Preventing Payment Fraud
Preventing Payment Fraud. Payment fraud is the crime that never goes away. While advances in technology are creating new ways to combat it, those same advances are also creating new ways to commit it. And since it’s constantly evolving, small business owners need to be more vigilant than ever. Click here to download our resource guide on preventing payment fraud.
Payment Fraud is part two of a series of informational resource guides designed to help small businesses understand more about fraud and how to stop it before it starts.
Click here to download part one in this series, Cyber Security: Preventing Data Breach Fraud. This guide deals with potential sources of data breach in your business and how to protect your valuable data. Preventing Payment Fraud. Payment fraud is the crime that never goes away. Defining payment fraud can be complex. Simply put, payment fraud occurs when a transaction is made for gain through identity theft, forgery, counterfeiting or other criminal activity. It usually happens with a credit card or check, but it could be any
form of payment.
Another way to look at payment fraud is that it’s constantly evolving. New payment
types and technologies have emerged recently, changing the tactics used by crooks yet
again. And it’s not only perpetrated by small-timers. Some of the most sophisticated
thieves around commit payment fraud. Preventing Payment Fraud
Small businesses might not be the only victims of this crime, but it could be argued
that they have the most to lose. In 2011, two-thirds of organizations across the country
experienced attempted or actual payment fraud. The typical loss according to one
study was $19,200.1 And most didn’t even know it until much later because another study
reported that it takes an average of 18 months to discover that fraud has been committed.
And in that study, the numbers are even more alarming, with median losses for occupational businesses at $140,000, businesses with fewer than 100 employees at $147,000, and one-fifth of all cases suffered losses of more than $1 million.Preventing Payment Fraud
Lack of vigilance makes small businesses good targets.
According to Javelin, more than half of small business owners use personal accounts
for business-related expenses, and 38% don’t even have separate accounts for their
company.
Another big reason small businesses are targeted is because, in general, they do not
take enough precautions. Just 5% perform background checks on potential hires. Only
18% have installed antivirus software. 3% offer employee training on Internet safety.
38% don’t reconcile accounts monthly. And a whopping 43% don’t have any safeguards
in place at all. Preventing Payment Fraud
Payment fraud comes in many forms.
There are many types of payment fraud. Here are a few of the more popular methods.
Counterfeiting:
With today’s technology, counterfeiting has become easier
for crooks. But there are ways to minimize your risk.
u Only accept money orders, cashier’s checks or
personal checks for an agreed-upon amount –
no more, no less.
u Use magnetic ink so that photocopies can
be detected.
u Make sure signatures are legitimate and not
just printed artificially.
u Look at the checks closely – misspelled
words or obvious changes are
a dead giveaway.
u Look for a Ben Franklin watermark and
vertical security strip on all money orders.
u If you are suspicious, always verify the check
with the financial institution it is drawn from.
Check theft:
One of the fastest ways a criminal can gain access to
your checks is to steal your mail. Once they have the
building blocks of your personal information, it’s only a
matter of time before they start cashing in.
And did you know that blank check stock could be
purchased quickly and easily over the Internet? This
makes it very easy for thieves to mock up fake checks
with your account information on it. Preventing Payment Fraud
Forgery:
One of the most popular forms of fraud is forgery, where
the thief fakes a check owner’s signature in order to gain
access to their money. But that’s not the only way to do
it. Any kind of false writing with the intent to defraud is
considered forgery, but the term writing is not restricted to
handwriting; it could also be typing, printing, engraving and
more. This applies to checks, other negotiable items, wills,
deeds, bonds, receipts, public records and contracts,
to name just a few. Intent is an essential component as
well; it is not forgery if one mistakenly believes what they
are doing is authorized.
Kiting:
Typically, kiting occurs when a bad check is drawn
from one account and deposited into another account
to keep its balance from dipping below zero. In effect,
this form of check fraud is playing with money that’s not
really there, and the crime here is that checks are being
misused as credit instead of as negotiable items. Kiting
can also occur within the same account, as in writing a
bad check for cash and taking it to the bank to deposit
before the account goes below zero. This buys a day or
two of float at a time. However it is accomplished, the
traditional motive behind kiting – in general – is to avoid
bounced checks.
Washing:
One of the most popular types currently is the process
of washing, where checks are physically altered by
using chemicals to remove ink, so that thieves can write
the check from scratch. To discourage this, you might
try using gel or rollerball pens to write checks, since the
ink stands a better chance of bonding with the paper
fibers of the check. Consider also high-security checks –
the combination of a bonding ink with such features as
hologram foil bars and heat-reactive ink circles can offer
you substantially more protection.
Credit card fraud can be devastating.
John L. was happy. His Arkansas computer company had just sent $17,000 worth of
high-end laptops to a buyer out of Denver. That’s a major sale, and would do wonders
for his bottom line.
Later, as the transaction processed, he found that the credit card the buyer used was
stolen. Goodbye, healthy bottom line.
Large orders, especially ones from out of state, should raise red flags for any small business.
