Citywide Banks
Understanding Credit Card Fraud And How To Avoid It

Knowing the tools, resources and best practices to avoid credit card fraud can make a difference in mitigating your risk.

As we continue to adjust our daily activities due to the current environment, one of the most notable changes is a shift from in-person purchases to online. While we were already living in a fast paced, digital world, COVD-19 has forced us to make that shift even faster. Physical commercial credit cards and cutting-edge technology like Integrated Payables allow for automated purchasing with ease. A recent report from the Association of Financial Professionals (AFP) shared that overall, 81% of companies were targets of payments fraud in 2019. This startling number makes it more important than ever to become familiar with tools, resources and best practices for automating payments with a commercial card while protecting your business.

PAYMENT METHOD TARGETS

With 42% of companies making B2B payments by check, it’s no surprise that method is often the easiest target. However, companies reported other methods are becoming greater targets as well:

Card Fraud Statistics


While 34% of respondents shared they experienced attempted and/or actual payments fraud via commercial card, it’s worth noting that 60% of organizations report fraudulent charges were made by a third party, and only 11% actually suffered a financial loss.

DEFINING CARD FRAUD VERSUS CARD MISUSE

Although the two may seem similar, card fraud and misuse of a card are very different, and knowing how to protect your card program from both leads to more efficient controls.

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Card Fraud Statistics


HOW CAN YOUR COMMERCIAL CARD HELP WITH FRAUD MITIGATION?

Unfortunately, many businesses don’t realize that their commercial card can really help mitigate fraud and misuse. Consider the following for your company card program:

  • Fraud Alert - alerts that monitor activity and send notification of anything out of the ordinary when compared to your history of spend
  • Merchant Category Code (MCC) Controls – restrict specific industry purchases.
  • ATM Blocking – restrict cash withdrawals at ATM’s
  • Spend Limit Controls – customize single and monthly transaction limits per card/program
  • VISA’s Zero Liability Policy - protection from fraudulent transactions, and while some exclusions apply, provisional credits will be applied after a prompt notice
  • Visa Liability Waiver Program – protects your business against eligible losses that may be incurred through card misuse by an employee

WHAT CAN YOUR BUSINESS DO TO HELP WITH FRAUD MITIGATION?

It’s beneficial that there are tools available around card technology and reporting to help safeguard your company from commercial card fraud. However, there are also best practices you can implement internally to further mitigate fraud.

1. Establish Proper Roles and Responsibilities
If properly documented and defined, employees will know the process and maintain it.

  • Program Administrator (PA) – handles the daily tasks of running a card program which includes: adding/canceling cards, adjusting credit limits, making payments, ensuring policies and procedures are being followed by cardholders, and performing reconciliations
  • Cardholder – responsible for making purchases on behalf of the company while following procedures and policies
  • Approver – responsible for reviewing transactions for legitimacy (depending on size of program, you may have multiple approvers)

2. Require a Cardholder Agreement
A cardholder agreement should outline the details regarding the cardholders’ responsibilities and provides details of what happens if a cardholder doesn’t comply.

3. Separation of Duties
The larger your program is, the more separation there should be, and therefore, the more sophisticated your approval hierarchy will be. By having greater separation of duties in each role when administrating a card program, the better you can manage it and more quickly detect a problem. For example, since the PA manages the overall card program, this individual wouldn’t have their own card because they could make their own changes, leading to potential card misuse.

4. Establish Proper Procedures
Cardholder and PA procedures may be different, but just having general procedures in place can benefit everyone. Procedures might include: who to request a card from, who approves purchases, how to increase/decrease credit limits, individual and monthly transaction limits, and so on.

5. Setup/Maintain Fraud Contact Information
PAs can set up fraud alerts; however, it is best practice to have each cardholder register themselves within their issuer card management tool and update/maintain their personal mobile numbers. This allows the text alert to be sent immediately to the cardholder to verify if a charge is legitimate.

6. Transaction Audits
The goal of these audits, scheduled or not, is to look for and stay on top of suspicious activity. Some transactions to watch more closely are:

  • High dollar and abnormal
  • Transaction splitting – this happens when a cardholder “splits” the transaction in half to circumvent their single purchase limit
  • Certain suppliers/MCCs
  • Strange keywords, based on the nature of your business and what you allow and don’t allow
  • From high volume cardholders
  • Those used for meals/per diem allowances
  • Declined – did a cardholder try to get away with something, or is it a valid transaction and perhaps you need to open that MCC for future purchases?
  • From a new cardholder – their activity should be monitored for at least three statement cycles

TECHNOLOGY IS KEY IN THE FIGHT AGAINST COMMERCIAL CARD FRAUD

As scammers get more sophisticated in their fraud efforts, technological advancements are helping to somewhat slow their successes. Consider the following:

Detailed Reporting
There is a lot of software available, and some even directly through your card program, that can assist in your efforts to limit your card fraud exposure. While reporting itself is not a specific tool for fraud prevention, what it can do is help you more quickly identify and react to fraudulent activity. An intuitive reporting platform can deliver unique advantages, especially when it comes to fraud monitoring. With proper reporting, you can:

  • Monitor expenses to ensure compliance with company policy
  • View transaction level details, including declined transactions and dates
  • Manage specific MCCs to see where spending is consistent and identify possible inaccuracies

Integrated Payables
Leveraging existing and proprietary payment solutions on a single platform, Integrated Payables gives you ONE payment solution for ALL payment types: Check, ACH and Virtual Card. Traditional programs only reach a small segment of vendors, whereas Integrated Payables facilitates flexible payment processing from one simple-to-use platform – 100% of your AP could be automated! As noted earlier, virtual card fraud was extremely low compared to other payment methods. Considering the ease of use and cost savings, plus the current environment, switching more of your payments to electronic could add incredible value to your operations.

Card Fraud Statistics

 

Card Fraud Statistics


As we conduct more and more business online, it very well could become the new normal. In fact, another recent study of businesses from the AFP tells us that with the ongoing pandemic:

Card Fraud Statistics


A good financial partner can help guide you in efforts to protect your company from commercial card fraud. Your business should feel confident in making payments, while keeping in mind how common fraud is nowadays. In most cases, switching to card and/or virtual card programs can make all the difference.

 

Sources
Association for Financial Professionals: 2020 Payments Fraud and Control Survey Report
Association for Financial Professionals: Impact of the COVID-19 Pandemic
As with all serious financial topics or decisions, be sure to consult with a trusted financial advisor beforehand. The content here is for educational purposes only, and is not meant to serve as any sort of advice or endorsement.