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Fraud poses a legitimate risk for businesses, irrespective of their size. Business owners may think they’re less likely to be targeted, but in the world of cybercrime, no one’s exempt. But with the right approach and a solid game plan, you can protect your business and significantly mitigate these risks. Keep reading to learn the key types of fraud to be on the lookout for and the strategic actions you can take to fortify your business.
Types of Fraud Small Businesses Should Be Aware Of
Understanding the most prevalent forms of fraud is the first step in defense. Let’s break down some of the most common types of fraud. Pinning down an exact cost to businesses is complex, but the FTC reports that consumers lost about $8.8 billion to fraud and scams in 2022. Fraud costs consumers and businesses $5 trillion annually worldwide.
Phishing and similar scams
Cybercriminals often use phishing emails to trick you or your employees into disclosing sensitive information. These emails may seem legitimate, mimicking brands you trust, but they’re wolves in sheep’s clothing.
- Spear phishing: Spear phishing is an industry term for highly targeted phishing scams, where your personal information, often from social media profiles, is used to make you think the scam is legitimate.
- Vishing: While most adults in the United States are familiar with spam calls, vishing is more complex. With vishing, a scammer calls a number claiming to be a reputable vendor to get personal or business information, such as bank account details or credit card numbers.
- Smishing: Smishing is a twist on phishing and vishing but performed using SMS or other text messaging. It’s important to stay alert regardless of the platform.
Social engineering is an all-encompassing term for these types of attacks. If you run a business, you and your team must stay vigilant against impersonation by email, phone, social media, and even in person.
Electronic system vulnerabilities
Weak points in your electronic systems can serve as entry points for hackers. Outdated software and poorly configured systems are your enemies here. Working with trusted vendors and taking advantage of all available security features helps keep your systems safe.
For example, Square offers multifactor authentication, sometimes called two-factor authentication, so more than a username and password are required to log in. Square provides PCI compliance software and hardware for customers using Square.
Square Risk Manager (more on that below) is a product designed specifically for fraud prevention and mitigation. Regardless of who you work with, monthly account reconciliations can help you spot problems before they spin out of control.
Payment fraud includes anything from stolen credit cards to fraudulent returns. The fraudster’s goal is to compromise your payment systems for monetary gain. Chargeback schemes, bad checks, and other forms of payment fraud cost businesses billions of dollars annually.
Businesses should also look out for friendly fraud, where a customer might unknowingly lie or misunderstand details about a purchase. Examples include a customer reporting an item wasn’t delivered, doesn’t match the online description, or that they canceled an order and it arrived anyway. False claims of a compromised payment card or claiming a refund wasn’t received also fall into this category.
Proactive Solutions to Prevent and Respond to Fraud
Combating fraud isn’t just about putting out fires; it’s about building a fire-resistant infrastructure. As the saying goes, “n ounce of prevention is worth a pound of cure.”
Training to avoid phishing
Training is crucial. Teach your staff (and yourself) how to recognize suspicious emails and the protocols for reporting them. If you receive a call you were not expecting from a vendor or payment company and don’t recognize the person on the phone, call the company’s published customer service number to ensure it’s a legitimate request.
System and software updates
Make sure your systems are always up to date to patch any vulnerabilities. Scheduled maintenance should be non-negotiable. When you see a software update ready for your phone or computer, install it as soon as possible. Many updates fix known security flaws, and patching the software can keep cybercriminals from using that exploit on your business.
Run updates through your computer’s settings menus, app stores, or built-in update features. Website pop-ups and phishing emails purporting to point you to software updates may be computer viruses in disguise.
Antivirus and firewall software
Antivirus software looks for known attacks and malicious files, while a firewall prevents unauthorized computers from accessing your network. Installing and configuring these software solutions is key, even if you use a system known for being difficult to hack.
Paid antivirus software and firewalls may be worthwhile to some businesses, while others can rely on built-in solutions, such as security features built into the latest versions of Microsoft Windows. When in doubt, consult a trusted cybersecurity expert to ensure you’re putting up the strongest fences and walls to keep criminals at bay.
Opt for the right insurance
Not all insurance policies are created equal. Look for comprehensive coverage that includes cybersecurity insurance to protect against data breaches and cyberattacks. While you hopefully never have to file a claim, having adequate insurance as a backup plan is important.
Some business owner policy (BOP) offerings include cybersecurity coverage, while others sell it a la carte. Work with your insurer or a trusted agent to ensure you have enough coverage and the right types of coverage for your business.
Leverage Square Risk Manager
Implementing advanced tools like Square Payments Risk Manager can be a game-changer. It provides real-time fraud monitoring, allowing you to intercept suspicious activities before they wreak havoc.
Square Risk Manager uses advanced machine learning and payment monitoring technology to prevent fraud before your business falls victim. It’s free for Square customers and fully integrates with your Square-powered sales system.
Responding to Fraud: What to Do When the Worst Happens
Despite all precautions, fraud can still occur. Here’s what to do immediately.
Start by figuring out what happened and stop the breach or fraud from continuing. That may involve contacting your bank, payment processors, and other vendors. But your work isn’t over yet. Also, follow these steps to shore up your business and assets:
- Contact law enforcement.
- Notify affected parties.
- File an insurance claim.
- Conduct an internal review.
Once immediate steps are taken, focus on damage control. Assess what went wrong and how to prevent it from happening again. Work on recovering losses through insurance claims or legal channels. Your payment processor or insurance company may have additional resources to help you get back on track to fraud-free sales.
Investments in fraud prevention can reduce losses by 40%, leading to a major impact on the bottom line.
Staying One Step Ahead of Fraud and Cybercrime
Fraud is a risk, but it’s not an undefeatable one. By arming yourself with knowledge and adopting robust solutions, you can stay one step ahead of the cybercriminals. And remember, when you opt for Square for your payment solutions and other business services, you’re aligned with a security-focused partner.
Read our latest annual Square Security Survey Report and check out our collection dedicated to protecting your business against fraud to learn more about how businesses like yours deal with fraud and related security challenges.