Protect Yourself from Merchant Scams

Posted on Thursday, October 24th, 2024 | By IndusInd Bank

As financial transactions have become easy due to digital payment methods, it is crucial to not let convenience trump caution. 

Merchant frauds in particular are a growing concern in today’s world of online shopping and digital transactions. Whether you are a merchant or a consumer, being aware of merchant frauds and their potential impact on your finances is important. 

What is a Merchant Fraud?

• A merchant fraudoccurs when scammers carry out fraudulent activities against merchants or falsely disguise themselves as merchants to scam consumers. This can lead to financial losses for both consumers and businesses. 

• Within online transactions, this can involve fake merchants, fraudulent transactions, or the misuse of payment information. 

• For businesses, merchant fraud can lead to chargebacks, revenue loss, and reputation damage. Likewise, consumers may find themselves with unauthorised charges on their accounts or undelivered goods.

• Fraud detection in banking is crucial in identifying and preventing these scams. Banks and financial institutions use advanced systems to detect unusual transactions that may indicate fraud. 

• However, despite these measures, individuals and businesses must be proactive with fraud detection to protect their finances.

Types of Merchant Frauds

These are some of the types of merchant frauds that you may come across: 

1. Phishing Scams

Phishing involves tricking consumers into providing sensitive information. The scammer will pretend to be a legitimate merchant and access the individual’s credit card numbers or login credentials. They use this information to commit fraud, such as unauthorised purchases or identity theft.

2. Chargeback Fraud

This is also known as ‘friendly fraud’. It occurs when a customer makes a valid purchase but then raise a chargeback request with their bank. The customer may claim that they never received the goods or services and ask for a refund. This type of merchant fraud can be challenging for businesses, as it often involves genuine transactions.

3. Fake Merchant Websites

In this type of fraud, scammers set up fake websites that look like legitimate businesses. This tricks consumers into making purchases. Once payment is made, the scammer disappears. This leaves the consumer without any goods and with compromised payment information

4. Triangulation Fraud

This involves a three-step process where a fraudster sets up a fake online store. They take orders from customers and then use stolen credit card information to fulfil those orders through a legitimate retailer.

The original cardholder can dispute the charge. This will lead to chargebacks for the legitimate retailer and loss for the consumer. This is also why having scam alerts is crucial for credit cardholders. 

5. Account Takeover

In this type of fraud, a scammer gains access to a legitimate merchant’s payment account. They then use it to process fraudulent transactions and modify account details. This can lead to financial losses and reputational damage for the business.

How to Protect Your Finances Against Merchant Frauds?

Here are some fraud detection and prevention measures you can take to protect your finances from the above scams:

1. Stay Informed with Alerts

Sign up for SMS/mail alerts from your bank. These can act as scam alerts since they provide real-time notifications about activities in your account. This allows you to sniff out unauthorised transactions at the earliest. 

2. Enable Fraud Detection Tools

Many banks offer payment fraud detection tools that monitor your accounts for unusual activity. Ensure these tools are activated for your current account and cards.

3. Verify the Merchant

As a consumer, make sure to research the merchant before making an online purchase. Look for reviews, check their official website, and ensure the payment portal is secure. 

4. Use Secure Payment Methods

Whenever possible, use payment methods that offer an extra layer of security. This can include credit cards or payment platforms with buyer protection. 

5. Monitor Your Accounts Regularly

Check your current account statements for unauthorised transactions. Early fraud detection can prevent further losses. Reach out to your bank if you spot anything suspicious.

6. Educate Employees

Businesses must educate employees about payment fraud detection. Have strict internal controls, review transaction logs, and use multi-factor authentication to help prevent fraud.

Also Read: Best Practices to Secure Your Current Account

Conclusion

Merchant fraud can pose a major risk to both consumers and businesses. However, with the right knowledge and proactive measures, you can protect yourself against these scams. 

Along with being proactive, it is also crucial to partner with the right bank. IndusInd Bank prioritises your safety. When you open a current account with IndusInd Bank, you are signing up for safe, secure and seamless banking that not only enhances your business experience but also provides peace of mind. 

Protect your finances today! Open a current account with IndusInd Bank today! 

Disclaimer: The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.