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Small firms risk falling victim to online credit card fraud

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Small firms that trade online are not taking sufficient precautions against payment processing fraud, it has been claimed.

With increasing numbers of firms now accepting online payments, many business owners are opening themselves up to scams because they have little experience of the contractual processes involved, the Forum of Private Business (FSB) has said.

The FSB reported that its helpline has registered a recent rise in calls about payment processing fraud.

Richard Bradley, the FSB’s adviser on merchant services, recommended that firms adopt processes that scrutinise orders using statistical information provided by online payment providers.

Mr Bradley said: “Minimising credit card fraud takes time but, above all, it is important to acquire an e-commerce payment gateway that is secure, using supplementary security modules provided by the major credit card companies.

“Basically, these two features require an additional password to be entered along with the credit card details of the cardholder. Fraudsters will usually have the name, address and credit card number only so using payment gateways that support these can be an effective way of minimising risk.”

Mr Bradley added that many business owners do not fully understand the processes involved in taking secure online card payments or realise that they can be left to cover the cost of fraud.

He continued: “Card fraud is a bit of a minefield, particularly with card-not-present transactions. In order to combat it, e-commerce merchants must first understand why and how fraudulent transactions take place.

“A credit card fraud is a transaction where an e-commerce merchant is unaware of the fact that a placed order will not be paid for by the cardholder. Typically, credit card information is gained illegally, for example by being stolen or traded, and the fraudsters then use it to order merchandise or services under false names.

“As soon as the original cardholder receives a statement from the issuing bank, a chargeback is issued and the e-commerce merchant has to refund all the expenses, and cover the hassle by paying a chargeback fee.”