Guarding against fraud

by | Mar 3, 2022 | 0 comments

Auto service businesses may have some degree of protection against fraud due to the face-to-face nature of much of their business, but they can still be caught off guard by savvy fraudsters.

March is “Fraud Prevention Month,” so it seemed a good opportunity to revisit some of the key methods to guard against.

Credit Card Chargeback Fraud

A chargeback is the term used to describe the process of reversing a charge on a credit card initiated by the cardholder. In general terms, the cardholder disputes a charge—saying the purchase was not made by them, goods or services not delivered, etc.—and the credit card company, sometimes without even any attempt to enter a process of verification with the customer or the merchant vendor (that’s you!), reverses the charge.

Chargebacks aren’t necessarily fraud, but they can be.

But did you know that a chargeback can occur up to two years after a sale?

It is easy to see how a unscrupulous fraudster could ring up a significant number of charges, then dispute them months later, leaving the business scrambling.

With that type of time lag, it is conceivable that the purchaser may not have had a plan to defraud the business at the outset, but faced with a financial squeeze later, decided to play the system and dispute charges.

This shouldn’t change your business view of fraud, but should motivate you to ensure that all transactions are done properly, no exceptions.

Even with a solid transaction tracking system and documentation, a business can still be stretched to dedicate the resources to fight such fraud. And if they don’t, they’ll see have to pay chargeback fees.

Guarding against Chargeback Fraud

Due to the time delay on chargeback fraud, it can be difficult to guard against. And, as with all crime, fraudsters are creative and their methods are fluid.

Here are some red flags to look for:

  • New large transaction or high frequency customers 

Fraudsters are always looking to prey on new victims. If you start to see large orders from a first-time shopper, you should proceed with caution. Be on the watch for inconsistencies in call origin versus cardholder address, possibly gender of the caller not matching up with the name on the card, anything that might raise a red flag.

  • Larger than typical order

 Larger than typical orders can mean the purchase is more costly than the customer’s usual purchase, or if they’re a first-time customer and it’s larger than the average customer. 

A well documented set of transaction records and so forth are critical to defending

Your merchant services provider may have services that can help streamline the process of staying on top of chargebacks.

CHASE Merchant Services, which provides card services for major financial institutions for example, has an Online Chargeback Management feature available. With the system, CHASE posts all chargebacks and retrieval requests to your interface, which lets you accept or reject chargebacks, upload supporting documents and more. Merchants can track the status of all chargebacks and measure the efficiency of chargeback processes and personnel.

Card Not Present Fraud

This a stolen card fraud. Someone is n possession of a stolen card or its information and uses it to purchase goods and services—over the phone or online—thereby sidelining the protections provided by chip and PIN verification. Later the legitimate card holder will dispute the charge, and the business will be hit with a chargeback.

Guard against it

  • Set a policy that all card not present transactions must be approved by yourself or a senior employee.
  • Call the customer back to verify the transaction before delivering the goods or providing the service.
  • When the buyer comes to pick up, request the credit card upon their arrival so you can complete the transaction with chip and PIN before giving them the keys.
  • Use verification services such as Address Verification and Card Validation Code of the credit card network companies (e.g. Mastercard and Visa).
  • Contact your credit card processor and ensure security measures are established.

Payment terminal tampering

Criminals are increasingly targeting POS systems as a way of stealing payment card data. One way criminals access data is by planting a “bug” that can read PINs and cardholder information. Others have successfully used miniature cameras or video recording devices to obtain the information they are seeking.

Guard against POS terminal tampering

  • Protect your equipment: Inspect your devices at the beginning and end of each day. Look for missing screws, new holes, and any other signs of tampering. Ensure that the serial numbers are correct and that the terminal hasn’t been swapped out.
  • Safeguard the equipment. To help prevent criminals swapping your equipment for their own, use secure stands, tethers and security cables; you should install your own security cameras, plus check the space for hidden cameras or unauthorized recording devices.
  • Teach your staff how to recognize and prevent equipment tampering: Help employees recognize the signs of equipment tampering; validate all equipment service and repair technicians.

In the flurry of daily activity, it is common for security procedures to be bypassed—tap transactions not accepted, chips not working—leading to manual input of card information and for service advisors or other staff to overlook protections in the interest of customer handling. In addition, busy staff can overlook manual checks like card and transaction last-four-digit verification not matching, cardholder and purchaser address differing, etc.

Businesses should ensure that control are in place for who can bypass security features, and that these be adhered to with few if any exceptions.

And to recognize that criminals are always looking for weaknesses in systems. It is important to stay on top of trends and to employ those protections made available to you by your service providers.

Fraud is often viewed as a “victimless crime” but any business who has had to deal with even a single example knows that this is far from the truth. It is worth the effort to ensure you’re doing the right things to protect your business.

Additional resources

Canadian Federation of Independent Business (CFIB)

Government of Canada: Protection against fraud and scams

Government of Canada Competition Bureau: Protect your business from fraud


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