How To Save Your Merchant Accounts from Fraudulent Transactions?

Most consumers in today’s time feel safe while making payments through their credit cards, but many E-Commerce and online merchants are suffering losses because of fraudulent transactions. Businesses do not pay much attention to credit card frauds, but they are always exposed to them. Therefore, detecting scam and fraud transactions and avoiding them is important for online merchants.

There are growing cases where people use card details to purchase goods and services without actually paying for them. Research shows that losses due to fraudulent transactions rose from approximately $24 billion in 2017 to $28 billion globally, with 1-3rd of total losses in the USA. Both offline and online transactions are vulnerable to fraud, but card-not-present transactions are 81% more likely to suffer fraud.

Consumers are protected by card issuing companies and banks, but the same cannot be said for merchants. Many people assume that card providers suffer the effects of fraudulent transactions, but it is the merchant who bears this loss. In most cases, merchants lose their goods and services without being paid for them. Instead of getting their money back, merchants need to spend more on chargeback processing and other processes.

What is a merchant account?

A merchant account is a commercial account through which businesses can accept and process card transactions and other digital payments. A business needs to partner with an acquiring bank that processes all communications and handling of electronic payments.

For online merchants and E-Commerce stores, having a merchant account is vital. Some land-based merchants may choose not to open such accounts and only accept payments in cash. Merchants can accept various APMs and new payment methods through a merchant account. These accounts are generally expensive, but they offer a lot of helpful and effective services.

Online merchants require merchant accounts because they accept just digital payments. Cash payments cannot be made to E-Commerce stores, and this is where merchant accounts play a big role. With an increase in electronic payments, fraudulent transactions have also gone up.

Types of Fraud

Counterfeit or fake cards – Scammers skim all information of a victim’s credit card and create a fake magnetic card using these details. This fake card has a stripe that makes it function like a normal credit card. This fraud is really hard to spot because scammers use the card for payment just like a normal customer would do.

Stolen or lost cards – The most common type of fraud where a person loses his credit card, and it is found by a scammer. The scammer then spends a lot of money using the card before the owner knows about these transactions.

Card not present fraud – Online merchants are most vulnerable to card-not-present transactions because they can accept online electronic transactions. The credit card is not required physically, and scammers use information like CVV number, card number, name, expiry date, etc., to make transactions.

Chargebacks and friendly fraud – Consumers can file a chargeback dispute with their card issuer company, who then refunds the transaction amount. Merchants lose this money and have to spend more on processing the chargeback dispute. Friendly and family fraud generally leads to chargeback claims.

How can merchant accounts prevent fraudulent transactions

The number of electronic transactions is increasing every day, and surely it is not possible to eliminate fraudulent transactions altogether. However, merchants need to do something about them, or they will suffer huge amounts of losses. Here are some ways to prevent such transactions.

1.      Follow all merchant guidelines and rules

Merchant account owners need to partner with high-security payment getaways like Paypound and follow all their rules and guidelines. You can lose your account if you don’t follow all rules. If you are suspicious about a transaction, contact your payment processor and the concerned customer quickly.

Your payment processor will help you in such situations and help reduce chargebacks too. When the merchant, payment processor, card issuer company, and the customer know about a fraudulent transaction, it can be stopped before it’s too late.

2.      Use card verification (CCV) and address verification (AVS)

The Address verification system is used to check if the zip code and address of the card user match the information with the card issuer. IF AVS fails, the merchant can stop the transaction and contact the user for additional information required to complete the transaction.

Card code verification (CCV) helps verify the 3- or 4-digit code printed on the back of a credit card. This code is not there on receipts, and in most cases, if the consumer tells you the right code, then he is the legitimate owner of the card. The use of both AVS and CCV surely reduces fraudulent transactions.

3.      Use real-time authorization

Real-time authorization sends all card details to the payment processor for approval. It ensures that the credit card is not stolen and its use is valid. The merchant stays in contact with the consumer and can correct any incorrect details in real-time. Merchants need to pay extra for real-time authorization, but it is an effective fraud prevention technique.

4.      Keep an eye out for suspicious sales

Be alert regarding suspicious sales that involve unusually big orders, large quantity orders for expensive products, foreign orders, orders on domestic cards shipped abroad, orders with wrong card information, etc. It is not compulsory that these orders are dishonest, but in most cases, such orders lead to fraudulent transactions.

5.      Sell high-quality products and keep customers happy

Make sure you sell high-quality, genuine goods at your online store. There should be no issues during delivery and shipping so that your customers are satisfied. Some customers file chargebacks if they don’t like your products or have trouble in the return or exchange process.

Instead of speaking to the merchant, consumers file a chargeback with their card issuer and get their money back. Merchants lose the amount of transaction, potential sales revenue and have to pay for processing these disputes. Keeping customers happy can help avoid this and reduce losses.


Online merchants need to have proper communication with all parties involved in an online card-not-present transaction. This does not guarantee that fraudulent transactions won’t occur, but it will help reduce them and save hard-earned money.

Just like consumers are protected at so many levels, even merchants need to be protected against scammers and fraud. Businesses should use as many fraud prevention techniques as possible because one method is not enough to stop fraud. In case of fraud, contact your payment processor as soon as possible and take the necessary steps.

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