It is not unknown to anyone that the E-Commerce industry has been growing progressively, and the figures asserting the volume of E-commerce transactions have been escalating. Fintech and other payment processing startups have been popping up left and right throughout the globe and the pandemic has been nothing but kind to this industry. Credit cards and Debit cards are considered to be the easiest, most accessible and the most preferred form of making online payments. But with the increased number of card transactions, the magnitude of online frauds is also on the rise.
This blog will highlight the importance of understanding online fraud, the difference between debit card and credit card fraud, and how online merchants can protect themselves and their business from getting scammed.
Credit card fraud
A credit card is a card that allows the cardholder to borrow money from a financial organisation, usually a bank. Cardholders agree to repay the money, plus interest, according to the rules of the institution. Credit cards use lines of credit rather than drawing from the cardholder’s bank account. When you pay with a credit card, you’re essentially promising the retailer that the credit card company will cover the cost of the transaction. Then you return the money to the credit card company.
We understand that this is basic information, but it is critical when reviewing how a fraudulent credit card charge is handled.
The Fair Credit Billing Act (FCBA) protects credit cards because they function on credit. This rule basically guarantees that a consumer who reports their credit card as missing or stolen will not be held liable for any subsequent fraudulent payments. Your maximum responsibility under the FCBA for unauthorised credit card transactions is $50. If you report your card as lost or stolen before any fraudulent transactions occur, then your liability is zero. Many credit cards claim that they will not be held liable for any fraudulent transactions.
Debit card fraud
Debit cards are issued by your bank, and combine the functions of an ATM card with a credit card. Unlike a credit card, though, a debit card is linked to your bank account and uses the funds in your account to pay for purchases or make digital ATM withdrawals.
Because debit cards are linked to a bank account, reimbursement is the responsibility of the bank. The Electronic Funds Transfer Act (EFTA) protects debit cards. This statute differs from the FCBA in various respects, the most notable of which is the introduction of a liability timeframe.
If a lost or stolen debit card is reported within 48 hours, the victim’s maximum liability is $50 under the EFTA. The maximum responsibility increases to $500 if it is reported after 48 hours but before 60 days. After 60 days, the victim may be held liable for any fraudulent charges, including any overdraft fees and funds transferred from any linked accounts to the debit card account.
When you use a debit card, the balance of your bank account is affected from the moment the fraudulent transaction occurs. If the transactions are considerable, you may face a cascade of financial difficulties. Fraudulent charges can clog up finances, causing legitimate charges to be refused or overdrafts to occur.
Key differences between Credit card and Debit card fraud
When it comes to fraud, the primary difference between a debit card and a credit card is how you receive your money back.
You will not lose any money if your credit card is used fraudulently. You can report the fraud and receive a credit on your statement; the problem will not affect your bank account.
Here’s how you’re legally protected if your credit card is misused:
- $50 consumer fraud liability (most companies will waive this fee)
- If you report missing cards before charge is made, there is $0 consumer liability
- For purchases made with credit card number only, $0 consumer liability
In case of a debit card fraud, it’s important to remember that if your card hasn’t been physically lost or stolen, you have 60 days to report fraudulent purchases with no risk of being held liable. If only your card number is stolen, the 60-day period begins on the date of the fraudulent transaction appearing on your account.
Here’s how you’re legally protected if your debit card is misused:
- Lost or stolen card reported before unauthorized transactions: zero liability.
- Lost or stolen card reported within two days: $50 liability limit.
- Lost or stolen card reported within 60 days: $500 liability limit.
- After 60 days: no protection.
How merchants can protect themselves from card frauds
The reality is that every online merchant will be on the receiving end of a fraudulent transaction involving stolen card information at some point. In fact, it will most likely happen several times.
The key is to report fraud or theft as soon as you become aware of it. The length of time it takes you to report a fraudulent purchase determines your liability. If you wait too long to notify the bank that your card has been used for illicit purchases, you may be held liable for some of the losses.
Apart from this, the merchant has the option of implementing security measures. Multi-factor authentication, for example, is almost mandatory for future transactions.
Any client data that is stored on the merchant’s end must be encrypted. Many pieces of information are stolen as a result of merchant data breaches, and encryption can provide an extra degree of protection against would-be fraudsters gaining access to that information. Moreover, chargebacks and chargeback fraud can be mitigated with the addition of cyber insurance.
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We’re specialists in managing high-risk service provider price processing for a selection of high-risk industries, each massive and small. Where low-risk vendors flip their back, we welcome you with open arms, equipped to assist high-risk organizations to get accredited and stay accredited.
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