In recent years, small businesses in Australia and New Zealand have increasingly become victims of payment fraud. Due to changes in both consumer and criminal behavior, businesses are becoming more vulnerable, and losing more money to fraud every year. Smaller businesses are often poorly equipped to contest fraudulent chargebacks or to detect fraudulent purchases, and don’t take necessary preventive steps to protect themselves. In addition, they rarely have the financial flexibility to absorb significant losses resulting from criminal behavior, or even to operate while waiting for a contested charge to come through. To survive in this emerging environment, businesses need to develop preventive measures and find short term cash flow solutions to help them keep the lights on when they become victims.


Chargebacks and fraud are growing

Chargebacks and card fraud have been a fact of life for businesses for decades, but in recent years things have become far more serious for many types of businesses. This is because the proportion of credit purchases that are made without a card present is growing every year. Moreover, fraudsters in Australia and New Zealand are increasingly becoming aware of how vulnerable potential victims are, and are taking advantage.

CNP (card-not-present) transactions are primarily made through online purchases, and offer relatively little in the way of built-in fraud protection. As of 2016, CNP fraud made up three out of four card related payment fraud incidents. Fraudsters typically make a purchase, and then contest the charge directly with their financial institution, whose primary interest is in protecting their customer. This makes it fairly easy for criminals to operate, and creates a major headache for the defrauded business.

Regulators are caught unawares

The Australian Securities and Investments Commission (ASIC) is the body responsible for regulating card fraud in Australia. Unfortunately, when asked about the issue late last year, they did not indicate that any steps were being taken to manage the issue with regulation, instead pointing business owners to the terms and conditions of the individual agreements between merchants and relevant financial institutions.

This means, unfortunately, that businesses don’t have much hope of a regulatory solution coming to their rescue any time soon. Further, individual small business owners don’t have any real negotiating power to modify the terms and conditions to which they’re bound with their payment providers, leaving them vulnerable. Because of this, businesses need to find workarounds to protect their cash flow.

Businesses need to take measures to protect themselves

There are a few things that businesses can do to reduce the likelihood of being targeted, and to improve their chances when fighting back against illegitimate chargebacks. The most powerful preventive measure that businesses can take is simply requiring secondary verification from their customers.

The most common requirement is to require that the billing address match the address that the credit card is registered to. This is a nice additional layer of security, but a moderately determined identity thief can often find this information online. By additionally logging customer IP addresses, or requiring users to log in through a social media profile, business owners can protect themselves much better. IP addresses can verify approximately where the user is located when the purchase is made, while social media login information isn’t publicly available in any phone book. Armed with this additional verifying information, business owners are far more likely to succeed in reversing a chargeback and recovering their funds in the event that a legitimate cardholder is attempting fraud.

Keeping cash flow steady

Disputing a chargeback takes time, and even businesses that do everything right still suffer some losses to fraud. Whether your business can recover its revenue or not, you’ll need a short term cash flow solution to keep the lights on while you deal with the issue. Since the hardest hit businesses are generally ecommerce businesses that don’t issue invoices, the easiest form of short term financing, invoice financing, often isn’t a great option. Instead, businesses can take out unsecured business loans to come up with additional cash, or defer outgoing payments with supply chain finance.

There are a wide variety of cash flow management solutions out there, and the best options differ according to your industry and specific situation. Because of this, it’s a good idea to work with a representative from your financial institution, or another financial expert, to come up with the ideal solution for your business. What’s most important is that you take steps to protect your business well ahead of time to ensure that card fraud can’t interfere with your business’ ultimate success.