Pandemic Credit Card Fraud: How Small Businesses Can Help Prevent It

Credit card fraud was a problem before the coronavirus outbreak began, but the pandemic has spurred an uptick in activity that has financial experts worried. CNBC reports that Aite Group, a financial services research and consulting practice, estimates that as of the end of 2020, the U.S. saw about $11 billion in losses due to credit card fraud alone. And that's something small business owners need to be vigilant about.

Why the change?

You might think scammers would've taken a break during the pandemic, but actually, there's an easy explanation as to why credit card fraud may be more of an issue now than before. The pandemic has caused a lot of consumers to change the way they shop. Cashless, touchless payments have replaced transactions requiring the physical exchange of bills, and consumers have moved to online purchases in an effort to keep safe. All of this means that credit card usage has increased, which explains why fraud numbers stand to rise as the pandemic drags on.

Small businesses stand to get hurt

Credit card fraud clearly hurts consumers, but they're not the only victims. Chargebacks can have a serious impact on small businesses, many of which don't have the resources to cope with unexpected losses.

If a major company has $5,000 in credit card charges reversed, it may not make much of a difference. But for a small, struggling business, the loss of $5,000 could mean not being able to pay employees or vendors.

Furthermore, a lot of the protections that exist to shield consumers from credit card fraud don't extend to the businesses that stand to get battered by fraudulent transactions. In fact, most major credit card issuers offer fraud liability benefits that protect cardholders from having to foot the bill for unauthorized transactions. But someone ends up paying for those purchases, and often, it's the small businesses that sell their goods or services in good faith.

How small businesses can prevent credit card fraud

As a small business owner, there are steps you can take to help limit or prevent credit card fraud. For one thing, only accept online credit card transactions with a CVC or CVV code. These codes only appear on credit cards themselves and are not transmitted when a card is swiped. As such, if a credit card number is stolen during a data breach, criminals won't be privy to that CVC or CVV code. Of course, that won't help prevent fraud in situations where a credit card itself is stolen, but it's a start.

Additionally, don't be afraid to get proactive if online or even in-store transactions appear suspicious. If you run a small clothing boutique where the average customer makes a purchase of $100 or less, and you suddenly have a customer you've never seen before come in and charge $2,500 worth of merchandise, that's a red flag. Similarly, if you get an unusually large online order, it's reason enough to dig deeper. In either scenario, you may want to call the credit card company in question before completing the transaction.

Similarly, online orders that are shipped to an address that differs from the cardholder’s billing address should be investigated further. The same holds true for rush orders of high-priced or high-demand goods.

Finally, for in-store purchases, don't be afraid to ask customers for ID before ringing them up. It may be a little unconventional, but that could be enough to spook a criminal or alert you to suspicious activity.

Credit card fraud is a problem that's unlikely to go away. As security measures evolve, scammers are likely to grow increasingly adept at circumventing them. But even the small steps above could prevent your business from becoming a victim -- and suffering financial losses you can't afford at a time like this.