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Card Declined: Fraud Causing Major Losses for Distributors

Wednesday, August 26, 2015

A recent survey released by ACFE, Association of Certified Fraud Examiners, found that small businesses, companies with 100 or less employees, were more likely to bear the brunt of fraud loss than larger organization. Those losses amount to around $154,000 on average, annually, per business

A rash of fraud, originating out of Indianapolis has hit some welding distributors for some large credit card chargebacks, amounting to tens of thousands of dollars each, in total, going well into six figures.  The fraudster used stolen credit cards to order multiple welders over multiple orders, having them shipped throughout the United States, to only then be re-posted on E-Bay and Craigslist.

Unfortunately, there is no insurance available for a credit card chargeback.  Some agents have been known to make the mistake that coverage is available through Credit Card Forgery coverage or  a new coverage type, called Social Engineering Fraud, neither of which covers the above example.

If your business is offering e-commerce or accepting payments via phone or fax, it is important to understand the basics of credit fraud.  Otherwise, you could be opening up your business up to information security and credit card payment risks.


One way many businesses are experiencing the heartache of Chargebacks.  Chargebacks are transactions that are returned as your financial liability, and they translate into extra processing time and cost in addition to possible loss of revenue.

They occur for several reasons, including:

  • Customer-disputed transactions
  • Fraud
  • Authorization issues
  • Inaccurate or incomplete transaction information
  • Processing errors

The key to reducing loss time and revenue is to control chargebacks.  Below are two ways to decrease the possibility of a chargeback:

  1. Authentication Systems
  2. Training Your Staff

Authentication Systems

To avoid chargebacks, it is up to the merchant to apply the right tools and controls to verify the cardholder’s identity and the validity of the transaction. When used efficiently, these systems can reduce fraudulent transactions and the potential for customer disputes.

  • Address Verification Service checks a credit card holder’s billing address with the issuer, providing merchants with an indicator of the validity of the transaction.
  • Card Verification Value numbers are printed on the back of credit cards and can help ensure that the customer is in possession of a genuine card.
  • Fraud Screening examines transactions and calculates the level of risk associated with each transaction, providing merchants with risk scores.

Training Your Staff

Be sure your staff is aware of the risks of credit fraud and chargebacks. They should know the chargeback rules and regulations that your provider uses and be well-versed in your risk management policies and procedures.


Learn more about the stats at:

Material posted on this website is for informational purposes only and does not constitute a legal opinion or medical advice. Contact your legal representative or medical professional for information specific to your legal or medical needs.

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