Common Types of Card Payment Fraud

Square monitors your transaction activity as you take payments. When suspicious activity is suspected, we will reach out for more information to try and help you verify a payment. However, you are the expert in your business and are always your first and best line of defence against fraudulent activity. In order to best protect yourself and your business, it’s important to understand the common types of card fraud you may face and your resources for reporting them.

Generally, the majority of card fraud is committed through card-not-present payments – these are payments where the buyer is not present and does not have to verify a payment with their PIN. There are common trends and types of fraud scammers might use that you can keep an eye out for.

Stolen Cards

This type of fraud happens when scammers obtain stolen card details – they may physically have a stolen card with them, but more commonly they obtain compromised card details electronically.

The scammer will make a payment with the stolen card details, and the merchant will ship the goods under the assumption the payment is genuine. The true cardholder may later see the unauthorized payment on their card statement and dispute the charge.

If the cardholder doesn’t know their card details have been stolen before a scammer makes a purchase, a payment can still go through without being declined, even though the payment has not been authorized.

Overpayment Fraud

Overpayment fraud happens when a scammer makes a purchase that may include the services of a third party.

For example, a scammer makes a purchase from a shop that sells furniture, but offers to overpay if the merchant will take the extra money and forward it to the buyer’s preferred shipper or delivery company. Often, the scammer will offer a tip to the merchant as an added incentive for the break in procedure. The merchant then sends the funds to the third party, usually via money wire, bank transfer or similar methods, and ships the goods. 

Once the true cardholder realises their card is compromised, they will dispute the entire transaction, including the overpayment meant for the third party. In the end, the merchant is at a loss for the retail value of their goods, as well as the additional funds sent for the third party.

Refund Fraud

Refund fraud is similar to overpayment fraud – a scammer will overpay for goods or services then contact the merchant and ask that they refund the overpayment. However, the scammer will typically ask that the refund be sent via an alternate method, such as through a bank transfer, Western Union or other methods that are difficult to recover funds.

Donation-based businesses or non-profit organizations can be susceptible to refund fraud in the form of unusually large donations.

Friendly Fraud

Friendly fraud occurs when a genuine cardholder makes a purchase, then disputes the transaction at a later date. This can happen for many reasons:

• A buyer may not recognize a transaction on their card statement and file a payment dispute in confusion, even if the payment is legitimate.

• A buyer may try to circumvent a merchant’s refund policy by going straight to their card-issuing bank for a payment dispute, rather than try to come to an arrangement with the merchant.

• A buyer may use payment disputes as a form of ‘digital shoplifting’, where they make a purchase and dispute the payment so they receive both the goods and their returned funds.

Now that you have a better understanding of the types of fraud you may face, it’s important to take all the precautions you can to protect yourself from scams and fraud and prevent payment disputes for your business.