Top 5 Payment Scams Affecting Ontario Businesses

Payment Scams Can Affect Businesses of All Sizes

With technology improvements over the past decade, the ease of making transactional payments has become the norm. Gone are the days of feeling scared about using your credit card information online and banking on your phone. However, while the ease of payments may be an excellent convenience for small and large businesses, it does come with risks. Payment scams have sadly become a common practice in today's digital world, but that doesn't mean you should live in fear. Our expert business insurance brokers have compiled a list of the common types of payment scams that may affect your business and possible ways to avoid them happening to you.

What is a Payment Scam?

A payment scam, or fraud, can come in many forms. However, the basic understanding is when transacted or re-directed illegally. This could involve someone internally or externally using electronic means to create a financial transaction using illegally obtained information.

This is an issue for a business as any items purchased through a payment scam are now considered stolen but not necessarily insured or covered by your insurance. While an initial payment may have been processed, the payment will likely be refunded to the account holder as this was an illegal purchase. This could cost your company in several ways as any profit from the sale of that purchase is gone, leaving your company out of money and product.

5 Common Payment Scams That Could Impact Your Business and How to Prevent Them

1. Paying with a Stolen or Unauthorized Card

With the invention of the tap payment method, this type of payment scam can be done quickly. This scam will involve someone illegally obtaining and using a payment card to purchase an item or service. This could be completed in multiple ways:

• The card in question could be stolen from the cardholder and used to purchase an item.
• The cardholder's information could be found online or by other means, and a fake card with the cardholder's information attached to it could be created and used.
• With the invention of mobile tap payment, the cardholder's information is illegally obtained and added to a mobile device used for payment.

How Can You Prevent Payment Scams with Stolen Cards?

Unfortunately, there is no way to avoid this issue entirely. Some of the best options would be to train your employees to watch out for scams. Keeping your training on the latest types of scams will give them the knowledge to be aware if anything suspicious occurs.

Another way to prevent this from happening on a large scale is to require a pin to purchase any item or service above a specific dollar amount.

2. Tampering With the Point of Sale

There have been many new advances in scamming a business, and one has frequently been featured on the news. It's called skimming. During this payment scam, a scammer installs a device on or near a debit machine or digital point of sale. Once a card touches or is inserted into this device, the scammer's machine reads the card and the digital information is sent to a computer nearby, including all of the cardholder's personal information. The scammers then use this information to make online purchases or even fake cards with the original card holders' information.

How Can You Prevent A Skimming Payment Scam at Your Business?

One of the best ways to stop skimming is to keep point-of-sale machines out of the reach of the public until a sale has begun. This will not give the scammer time to attach a device to the machine. If your point-of-sale machine must be left out, regular checks of the devices and training your staff on what to look for will give you and your team more knowledge of how to prevent this from happening.

If your point-of-sale machine is mobile, keeping a record of who has the device and where it is will allow you to track down where and when a scam may have happened.

Lastly, a robust security system, including cameras, will watch over the device to observe if anyone happens to tamper with it.

3. Chargeback Fraud

Chargeback fraud is something that happens all too frequently, even though chargeback was started as a way to help protect customers. This type of fraud is when a customer makes a purchase legally and pays with a credit card. Once they have the item, the customer contacts their credit card company and requests a chargeback or refund, claiming they didn't receive it.

This type of payment scam hurts businesses as it takes resources to attempt to fight the claim. If you succeed, it can save you inventory and fees for processing. But, failing to prove your innocence could damage your reputation with the credit card company.

How Do You Prevent Chargeback Fraud at Your Business?

Once you've become a victim of fraud, fighting a chargeback is tough, so preventing it is usually the best choice. If you're completing a sale online, use lots of details and photos to show exactly what the customer will receive. Making sure to keep all documents, including invoices, shipping information and requiring a signature upon delivery will also help. Lastly, be suspicious of out-of-the-ordinary purchases and customers, including buying large quantities of a product, different shipping and billing addresses or asking an order to be shipped to multiple addresses.

4. Fake Orders and Invoices

Another common payment scam that often happens is receiving fake invoices or orders or services that were never requested. The scammer will create a fake invoice matching a service or genuine supplier your business currently uses. This works well in a busy environment with few employees, as an accounting team may not have time to check every invoice. The payment will be sent to the scammer, and the money will be lost.

A similar version of this is a scammer, acting like a supplier of office supplies, contacts you and verifies your address to send a catalogue. A shipment of merchandise is then shipped, followed by high-pressure phone calls telling you that you must pay for the items.

How Do You Prevent Fake Orders or Invoices at Your Business?

Unfortunately, there is no way to stop this from happening in the first place; however, there are several methods to catch it before payment or bank details are sent out.

One of the best ways is to inspect all invoices that come in and compare them to the previous ones received. Look for any irregularities, such as payment information, company names or email addresses. Call the supplier directly from a prior verified telephone number on file to confirm any invoices or orders if anything odd is found.

As with most payment scams, training your staff about what to look for or having multiple people check orders and invoices is a great way to keep your team up-to-date and develop clear procedures to handle a possible payment scam.

5. Phishing Emails and Ransomware

With more and more purchases being made online, the chances of receiving a suspicious email are increasingly common. Important emails to watch out for are phishing emails or ransomware attacks that could severely impact small and large businesses. An email phishing scam l will usually come in the form of an email that looks similar to a legitimate email that you or your organization regularly receive. This could come from what looks like management, a supplier, or a financial institution. The email will usually have a sense of urgency, and the scammer will ask for personal information or to purchase a hard to trace items like gift cards very quickly, or there will be consequences. If personal identification is given, the scammer may be able to find out more about the person/organization, or depending on the information, they may gain access to a company's system through malicious software.

After that, they may steal the information or worse; the scammers could lock you out of your system and demand payment to get back in. This is what's known as Ransomware. The scammer will demand compensation, or they will lose files or have personal information sent out to other scammers.

How Do You Educate Employees about Email Phishing Scams and Ransomware?

Sadly, the idea of phishing emails is something that occurs and will continue. Email providers are constantly working hard to find ways to delete those kinds of emails before they even reach your inbox. When one does, always confirm with someone if you suspect the email is a phishing scam.

One way to avoid for scam emails is to look for flaws in the emails. Check the senders' email address and if you recognize it. Also, check the spelling and details of the email. This may be a payment scam if there are spelling mistakes and easy-to-spot grammar errors. Also, if the email came from someone higher in the organization, contact them by phone or in person to confirm its authenticity.

Does Your Business Insurance Cover You, If You Fall For A Scam? 

The answer to that is maybe. As all businesses are not created equal, all business scams are not created equal. The nature of the payment scam, the choices that were made, the outcome and the type of coverage on a policy are some factors that all determine if or how much an insurance company would cover any expenses. If you believe you have become a payment scam victim, please contact your expert insurance broker to determine the best next steps.

Keeping Your Team and Organization Knowledgeable Is Your Best Defence

Payment scams that affect businesses are sadly something that isn’t going away any time soon. However, the best defence against it is to train employees. Proper training through courses or meetings to discuss the topic of potential scams is an excellent way to start a conversation about payment scams. Another great tip is keeping your employees up-to-date. Being open with your staff if a payment scam occurred or one that potentially will occur will give you the best chances of not falling victim to a payment scam.