In today’s digital world, remote transactions and online payments are becoming increasingly common. These digital transactions are often faster, more convenient, and less expensive than other payment methods. But they also open the door to new types of fraud and check fraud risks. Check fraud is one of the most common financial crimes.
It involves creating a counter check to deceive or defraud another individual or company by depositing it into their bank account and withdrawing funds from that account before the bank discovers that the check is fraudulent.
Criminals who commit check fraud often target businesses because checks are an important part of business transactions. As a result, merchants need to be especially vigilant about protecting against this type of crime. Here are 7 tips for combating check fraud in the digital age:
Know your customer – and the risk
Check fraud has traditionally targeted businesses that receive and process large volumes of paper checks. In recent years, however, it has become increasingly common for criminals to try to commit check fraud through electronic channels, particularly digital payments from online merchants to customers.
While these online transactions offer convenience and speed, they also create new risks for fraud, including counterfeit payment card numbers, stolen payment credentials, and forged identity documents. To combat these new risks, you need to know who your customers are and verify their identity in a way that’s legally sufficient given the risk you’re managing.
You also need to know your suppliers and how they conduct their business. And you need to be aware of the risks of certain payment methods, including digital wallets and remote deposit capture.
Use technology to combat fraud.
Using technology to verify your customers’ identity can help you more accurately assess their risk and make better decisions about whether to accept a particular payment.
One way to do this is by using a risk-based authentication system that verifies the customer’s identity; using a risk-based authentication system verifies the customer’s identity through biometrics, digital identity, or a written or verbal challenge.
Another technology-based approach to combating fraud is to employ a payment authorization solution, sometimes called an e-commerce solution or payments gateway.
These types of technology solutions help businesses manage the flow of digital payments. They can be especially useful for businesses that operate remote or virtual storefronts or provide digital goods or services. They can also help to combat fraud by flagging potentially suspicious transactions and verifying the identity of customers.
Require identification for digital transactions
In addition to requiring the same types of information for digital payments that you would for paper checks, you should also require your customers to provide an additional form of identification, such as their name, address, and date of birth, Social Security number, or driver’s license number. You can also request a form of identification from suppliers.
This is particularly important when dealing with suppliers you’ve never dealt with before. It’s also a good idea to check your suppliers against lists of known fraudulent entities. Most financial institutions publish these types of lists on their websites.
Don’t store credit card information.
Credit card information is a hot commodity for fraudsters, and storing it on your computer or in your accounting system can present a huge risk to your business. To prevent fraud, you should use a payment gateway that processes payments without storing customer card data.
Using an accounting software program, you can encrypt any customer data before storing it on your computer. It’s important to remember that while encryption can help protect the data, it isn’t a failsafe. If fraudsters discover your data, they may still be able to decode it.
Lock down your accounts with passwords
One of the easiest ways to combat remote account takeover is requiring your employees to lock down their accounts with passwords by Doing this can help ensure that only authorized people have access to your payment information and account data.
And you can also help minimize the damage if an account is compromised. You should also use multi-factor authentication for any remote access accounts that have access to sensitive data, such as your accounting and payment systems.
Take a hard look at overseas payments.
Remote payments can take many forms. They can include transactions between individuals sending money to each other through services such as Venmo, PayPal, and Zelle, direct debit payments to suppliers outside the United States, and payments made by individuals to companies based abroad, such as online marketplaces.
You need to be especially careful whenever you make payments to vendors or suppliers outside the United States. Fraudsters often target these types of payments because they are often made without the same scrutiny that domestic payments receive.
Some of these overseas payment methods also don’t provide the same level of consumer protection as domestic payments. For example, there is no chargeback mechanism with Zelle payments, although some financial institutions are working on adding that function. PayPal does have a chargeback mechanism for international payments, but it’s not always easy to use.
Takeaway
Check fraud has long been a concern for merchants. In the digital age, it’s important to be vigilant about protecting your business against this type of crime.
To do so, you should know your customer and the risk use technology to combat fraud, require identification for digital transactions, don’t store credit card information, lock down your accounts with passwords, take a hard look at overseas payments and take a hard look at overseas payments.