Before you commit, check it out. If it’s legitimate, the buyer won’t mind. If not, you are taking a
big chance. In the end, failure to confirm his buyer’s identity cost John L. $17,000. Preventing Payment Fraud
Credit Card Fraud:
Technology is being co-opted in a big way when it comes
to credit cards and gift cards. One of the most inventive
ways is skimming, such as when crooks tap into slide
pads at ATMs so that when you go to make transactions,
you are effectively giving them all the digital information
that is on the card. Then it’s just a matter of transferring
all that information to a blank card, and before you know
it, they’re walking into a store with what amounts to your
credit card. Hidden cameras are usually involved as well
to capture your PIN information.
There are other ways to commit credit card fraud.
Here are just a few:
u The outright stealing of cards and making
purchases.
u Fraudulent purchases made online or
through the mail where a physical card is
not required. This sidesteps the risks of
shopping in a brick-and-mortar store and
security cameras.
u Filling out a credit card application with
someone else’s information
without permission.
u Phishing. Thieves can approach yoyou online
with authentic-looking websites and emails
from your bank or credit cards, asking you
to hand over information.
Don’t do it – initiate contact yourself to
prove that it’s legitimate. Preventing Payment Fraud
Online Payment Fraud: With the Internet being such an integral part of our
modern world, it’s no wonder fraud has flourished there
as well – in fact, an alarming amount of offline fraud
can also be committed online, and there are many ways
thieves can use email, chatrooms, message boards,
websites and more to do it.
One of the most popular is co-opting personal information
to commit identity theft. This can be done by friends
or relatives who have borrowed a legitimate card and
are using it for illegal purposes, or opportunistic thieves
who come across sensitive situations or valid payment
information and decide to act on it. Either way, initial
success could lead these people to repeat their crimes
time and again.
Another popular method of online fraud is stealing credit
card numbers. When it comes to purchasing online or bill
paying, some thieves realize that the only thing you need
to carry this out illegally is credit card numbers. Once
they’ve got your number, it’s incredibly easy to conduct
fraudulent transactions electronically. This is a hallmark
of phishing: Thieves approach you with an official-looking
email or website that asks for personal information. Never
fall for this. Even if you believe them, initiate contact yourself.
Also watch out for internal online fraud, especially where
employees have access to insider customer information.
Fight payment fraud
with these banking solutions.
Take advantage of cutting-edge banking solutions that can help protect you and your
employees from payment fraud.
ONLINE BANKING
u Secure logins. Typically, banks require customers to enter a login ID and
strong password.
u Encryption. Information exchanged is locked down tight with state-of-the-art
encryption such as the Secure Socket Layer (SSL) protocol.
u Firewalls.
u Up-to-date browsers required. Bank systems routinely check visiting browsers
to make sure they’re secure. If not, you are usually prompted to install one
that is built for both safety and privacy.
POSITIVE PAY
With Positive Pay, new transactions are reviewed against a list of approved payments
that you provide to the bank. If the payment is not on that list – it doesn’t get paid,
simple as that.
HIGH-SECURITY CHECKS
u Hologram foil bar – a reflective, 3D graphic that is easy to see, and
is difficult to copy or duplicate.
u Heat-reactive ink circle – this feature fades from color to color when
activated by touch or breath, providing safety from copying and solvents.
u Chemical reactive paper – when treated, visible signs of tampering will
be revealed.
u Fiber security weave – fibers within the check’s fabric can have a unique
design, discouraging counterfeiting, copying and scanning.
u High-resolution borders – detailed, intricate borders make duplication
highly problematic.
u Fugitive inks – washing causes extreme discoloration and fading of
preprinted details.
u Microprinting, fluorescents and more.
AUTOMATED CLEARING HO– — USE (ACH) SERVICES
Increase control over how and when you make and receive payments by engaging the
largest electronic network for financial transactions in the United States. Get improved
cash flow forecasting, greater accuracy, lower expenses and faster collection of funds.
Some banks offer even more protection for your ACH transactions, such as Positive Pay
and blocking or authorization for specific clients. Preventing Payment Fraud
To sum up:
The best defense is a good defense.
There’s a catch-22 when it comes to payment fraud. While advances in technology are
creating new ways to combat it, those same advances are also creating new ways to commit
it. And since it’s constantly evolving, small business owners need to be more vigilant than
ever. Involve your employees. Invest in countermeasures such as the banking solutions
above. Increase your security precautions. Because in this economy, payment fraud isn’t
going to disappear anytime soon. It is in your best interest – and in the interest of your
employees, as well as your customers – to stay prepared.
0To sum up:
The best defense is a good defense.
There’s a catch-22 when it comes to payment fraud. While advances in technology are
creating new ways to combat it, those same advances are also creating new ways to commit
it. And since it’s constantly evolving, small business owners need to be more vigilant than
ever. Involve your employees. Invest in countermeasures such as the banking solutions
above. Increase your security precautions. Because in this economy, payment fraud isn’t
going to disappear anytime soon. It is in your best interest – and in the interest of your
employees, as well as your customers – to stay prepared. Preventing Payment Fraud
To sum up:
The best defense is a good defense.
There’s a catch-22 when it comes to payment fraud. While advances in technology are
creating new ways to combat it, those same advances are also creating new ways to commit
it. And since it’s constantly evolving, small business owners need to be more vigilant than
ever. Involve your employees. Invest in countermeasures such as the banking solutions
above. Increase your security precautions. Because in this economy, payment fraud isn’t
going to disappear anytime soon. It is in your best interest – and in the interest of your
employees, as well as your customers – to stay prepared. Preventing Payment Fraud