Background

Each year billions of dollars are collectively lost by merchants as a result of credit card fraud with 73% of these taking place via card-not-present transactions. Credit card fraud is extremely costly to businesses with the true cost of over $3.00 for every dollar in fraudulent transactions.

Industries dealing with highly fencable goods, stolen products easily resold for profit, such as jewelry are especially vulnerable to credit card fraud. 

Let’s take a look at a couple key types of fraud that are known for targeting jewelry businesses as well as some actions owners can take to protect their businesses.

Common Types of Fraud

Unauthorized Payment Fraud

Unauthorized payment fraud occurs when someone has fraudulently obtained credit card information of a person and then uses that card to make purchases. All those transactions are at risk for unauthorized fraud regardless of whether the payment was taken in-store, online or over the phone.

Red Flags

Keep an eye out for common behaviors linked to fraud such as:

Swipe vs tap/dip

• A common tactic of fraudsters presenting counterfeit cards at checkout is to claim their card is experiencing issues with reading the card data via the included chip. They will instead ask the person processing the transaction to swipe the card or process a manual key entry. Both forms of entry will transfer the liability for an unauthorized dispute from the card issuer back onto your business.
• If a customer is unable to present a card that can be processed via an EMV insert or Tap, asking for another form of payment is the best option to protect your business.
• Another tactic involves a customer presenting themselves as very sophisticated and interested in purchasing an expensive item. At checkout, they claim to have forgotten their wallet at home and offer to retrieve it. They will act honest and courteous, suggesting an alternative: calling someone at home to provide the card information for you to manually key in, saving them the trip. However, this is a tactic to use a stolen card for the transaction. Not only will you lose the merchandise, but you will also be responsible for refunding the unauthorized charge once the real cardholder disputes it.

Split payments

• A single buyer wanting to split a large purchase across multiple cards.
• Be especially wary if the cards have differing billing zip codes.
• Do split payments only if you are doing EMV chip transaction for each of the cards.

Billing/Shipping address mismatches

• While jewelry is a common gift and thus entirely reasonable for the card’s billing address to not match the shipping address, it is worth considering in the context of other potential red flags.
• Review the shipping address for potential concerns such as a freight forwarding address or potentially vacant address.

Expedited Shipping

• Remember, the goal of the person committing the fraud is to separate you from the product as quickly as possible. Pay close attention to requests to expedite shipping particularly with large orders and first time buyers.

Multiple payment failures

• Particularly with online orders it’s important to review your transaction history and look for orders with multiple failed attempts prior to one that succeeds. This could be a red flag that someone has access to multiple compromised accounts and is testing until they find one that works.

Validate Identity

• For in-person transactions, when using a swipe, or manual key entry, or for pickup orders, ensure the customer's ID matches the information submitted with the payment method.
• For online and phone orders, pay close attention to results validating the full payment billing address and card verification number (CVV). If The address does not match or is a partial match or if the CVV validation fails, reconsider fulfilling the order.
• Consider making a copy of the presented ID to attach to your own receipt records should a dispute arise in the future.

Friendly Fraud

Friendly fraud occurs when a cardholder disputes a valid transaction by claiming either the purchase was not authorized or that the item ordered was never received or differed significantly from what was described online.

Friendly fraud can be particularly difficult to prevent because there are not the same types of red flags present as the unauthorized fraud as the true owner of the card is making the purchase and thus is not likely to attempt to obscure their identity. There are however best practices your business can put in place.

Best Practices to reduce/avoid fraud

Validate Identity

• For in-person transactions or pickup make sure to validate that the parties ID matches that submitted with the payment.
• For online and phone orders, pay close attention to results validating the full payment billing address and card verification number (CVV). If the address does not match or is a partial match or the CVV validation fails, reconsider fulfilling the order.
• Consider making a copy of the presented ID to attach to your own receipt records should a dispute arise in the future.

Refund/Return Policy

• Develop and clearly display your store’s refund policy whether in-store or online. Make sure this policy is a part of the receipt your customer receives with their order.

Maintain Clear Records

• Make sure to keep detailed records for every transaction including receipts, shipping information and all records regarding communication with your customer.
• Handle as much communication as possible in writing should it be needed to respond to a dispute at a later date. If you have a phone discussion, follow up in writing summarizing the content.

Communicate Clearly

• Make sure that items listed online are clearly and accurately described noting any potential issues or blemishes. Keep these descriptions with your transaction records should they be needed to resolve a dispute regarding the quality of an item received.

Require Signature

• If you’ve sufficiently validated a customer’s identity one of the best ways to protect against claims an item was not received is to require signature at time of delivery.