Retail Loss Prevention: 6 Ways To Protect Your Business From Credit Card Fraud

How can you identify fraudulent charges before the credit card company does? It is not always a guaranteed win, but with these 6 tips you can protect your...

While many transactions still take place in a retail store, more and more transactions take place online or over the phone.

According to Internet Retailer, “Online shoppers in the United States will spend $327 billion in 2016, up 45% from $226 billion this year and 62% from $202 billion in 2011, according to a projection released … by Forrester Research Inc.”

However, online and phone sales increase the potential for fraudulent charges. So, how can you identify fraudulent charges before the credit card company does? It is not always a guaranteed win, but with these 6 tips you can help protect your company from fraudsters and crooks.


  1. Use Address Verification Service (AVS)

    Address Verification Service or AVS, allows merchants to check the addresses of buyers and aid in the detection of suspicious credit card transaction activity. Meanwhile, postal address verification systems like SmartyStreets offer a web-based API to prevent and correct bad addresses before they’re allowed into a system along with website forms that won’t let your customers ship to bad addresses by accident.With AVS tools a merchant will receive a result code indication whether the address given by the cardholder matches the address on file with the card older.

  2. Vet New Customers

    Don’t be weary of all new customers, but be mindful of new customers and their transaction history. Because let’s be honest, returning customers are probably going to be the last people on your fraudulent transaction list.

  3. Request Card Verification Value (CVV)

    The CVV code is the three-digit number that is typically found next to the signature panel on the back of credit cards (except for American Express cards which have a 4-digit security code located on the front-right corner of the card). CVV is an anti-fraud security feature to help verify that a customer is in possession of their credit card. Ask for the CVV2 code as part of any authorization request when processing online or over the phone payments.

  4. Watch Large Orders

    Large orders are a giant red flag, especially if they include several of the same item. Because credit card crooks like to get the most for their money, they like to stock up on as much as they can in one order. Authorize.net recommends: “Be suspicious of transaction amounts that are not in the usual range of your customers’ average ticket. Suspicious transactions may consist of random amounts ranging from one dollar to thousands of dollars. Carefully monitor your account for this type of activity and void any transactions you find suspicious for your business.”

  5. Review Big Ticket SKU Sales

    If crooks can buy a lot of “big ticket items” and then resell them for more money, they are going to do it. It’s an instant way to maximize profit without having to invest a dime. Pay attention to inventory and SKUs. “Not only are SKU’s important for your business relationships in the long term, but they’re extremely important to you in the back end. Organizing your inventory with SKU’s for products and its variants gives you the opportunity to have a true inventory count of your entire stock.” (Shoeboxed)

  6. Flag Suspicious Shipping Requests

    Rush and overnight shipping, especially when it’s to an international address, are huge red flags. Closely monitor international transactions. Crooks want their goods as soon as possible, so they can quickly turn it around and resell. Also, pay attention to different credit card transactions that are shipped to the same address—this is a potential indication of credit card fraud.

If you don’t think fraud prevention is important for your small business – think again.

Preventing fraudulent transactions from taking place will save your business more than just a headache—it will save your business money too. “Merchants in the United States are losing approximately $190 billion a year to credit card fraud – much of it online, according to a 2009 Lexis Nexis study –  The True Cost of Fraud. Banks lose $11 billion and customers loses about 4.8 billion, so merchants lose almost twenty times as much as banks.” (Forbes)

From new customers placing large orders to bizarre shipping requests, these six tips will help your business steer clear of crooks.


This article has been edited and condensed.

Scott Nelson, VP of Marketing at ProPay, has more than 29 years of professional product marketing and executive management experience in the high-tech industry. For the past six years Scott has worked for ProPay helping small businesses grow their businesses through online payment acceptance. Scott earned dual bachelor’s degrees from Brigham Young University in Marketing and Finance. He also earned an MBA from Colorado State University. Connect with @propay on Twitter.


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