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3 simple steps to fight payments fraud

According to a recent survey from the Association for Financial Professionals,* 60 percent of businesses were exposed to actual or attempted payments fraud last year. There are, however simple steps you can take to reduce the risks associated.

1. Combating bad checks

While the use of checks has declined in recent years, they continue to be the biggest target for those committing payments fraud.

Positive pay, a service that reconciles checks presented for payment against a file of checks issued by your business, is the number one way to combat check fraud. Only authorized checks are paid automatically; you can decide whether to pay items that don’t match your file, called exceptions. You may also want to implement payee match, so that a payee name is presented with your positive pay issue file, to combat cases in which only the payee name has been altered. Depending on the size of your business, reverse positive pay is another option; it delivers check images to your accounting personnel so you can match checks presented to your financial institution to checks issued by your business and pay only authorized items.

Other things to keep in mind when it comes to payments and checks:

  • Implement dual controls to ensure one person doesn’t have control over all parts of a transaction. For example, one person should be in charge of initiating checks, while another approves payments.
  • Maintain separate accounts for different purposes. For instance, you may want to segregate disbursements from collections, payroll from accounts payable, or have separate accounts for checks, wire transfers, ACH debit payments and card payments.

2. Heading off online fraud

At the most fundamental level, make sure you have established basic cybersecurity policies that are payment card industry (PCI)-compliant in addition to maintaining a secure Internet connection. (For more information on cybersecurity, see the additional resources at the end of this blog). Also consider:

  • Requesting CVV2, CID or CVC2 codes from customers
  • Using card network authentication services or a fraud profiling system
  • Investing in a security service that can scan for malware or other problems on your site
  • Always checking with the address verification system (AVS) before shipping orders

Simple measures such as these can help combat the numbers, which say it all: Credit card and debit card fraud resulted in $11.27 billion in losses in 2012. Merchants incurred 37 percent of those losses, with the main source of fraud stemming from card-not-present (CNP) transactions.

3. Mind the mobile

Payment via mobile devices is revolutionizing the way business is conducted—and, unfortunately, it’s also opening up new avenues for fraud. A study by LexisNexis and Javelin Strategy & Research found that mobile fraud costs almost three times the actual cost of the stolen product, thanks to chargeback fees, fraud investigation and costs associated with payment processing. The study also found small businesses that accept payments through mobile apps or mobile point-of-sale systems had far fewer fraud-prevention solutions in place than larger businesses, leaving them more vulnerable.

Implementing technology such as PIN and signature authentication, IP geolocation, real-time transaction tracking tools, and transaction and customer profile databases can help stem the tide of mobile fraud. Other tips:

  • Keep track of mobile fraud and online fraud separately so you can understand the “how” and “whys” involved with each
  • Continue your fraud education by staying in touch with other merchants and banks for the latest in threats and remedies

Visit the Merchant Risk Council’s website for forums and other important information on keeping your business safe from fraudsters.

* Source: 2014 AFP Payments Fraud and Control Survey, April 2014, Association for Financial Professionals, Inc.

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The information contained herein may not represent the views and opinions of California Bank & Trust, a division of ZB, N.A. or its affiliates. It is presented for general informational purposes only and does not constitute tax, legal or business advice.
The CB&T Bank Blog website may contain links to third-party websites not affiliated with California Bank & Trust, a division of ZB, N.A. and may have a different privacy policy and level of security. California Bank & Trust, a division of ZB, N.A. is not responsible for, and do not endorse or guarantee, the privacy policy, security, accuracy or performance of the third-party's website or the information, products or services that are expressed or offered on that website.