Tips for protecting your business against credit card fraud

Accepting credit cards is a must for most businesses today, but it can also expose you to fraud. If a fraudulent transaction slips through, your business could be on the hook for the refund as well as for any lost product and shipping costs. 

Whether you sell online, in person or both, understanding the risks can help you take steps to protect your business, your customers and your reputation. Keep reading to learn more.

What you’ll learn:

• Credit card fraud can lead to serious problems for small businesses, including chargebacks, lost inventory, shipping losses and damaged customer trust.

• The four most common types of credit card fraud are card-present fraud, card-not-present (CNP) fraud, friendly fraud and account takeover fraud. Each comes with risks that require different prevention strategies.

• Fraud prevention tactics—like secure payment systems, customer verification, transaction monitoring and employee training—can help reduce your business’s exposure.

• If fraud does occur, knowing what to do—like contacting your payment processor, reporting the issue and reviewing your systems—can help you recover faster and avoid future losses.

Credit card fraud doesn’t just affect big retailers or online giants. It can hit small businesses just as hard. When fraud occurs, the financial impact often falls on the business, not the card issuer. That could mean dealing with chargebacks, lost inventory, unrecoverable shipping expenses and additional processing fees. Over time, too many chargebacks can put your ability to accept credit card payments at risk.

Fraud can also shake your customers’ trust and disrupt your operations, especially if you’re spending valuable time digging into issues or updating your systems. That’s why spotting vulnerabilities early on and putting smart safeguards in place are so important.

Card-present fraud happens when someone uses a physical card without the cardholder’s permission, often at a brick-and-mortar location. It could be a stolen card or a fake one made by copying the card’s data. While EMV chip readers have helped cut down on this type of fraud, it can still happen, especially if a business isn’t using the latest payment technology or skips basic verification steps. Small businesses relying on older point-of-sale (POS) systems may be more vulnerable to this type of fraud.

CNP fraud happens when a card is used for a transaction without being physically present. Examples include online, by phone and through a mobile app. Since there’s no way to verify the buyer in person, businesses have to rely on digital security tools to spot suspicious behavior. Without those, stolen card details can be used to make fraudulent purchases, which may lead to chargebacks.

Friendly fraud—sometimes referred to as chargeback fraud—happens when a customer makes a legitimate purchase but later disputes it with their credit card company. They might claim the item never arrived, the purchase wasn’t authorized or they returned it but never received a refund—even if that’s not the case. 

Sometimes it’s an accident—like when a family member uses the card without telling the owner. Other times, it’s intentional. Either way, the business usually ends up losing the product, the payment and the time spent sorting out the dispute.

Account takeover fraud happens when a cybercriminal gains unauthorized access to a real customer’s account, often through stolen login credentials, phishing emails or leaked passwords from data breaches. 

Once inside, they can update billing information, make large purchases or even transfer rewards. If your business stores customer profiles for faster checkout, it’s very important to use multifactor authentication and keep an eye out for any unusual activity. Doing this will help prevent account takeover fraud.

There’s no way to stop every threat, but you can take practical steps to reduce your risk. These fraud prevention tactics can help you protect your business, build trust with customers and stay in good standing with your payment processors.

Start by making sure your payment systems are up to date. EMV chip readers, contactless terminals and point-to-point encryption help keep in-person payments secure. For online sales, secure gateways and tokenization add extra layers of protection. And if you’re selling through an e-commerce platform, choose one with built-in fraud detection and security features.

With online and phone orders, customer verification matters a lot. Tools such as an address verification system (AVS), Card Verification Value (CVV) checks and multifactor authentication can make it harder for malicious actors to slip through. These tools help confirm that the person making the purchase is the real cardholder.

Many POS and payment platforms let you set up real-time alerts for unusual activity, like large purchases, excessive discounts and inaccurate disputes. Monitoring transactions this way can help you catch signs of fraud early, before they turn into chargebacks or lost revenue.

Fraud prevention isn’t just about tools; it’s also about people. Make sure your team knows how to spot suspicious behavior, from mismatched IDs to unusual purchase patterns. Teach employees to identify fraud and empower them to follow consistent verification steps—and to slow down or speak up if something doesn’t feel right.

If you manage business cards or store customer data, make sure access is limited to only those who need it. Set role-based permissions so only the team members who must view or update sensitive information can do so. Internal fraud is less likely when not everyone in your company has all-access.

Even with the proper precautions, fraud can still slip through. If it happens to your business, acting quickly can help you minimize the damage and get back on track.

1. Contact your payment processor immediately. Most businesses have systems in place to handle fraud and chargebacks. Report the issue as soon as you notice it. Your payment processor can help you dispute fraudulent charges, flag suspicious activity or freeze transactions if needed.

2. Notify affected customers. If a data breach or account takeover happens, let your customers know as soon as possible. Transparency builds trust, and depending on your state and the size of the incident, you may be legally required to notify customers.

3. Report the fraud to the proper authorities. Depending on the type of fraud, you may need to report it to your local police department, the Federal Trade Commission (FTC) or any other local agencies that can help. These reports not only support investigations but can also help prevent similar attacks on other businesses.

4. Review and strengthen your fraud prevention measures. Use the experience as a chance to learn and to strengthen your fraud prevention. Take time to review your payment systems, past transactions and day-to-day processes. Do some patterns seem off? Are your tools up to date? Sometimes even minor issues—like inconsistent checkout steps or overlooked settings—can create gaps. Checking in regularly can help you catch small issues before they turn into bigger problems.

Accepting credit cards is vital for most small businesses, but it carries some risks. Credit card fraud isn’t just a big-business problem—it can impact any small-business owner. From chargebacks and lost revenue to diminished customer confidence, the costs can add up fast. But with the right tools and processes, you can limit your exposure and handle any issues more effectively if something goes wrong. Staying alert and proactive is your best line of defense.

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