Beauty Supplies, Watch Out for Unauthorized Use of Credit Card
Stolen Credit Cards, Unsupported Charge-backs
Lately, retail stores including beauty supplies are experiencing an increasing number of credit card frauds by customers. As the fraudulent activities become even more sneaky and sophisticated, we suggest following preventive countermeasures for business owners.
Beauty Supply A received $0 payment for a transaction because the customer used a stolen credit card. The owner of the credit card called the credit card company to dispute the transaction that happened after the credit card was reported lost.
Generally, when you notice an unauthorized transaction with a lost credit card, you can call the police to receive a police report. Afterwards, you send a letter to the credit card company with the police report and document proving the transaction as unauthorized. Then, you will be not liable to the amount. In the end, the merchant who sold the goods will not receive the amount owed from the transaction.
Beauty Supply A successfully retrieved the receipt for the fraudulent transaction, but the CCTV on retail floor was not working properly at the time and did not reveal the identity of the person who used the stolen credit card. An employee of Beauty Supply A reported that “we were wary of the recurrence and filed a police report, but despite our expectation that there would be police investigation, we did not hear from the police after they told us they would see what they can do but it would be difficult because there is no physical evidence.” There are criminals who use stolen credit cards, but some even make completely fake cards through cloning and hacking.
Beauty Supply B who is running an online storefront received a chargeback letter from a credit card company. The reason was that the customer has not received the products ordered. Beauty Supply B produced the shipping confirmation by the carrier with the tracking number, but the customer repeated its request of chargeback twice with the credit card company. Chargeback process helps consumers who did not receive the goods ordered or received a damaged good but could not solve the problem themselves with the merchant, under which consumers provide evidentiary documents such as invoice and receipt with a request of refund. However, the incidents of abuse by consumers are increasing.
Once a consumer requests a chargeback, the credit card company contacts the merchant who should respond within a time limit. Beauty Supply B proved the delivery of goods, but there was no signature by the recipient. In the end, the credit card company sided with the consumer, and the financial liability fell on Beauty Supply B.
The business owner of Beauty Supply B says, “it seemed like the customer received the goods.” According to the owner, “the customer emailed several times instead of calling us to complain about the missing goods, and despite our request to file a complaint with the carrier, the customer simply repeatedly sent emails emphasizing the fact of goods missing which were then produced to the credit card company in support of chargeback requests, which raised a suspicion that it was all planned.”
As the number of credit card frauds increased over the past decade, many businesses now encourage customers to use chip cards, which are much secure. However, the illegal activities are not decreasing. Some criminals have found a loophole where they intentionally damage the chip and cause the chip processing to fail. They would ask the retailer to enter the credit card number manually and later request a chargeback to avoid financial liability.
An employee at a merchant service company explained that “to avoid fraudulent chargebacks, you should ask the customer who tried to use a credit card with a damaged chip to pay with a different card or cash because we cannot help you when payment was alternatively made with a swipe or a manually entered credit card number.” For debit cards that require an input of PIN, most chargebacks do not lead to merchant’s responsibility. However, when a card number was entered manually, the merchant is 100% responsible.
In many occasion of fraudulent purchases through the manual input of card number or swiping, they make a big purchase for which the merchant is reluctant to give up the opportunity to make good profit. In doing so, they are manipulating the merchant’s psychology. Typically, when chip transactions do not go through three times in a row, the payment terminal is set to automatically request a swipe transaction instead, but you can always request your POS service provider to set the terminal not to process anything other than chip cards.
Also, the merchant service company advises that “when you ship a good sold online, you should use tracking services via UPS, FEDEX, and USPS and request a recipient’s signature.” If there is a signature by the recipient, the liability from chargebacks may not fall on the merchant. It’s also important to verify the recipient’s address before sending goods. If you put down an incorrect address, the full responsibility for a chargeback goes to the merchant.
Another security measure is performing a Code 10 call in response to a suspicious use of credit card. In this scenario, the merchant call the credit card issuer to verify the legitimacy of the credit card transaction. You can simply call the authorization center of the card issuer and say, “I have a Code 10 authorization request.” When the institution receives the request, it will inform you if there is a report of lost card or may attempt a transaction confirmation with the card holder via text or call.
To avoid making customers uncomfortable during the process, you should notify the customer that you need to make a call for payment authorization and quietly make the Code 10 authorization call. When you’re making the call, you should be in physical possession of the card. The authorized agent may ask yes or no questions to obtain further information about the transaction. Although it takes some time. Code 10 is a highly effective method.
If you receive a chargeback request letter from a credit card company despite all the preventive measures, you must act timely. Although the time limit is typically 45 days, in some cases, you would receive the notice only at the last moment, leaving only days to respond. One of the reasons is the delay in postal service due to the pandemic, which exacerbates the hardship among the merchants.
In this tough time due to Covid-19, unauthorized credit card use is increasing in number and sophistication, worsening the hardship of running a beauty supply store. You should implement appropriate security measures to reduce your risk.