Fraud Prevention: How to Kick Bogus Transactions to the Curb

Fraud Prevention: How to Kick Bogus Transactions to the Curb

Fraud prevention for retailers | Shopify Retail blogWhether your retail business is primarily ecommerce or if you’re operating one or more brick-and-mortar locations, fraud is an inevitable reality for merchants. Stolen merchandise and false transactions cost you money, cause unnecessary complications to maintain and track inventory, and lots of added stress.

We define fraud when it comes to retail as: “A transaction that is not authorized by a customer is referred to as fraudulent.”

It’s one of those unfortunate aspects of any retail business that you hope you don’t need to deal with often, but it’s an issue that requires training for you and your team.

So, how can you best prevent fraud, both online and offline? Let’s examine common types of fraud and discuss some ways to curb it.

Types of Fraud

First let’s identify the types of fraud that should be on your radar. In order to implement processes and procedures to prevent bogus transactions, you need to know what to look for.

For online transactions, there are two main types of fraud — chargeback fraud and card-testing fraud. As industry blog Retail Minded explains: “Chargeback fraud involves purchases that are reported as never delivered and then charged back to the merchant by the credit card company. Card-testing fraud happens when thieves with a list of stolen card numbers essentially ‘play the slots’ by attempting purchase after purchase from an online store with different numbers until they find a card number that succeeds. They then use this number to make fraudulent purchases at other stores.”

As for in-store transactions, Business2Community research shows that in 2014, the NRF reported that retailers lost $44 billion to fraud.

“With such huge margins at stake, loss prevention has become a huge focus for many retailers who are working hard to not only shrink retail fraud within their own company, but also throughout the entire industry.”

The publication goes on to identify the types of in-store fraud that you should be aware of:

  • Employee Fraud
  • Refund Fraud
  • Discount Abuse
  • Sweethearting (false price adjustments)
  • Vendor Theft
  • Cash Register Tampering
  • Wardrobing (returning after use or “renting”)

When merchants are more aware of the many types of fraud that scammers can hit them with, it’s easier to spot the culprits or put measures in place to protect your brand from fraud altogether.

Preventing In-Store Fraud

Now that you know the types of fraud that are out there, you need to equip yourself with the right tools and training to protect your business from it. Here’s what you can do to prevent fraud at your brick-and-mortar locations.

Monitor Returns Carefully

Falsified returns — in the form of gift receipts, gift card returns, and returning stolen merchandise with a false or stolen receipt — make up a large portion of in-store scams. Monitoring your returns for repeat offenders, spikes in frequency, and abnormal data can curb these frauds.

Fraud prevention for retailers | Shopify Retail blogTo prevent this type of fraud, ensure that employees are checking payment type against the receipt, corroborating IDs, matching inventory counts, and collecting customer signatures and data if necessary. These steps deter anyone looking to make a smooth return for a quick buck, and provide you with the data to track returns over time and look for trends.

Update Your POS System

Do you have a dated point-of-sale system? Updating your system is a quick and efficient way to increase the transaction security in your store. In the Community2Business article Top 7 Types of Retail Fraud and What You Should Do To Avoid It, Madeline Boehmer explains:

“With today’s technology, a good POS system offers a variety of features that will help you keep track of purchases, spot unusual trends, take field notes on customers returning items too often, produce digital receipts, and even validate checks being used as payment.”

If your point of sale is unable to perform these integral functions, then it might be time to do some research into a replacement system. Look for a POS system that gives you return statistics, produces digital receipts that are accessible across locations, and tracks employee interactions — look into any employee that processes a high amount of returns in comparison to the rest of the team.

Remember, a good POS system not only helps prevent fraudulent activity, but it also streamlines the payment process for your entire business — increasing efficiencies and making your bookkeeping simpler.

For more details on choosing the right point of sale for your business, read through our POS selection guide.

Train Your Frontline

Your best weapon against fraud is your employees. With proper training and education, your employees will feel empowered to flag things that seem wrong and take action to protect your business from scams. Boehmer explains, “Without a plan in place, employees may feel more free to do things like give away discounts to those who don’t qualify for them or even tamper with registers. While loss prevention can be a tough topic to tackle and implement, it’s crucial to make sure that all employees and company policies are on the same page.”

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Hold regular staff meetings to show examples of fraud attempts at your store or ones that you’ve found in research, act out scenarios with employees so they feel confident to handle the situation when it arises, and update them about any new anti-fraud initiatives that you’ve implemented.

Physical Barriers

Lastly, there are multiple ways to create physical barriers to stop theft. Visible cameras and security systems act as a deterrent for thieves, but also people looking to run fraudulent transactions.

Also, consider partnering with companies that provide anti-theft devices — like Tyco Sensormatic to get products like hard tags, detection systems, and detatchers.

Preventing Ecommerce Fraud

Ecommerce fraud attempts are on the rise. In fact, “Card-not-present fraud attempts against online merchants rose by more than 200% last year, thanks in part to fraudsters’ adoption of bots to place fraudulent orders” according to Retail Minded.

So, what can you do to protect your business? There are multiple methods of curbing online fraud prevention, including beefing up your site’s security measure.

Bump up your Payment Security

The methods that you use to collect payments online can make a big difference in the amount of fraud instances that you have.

Fraud prevention, online security measures | Shopify Retail blogBe sure to collect security codes for all credit card transactions online. For extra security, use CAPTCHA to tell the difference between real human customers and bots trying to scam a transaction. On the Kissmetrics blog, they recommend fraud prevention programs, particularly those from credit card companies and security software, to keep hackers and scammers at bay. In their words: “Do your research and find one that works best for your business.”

While there are multiple programs merchants can take advantage of, here are some of the most trusted that retailers should consider:

  • Verified by Visa
  • VeriSign
  • McAfee Secure
  • MasterCard Merchant Fraud Protection

Monitor your Transactions

Check transactions and look for red flags that something isn’t quite right, including suspicious email addresses, and shipping and billing addresses that don’t match. If something seems strange about the address, look it up on Google Maps or send the shipment with a tracking number and require a signature for delivery.

If you need help monitoring your data, consider using a fraud profiling service like Simility, Subuno, or Riskified.

Working Together

When you use your ecommerce site to process credit cards, you’ll need to make sure customer data is securely hosted. This secure hosting needs to meet the Payment Card Industry standard, more commonly known PCI Compliance.

It’s important to achieve PCI compliance to avoid fines and maintain the trust of your customers. According to the PCI Compliance Guide, “The Payment Card Industry Data Security Standard (PCI DSS) is a set of security standards designed to ensure that ALL companies that accept, process, store or transmit credit card information maintain a secure environment.”

If you’re currently using Shopify for your retail site, then rest assured because Shopify is certified Level 1 PCI DSS compliant. If your site is being managed on another platform, you’ll need to look into the PCI compliance of that site.

For more about how Shopify deals with fraud prevention check out our Fraud Prevention hub.

How Will You Tackle Fraud Prevention?

Hopefully you now feel more prepared to deal with fraud prevention and protect your retail business from theft. Let us know how your business has been affected by fraud and what success you’ve had with fraud protection so far in the comments section.

Photo of Lauren Ufford

About the Author

Lauren Ufford is a writer and editor with expertise in retail, ecommerce, and tech. Originally from the West Coast, Lauren spends her free time exploring Toronto with her two comically large dogs.

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