Credit Card Security: Know How to Protect Your Business from Fraud

Without proper credit card security, your business could take a hit. Unfortunately, many small business owners don’t realize it until its too late. Credit card security gives your business the greatest protection against fraudulent purchases and refunds.

If your business has online sales, it’s crucial that you know the basics of credit card security so that you can protect your assets and your business. In this way, you can secure your business against credit card fraud—saving you time, money, and hassle.

In this guide, we’ll tell you everything you need to know about credit card security so that you can better protect your assets and keep your business running at maximum operational efficiency.

What Is Credit Card Security?

Let’s start with the basics. Namely, what is credit card security?

In short, the term refers to the set of methods that businesses can employ to protect against credit card fraud and data breaches. Credit card security makes in-store and online credit card transactions safer for all parties.

Generally, retailers guarantee credit card security in a few ways. EMV compliance (which involves upgrading your credit card processing systems to chip and not magnetic options), tokenization, encryption, and PCI DSS compliance. For the most part, credit card security is designed to protect sensitive cardholder data from being improperly accessed, stored, or managed.

With the right credit card security protocols in place, businesses can reduce their liability in case of credit card fraud. This means that understanding the basics of credit card security can help your business maintain its bottom line. 

Who Needs Credit Card Security?

Keeping this in mind, who needs credit card security? The answer is simple: any business that accepts credit card payments either in-store or online. When it comes this it’s necessary to follow proper protocol to protect both you and your customers from financial loss and legal hassle

For e-commerce businesses that do much of their selling online, credit card security becomes even more imperative. In general, you want to make sure card-not-present sales are secure. Businesses operating in the e-commerce market should take extra precautions to protect themselves and their customers from data breaches and fraud.

What Is PCI Compliance?

Payment Card Industry Data Security Standard refers to the set of regulations that require all retailers to safely accept and handle consumers’ credit card information. PCI compliance standards protect consumers from insecure data breaches and from any resulting legal troubles.

These standards handle how cardholder store and protect information on a retailer’s operating system. With this in mind, let’s take a look at two of the most common ways businesses protect against cardholder data breaches. 

Encryption vs Tokenization

For business owners new to credit card security, it may be more helpful to view encryption as a type of code. In essence, encryption seeks to take sensitive cardholder data and scramble it into unrecognizable patterns that can be decoded later.

Encryption allows for the protection of cardholder data by making the information unrecognizable to the petty criminal. Specifically, encrypt the data at rest or in motion, which protects customer information during and after business transactions. This means that encryption is a good way to stay PCI compliant.

Despite this, because encrypted information can be decoded, even “secure” data that is stored onto retail operating systems can be at risk. This means that encryption is not considered a fool-proof method for protecting cardholder data—potentially making your business liable in case of fraud.

For this reason, it’s important to take a look at another method of data protection: tokenization. Businesses are increasingly turning to tokenization for their credit cards security needs. Unlike encryption, tokenization does not require any storage of sensitive cardholder data. Instead, this method takes hyper-sensitive card information and replaces it with specific tokens that can be later traced back to the original party.

The benefits of tokenization are multi-fold. For starters, tokenization allows businesses to remain PCI compliant, as the method never requires that businesses store sensitive cardholder data on their operating systems. This means that it’s harder for criminals to trace cardholder data and access sensitive information.

This protects your business by making you more secure against data breaches. Tokenization stores only minimal customer information. This information includes transaction IDs, authorization codes, and other more generic information.

What Are Chargebacks?

Chargebacks refer to customer-initiated transaction reversals disputes with the bank instead of individuals. This type of fraud is one of the most common types of credit card fraud that business owners face. On paper, the chargeback system is designed to protect consumers from business fraud and identity theft. Despite this, the system is easy to abuse, which could mean serious damage to your business.  It’s easier for customers to receive a refund in individual transaction disputes because they are with the card issuing bank banks instead of with the merchants. In many cases, consumers who participate in this type of fraud receive both a refund and are able to keep their product.

This means that chargeback fraud can end up costing your business thousands. For this reason, it’s crucial that you know how to solve chargeback issues when they occur and how to avoid them moving forward. By understanding why they occur and the different types, you can increase the likelihood that the disputed transaction goes in your favor.  

Reasons for Chargebacks

In general, there are multiple reasons why consumers engage in chargeback fraud, with some being more harmful than others. Largely, customers who initiate this type of fraud are looking for an easy way to secure a refund. This can occur when cardholders do not qualify for refunds, are not satisfied with their products, or simply do not wish to pay for goods received. In other cases, chargeback fraud occurs because the primary cardholder does not remember making the purchase, the merchant confuses the name on their billing statement or had their card used without their knowledge.

Chargeback fraud can be damaging to small businesses because there’s no way to know of or counter a chargeback claim until the refunded money is already removed from their merchant account. Over time, chargebacks can cost businesses thousands in refunded money and stolen goods.

