As a consumer, you are well aware of the dangers of identity theft, but have you considered how this criminal activity affects your business?
The Evolution of Identity Theft
Identity theft isn’t a new threat. What is new is the method criminals use to execute this fraud. And the most popular method seems to change daily.
Merchants need to understand the tactics criminals are using to separate consumers from their hard-earned money. Take a look at how identity theft strategies have evolved over the years.
How does this information affect business owners? One of the most common identity theft tactics has turned merchants into accomplices.
The Introduction of Data Breaches
What are two words every business owner lives in fear of? Data breaches. Media outlets are constantly terrifying both business owners and consumers with news of security breaches and compromised data.
- According to the Identity Theft Resource Center, the number of reported data breaches reached a record high of 783 in 2014. This was a 27.5% increase from 2013 and an 18.3% increase from the previous high of 662 breaches in 2010.
- More than 30% of all data breaches were executed in the business sector. Other industries affected were health, government, education, and banking.
- The total number of data breaches is significantly more than what is reported, since many situations fly under the radar each day.
- Experts report the average security breach costs businesses approximately $200 per compromised cardholder and affects 28,000 cardholders. That results in $5.6 million in losses per incident.
In response to the prevalence of data breaches, merchants are required to maintain PCI-DSS compliance. Unfortunately, as recent examples have shown, even PCI-DSS complaint businesses are hackable.
Identity thieves have caused merchants to question the security of their own business’ data. Not only would a breach bring excessive fines, it would also severely damage the business’ reputations.
Many merchants assume data breaches are the primary identity theft concern. Merchants worry about being direct victims of the criminal act. However, the indirect harm caused by identity theft is what merchants really need to worry about.
While merchants are focusing their attention on data security, identity theft has managed to steal profits another way.
The REAL Threat to Businesses
The AARP Fraud Watch Network recently released a study on identity theft. The study revealed purchasing merchandise was the most common way thieves used stolen identities.
- Nearly 90% of study participants said their stolen credit or debit card information was used to buy merchandise.
- Another 6% said thieves used their identities to open new credit accounts—and then make unauthorized purchases in the victims’ names.
The terror surrounding identity theft is that criminals steal money from consumers, but this fear is misplaced. Because of zero liability payment cards, consumers aren’t victimized by identity thieves—merchants are.
Each unauthorized transaction results in a chargeback, a forced credit card refund. A consumer contacts the bank to report the fraud, the bank instigates a chargeback, the funds are removed from the merchant’s account without warning, and within a couple hours, the money is back in the consumer’s account.
Chargebacks steal revenue, increase costs, and threaten the business’s longevity; if the merchant bank feels the business is receiving too many chargebacks, the ability to process credit card payments will be revoked. This is a heavy blow for any business owner.
As a fellow consumer, merchants likely guard their own identity as carefully as anyone else. Unfortunately, they don’t always implement the same security for their business.
Chargeback Prevention Tips to Combat Identity Theft
There are several things merchants can do to reduce the risk of chargebacks resulting from criminal activity and identity theft.
- Use fraud filters. Fraud filters are automated systems that carefully screen each incoming transaction. Purchases that have a high probably of fraud are red flagged. Merchants have the option to process or cancel these questionable transactions.
- Use chargeback alerts. Various issuing banks have joined chargeback alert networks. These banks have agreed to alert merchants when a consumer reports criminal fraud. The merchant has the opportunity to refund the transaction before the bank proceeds with a chargeback. The merchant will still lose revenue but avoid the chargeback fee and other penalties.
- Manually review transactions. The Analyzing Questionable Transactions section of the Visa E-Commerce Merchants’ Guide to Risk Management manual outlines several indicators of potential fraud. Merchants need to be aware of these and scrutinize transactions for warning signs of fraud.
Identity theft isn’t a new criminal action, but it is one that thieves are using to create modern threats. As history has shown, there is little chance our society will completely eliminate this money-stealing scheme. Merchants can, however, arm themselves against the repercussions fraud poses to their business.
About the Author
Stephanie Underwood is a social and brand communications expert for Chargebacks911. She helps educate both consumers and merchants about the realities of friendly fraud, chargebacks, and credit card fraud. As a UK native, she enjoys traipsing around the USA when she isn’t busy saving the world from chargebacks!