Credit Card Fraud: What Canadian Small Businesses Can Do

Running a small business in Canada takes a lot of hard work. You spend your days selling great products and helping your customers. You also take the time to track your finances. With many people paying for things using credit cards, it’s easier to follow the money trail. These payments are fast and easy for customers. They also help your business grow. But there is a risk you can’t ignore either. Sometimes, people try to steal credit card numbers and use them to buy things without paying. This is called credit card fraud. Fraud can cost your business a lot of money. It can also hurt the trust you have built with your customers.

The good news is that small businesses can work to minimize the risk of fraud. You just need to follow a few simple steps, which we will outline in this guide, showing you how to protect your business.

What Is Credit Card Fraud?

Credit card fraud happens when someone uses a card that does not belong to them. It is a crime. Common examples include:

• A thief steals card numbers from the internet.
• Someone finds a lost card and uses it at a store.
• A hacker steals payment data from a business website.

When a criminal buys something, the real owner will eventually see the charge. They will then call their bank to report it, and the bank will often take the money back from your business. This is called a "chargeback." When a chargeback happens, you, the business owner, lose the money and the item you sold.

Why Fraud Hurts Small Businesses

Fraud hurts small businesses more than big ones, as larger companies have bigger security teams. They have tools to detect and stop fraud. Small businesses might not have those same tools due to their cost or accessibility issues. 

Fraud can hurt small businesses in various ways, which include:

1. Loss of money: You lose the cash from the sale.
2. Fees: Banks often charge extra fees for every chargeback.
3. Loss of time: You have to spend hours dealing with banks and police.
4. Loss of trust: If your customers feel unsafe, they may stop shopping with you.

Common Types of Fraud

To stop thieves, you must know what they do. Here are the most common tricks:

• Stolen Card Fraud: A thief steals a physical card and uses it in a shop.
• Online Fraud: Criminals use stolen numbers to buy items on your website. They often use bots to try many numbers at once.
• Phone Payment Fraud: A person calls you and gives a fake or stolen card number over the phone. Since you cannot see the card, it can be very risky for you to accept payment this way.
• Friendly Fraud: A real customer purchases an item from you but later informs the bank they did not. This is a common problem for many stores.

10 Simple Steps to Stay Safe

Step 1: Use Trusted Payment Processors

Always use secure companies to handle your money. These companies have systems that spot fraud automatically. In Canada, popular choices include Square, Stripe, and Moneris. 

Learn more about accepting credit card payments in FinlyWealth’s guide on how to accept credit card payments in Canada. 

Step 2: Use All Security Codes

Always ask for the CVV code. This is the three-digit number on the back of the card. If you are selling items online, this code proves the person has the card in their hand.

Step 3: Check the Address

Use an "Address Verification Service" (AVS). This checks if the billing address the buyer gives matches the address the bank has on file. If they do not match, be careful.

Step 4: Train Your Staff

Your workers are your first line of defence. Teach them to:

• Examine the physical card and use chip-and-PIN terminals whenever possible.
• Watch for orders that look strange or too large in size.
• Never share customer card data with anyone.

Step 5: Protect Your Tech

Your computers need to be secure. Always:

• Use a password that is hard to guess.
• Update your software often.
• Use antivirus programs to block hackers.

Step 6: Do Not Write Down Card Numbers

Never write down credit card numbers on paper, and do not save them in emails or text messages. If you write them down, someone could steal them. Instead, it is best to let your payment processor store this information for you.

Step 7: Check Your Sales

Look at your sales list every week. Are there many refunds? What about orders from far away that seem odd? If you see something strange, call your payment company right away.

Step 8: Use Safe Internet

Never use free or public Wi-Fi to take payments. Public Wi-Fi is easy for hackers to break into. Always use a private, secure internet connection at your shop. 

Step 9: Give Every Customer a Receipt

Be sure to give a receipt every time. You can send it by email or print it out. A receipt shows the date and the price. It also helps you if there is ever a disagreement about a sale later.

Step 10: Keep Good Records

Complete records help you track your tax money and also help you win disputes if a customer claims they didn’t buy an item. In Canada, the Canada Revenue Agency (CRA) advises you to keep records for six years.

What to Do If Fraud Happens

Do not panic. If you think a sale is fraudulent:

1. Stop the order. If it hasn't shipped, hold it.
2. Call the payment processes. Contact your processor or bank to tell them what you noticed.
3. Keep records. Save the emails, the shipping address, and the order information.
4. Respond fast. If you get a chargeback notice, answer it as soon as you can.

Understanding Chargebacks

A chargeback is when the bank pulls money out of your account. This happens because the bank thinks the sale was not right. One of the issues is that too many chargebacks can make your payment company stop working with you. To avoid this, always keep clear records and be very clear with customers about your refund rules.

Tips to have fewer chargebacks:

• Email the customer to confirm the order.
• Make sure your store name shows up clearly on their bank statement.
• Answer customer emails quickly.

Why Prevention Is Worth It

When you stop fraud, you win in many ways:

• You keep your hard-earned money in your business.
• You keep your customers smiling.
• You avoid extra bank fees.
• You build a reputation as a safe and honest small business.

Final Thoughts

Credit cards are very helpful because they make it easy for people to buy your products. While fraud is a real risk with this payment method, you can take steps to try to beat it. By using secure tools, keeping good records, and training your staff, you can protect your business. When your customers know their money is safe, they will keep coming back to shop with you for a long time.

Learn more about credit card fraud on the Government of Canada website.