While chargebacks are largely designed to protect merchants against criminal fraud and illicit business practices, the large increase over the last several years. Despite increased card security measures, it’s indicated that more consumers are willing to take advantage of merchants through the chargeback system. It’s more important than ever that your business takes the proper precautions to protect itself against chargeback fraud.

How to Solve Chargeback Issues

With this in mind, it’s important that you know how to solve chargeback issues when they occur. Generally speaking, while it is possible for merchants to win chargeback disputes, the process can be long and expensive. This means that disputing chargebacks often takes more resources than it’s worth.

For those businesses wishing to resolve chargeback issues and receive their refunded money, there are a few things to keep in mind. To begin with, it’s important to know that the chargeback process requires extensive paperwork and documentation that must be filed within rigid deadlines. Even more, without accurate records of your transaction history, it may be difficult to convince banks that your claims are justified.

To resolve your chargeback dispute, your business requires you to write a chargeback rebuttal letter. The letter should include specific evidence that counters the initial dispute filed with the bank. You will be able to prepare your rebuttal letter by looking at the chargeback “reason code” associated with the case.

In the end, you’ll submit your documentation to the individual bank or processor reviewing the case. With the right evidence, it’s possible that your business wins the dispute. Keep in mind, however, that you should only dispute chargebacks that directly abuse the system. Disputing legitimate chargebacks is largely a lose-lose situation for any business in terms of both profit and overall brand image.

How to Avoid Chargebacks

It’s one thing to know how to solve chargeback fraud issues when they occur—it’s another to avoid them altogether. By following the steps below, you can better protect your business against illicit chargebacks that are designed to cheat you out of your products and money.

  1. Tighten Card Security through AVS and CVV2

Address verification systems (AVS) are used by banks and credit card associations to protect businesses and consumers against credit card fraud. Essentially, AVSs work to match cardholder information such as name and address to information on file.

When a customer initiates a transaction, these systems can alert businesses to whether or not the cardholder’s address is a direct match. This allows businesses to dispute suspicious transactions and avoid future chargebacks.

Businesses can also make sure that their credit card payment processors require that customers put in their CVV2 (credit card verification) codes. CVV2 codes are located on the back of consumer credit cards (last three numbers on the back of the card) and are designed to provide extra security against fraudulent transactions.

CVV2 are particularly useful in card-not-present sales. By requiring consumers to input their CVV2 information, you can weed out potential fraudulent purchases and protect your business against harmful chargebacks.

  1. Email Customers Their Receipts

Oftentimes, consumers who initiate chargebacks simply forget that they made a particular purchase. For this reason, you can often prevent chargebacks simply by sending out electronic receipts to your customers. Receipts should include the name of your company, purchase details of products, and the expected shipping date. With these receipts in their emails, customers will be reminded of their purchases and less likely to dispute them down the road.

Emailed receipts are great documentation that your customer knew about the transaction beforehand. This adds an extra layer of protection for your business when it comes to settling future chargeback disputes.

  1. Notify Customers of Expected Shipping Delays

Businesses that wish to avoid future chargebacks can often do so by offering superior customer service. If you know in advance that the order may take longer than usual to ship, you can offer the customer an option to cancel their order. This will help prevent customers from filing vindictive chargebacks down the road.

These notifications could also function as necessary reminders of the purchase. By reminding the customer of what they have purchased, you are making it less likely that they will file chargebacks in the future.

  1. Avoid Suspicious Sales

One of the best ways to protect yourself against chargebacks is to avoid suspicious sales. In general, this means avoiding the following types of sales.

  • Expedited orders for large amounts of product or expensive goods
  • Bulk or huge orders placed online with no contact from the buyer
  • Internet, phone or mail orders from outside the country
  • New orders that aren’t shipped to the billing address
  • Orders that don’t match the information listed with the credit card company

By keeping these guidelines in mind, you can better secure your business against potential chargebacks. This means that you can protect yourself from lost revenue and avoid the time, hassle, and costs of chargeback disputes. Make sure to keep the above chargeback prevention strategies in mind to protect your bottom line and channel your resources.

The Bottom Line

Credit card security can help protect your business from fraud and lost revenue.

By keeping your business PCI compliant, you can ensure the safety of sensitive data and save yourself from the high cost of customer disputes. With credit card fraud on the rise, it’s important that you do everything to maximize your business’s security. Avoid unnecessary losses.

This means ensuring that your systems are PCI and EMV compliant and also making sure that you are using the proper encryption and tokenization techniques to protect sensitive customer information. Additionally, it means knowing what to look out for in chargeback fraud and how to protect your business in case of illicit chargebacks.

By following the information here, you can protect your assets and grow your business. With this in mind, make sure that you have the proper credit card security systems in place today!