did not adopt new EMV card-reading technology at the point-of-sale would be held liable for any fraudulent activity.
The U.S. is the world’s last major market using the chip/signature and chip/pin system with credit and debit cards; partly the reason for the excessive amount of card fraud in the country. The U.S. accounted for 51% of global payment card fraud costs in 2013 and the cost of payment card fraud also grew by 29% to $7.1 billion. The U.S. has not wanted to switch to EMV until recently and that has left an open door for fraudsters.

With only 27% of U.S. retailers capable of accepting EMV cards by the October 1, 2015 deadline, and the fact that the liability shift does not help card not present transactions, merchants are still vulnerable. Looking ahead to the 2016 season, millions will be spent online – and millions more in fraud — if retailers don’t adopt proper protocols.

The Naughty & Nice of Holiday Shopping
The increased retail revenue that the holidays bring is always welcome, however, it also brings with it an uptick in the incidence of chargebacks and fraud. Retailers are busier than ever and things can slip through the cracks when there is such a high volume of transactions occurring.

With the shift to EMV, counterfeit cards will become mostly void, however, fraudsters will look online to commit crime. Retailers that have an online shopping cart will become a target. Online fraud in all other countries that have adopted EMV has spiked considerably. Therefore, the same is expected in the United States.

Steps to Safeguard Against Fraud
One thing retailers must consider is implementing automated transaction screening protocols. These are a built-in set of protocols for the point-of-sale (POS) system. Its purpose is authentication, so fraudulent transactions cannot take place — something as simple as keying in the zip code of the cardholder can greatly reduce fraud and also save the merchant’s transaction fee cost. There are three layers to POS automated transaction screening protocols:

EMV (chip enabled cards). Chip cards virtually eliminate the possibility of creating a counterfeit credit card. The chip, coupled with a PIN or signature, guarantees the authenticity of the card holder.
Tokenization. Tokenization converts account numbers to a unique 16 digit number every time a transaction is authorized. Hence, the original 16 digit credit card number has no value to a criminal in the POS transaction.

P2PE. Point to point (P2PE) encryption takes the tokenized number and securely sends the information directly to the bank servers, eliminating the possibility of a hacker intercepting the information in the authorization process.

Ideally, these safeguards will be put in place for merchants during the implementation of a POS system. It’s important to have an EMV trained payment processor help ensure these protocols are in place from the onset.

It is critical to eliminate suspicious activity, and implementing EMV is a crucial step for retailers. It is the first line of defense to eliminate fraudulent credit cards from being used. In addition to implementing automated protocols into the POS system, look into outsourcing fraud operations during peak volume seasons.  

Finding and Selecting the Right Partner
It’s the merchant service provider’s (MSP) responsibility to help retailers understand the significance of having the proper protocols in place. The MSP can help merchants understand where they fall in the risk model and how to navigate that risk. When researching technology providers, start by checking with the Better Business Bureau and look for an A rating or higher.

Review the provider’s website and compare information. Finally, look to global payment processing providers as they will have improved fraud and security experience.

Each retailer type has a different level of risk depending on the type of customer, transaction and/or business model. Trust your MSP to do their due diligence — they should advise you on which practices best fit your business and where you fall in the risk model.

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