Identity Theft’s Hidden Victim: Your Business

Regardless of how it’s executed or who is affected, one fact is universal: identity theft leaves its victims feeling violated and insecure. However, the true victim of identity theft isn’t always as obvious as one might assume.

A Well-Established Threat

While it may seem as though the threat is a relatively new phenomenon, the roots of identity theft can be traced all the way back to the earliest writings of man.

As technology has improved, thieves have developed new and innovative methods of getting what they want for free.  With the increasing reliance of consumers and merchants on eCommerce, identity theft has become more commonplace—and more worrisome.

The Rise in eCommerce and the Effect on Identity Theft

Not only are consumers worried about protecting their identity, merchants must also be concerned with protecting the identity of their customers. The internet has made the risk of wide-scale theft more likely.

The prevalence and repercussions of identity theft has affected consumers and merchants alike. Consumers fear the loss of their privacy and sense of security; merchants fear the loss of consumer confidence and revenue.

Related Article: How to Protect Your Business from Credit Card Fraud

As the number of incidents of identity theft increase, so does the long term costs of this crime.  A Bureau of Justice report revealed that identity theft losses totaled $10 billion more than all other property crimes combined.

Identity theft can be used to execute two different crimes: new account fraud and account takeover fraud. The majority of identity theft incidents (85%) are used to gather information to open new accounts (new account fraud). These new accounts can then be used to purchase various items and services. Other criminals engage in account takeover fraud, which allows them to make purchases with existing account information.

Regardless of the type of fraud, there is another victim in each case of identity theft.

The Hidden Victim

When consumers identify unauthorized transactions, they notify their bank or credit card provider. To protect the consumer, the bank initiates a chargeback, deducting the amount of the sale from the merchant’s account. This unexpected withdrawal, along with chargeback fees, can adversely affect the merchant’s cash flow and decrease revenue. Additionally, each chargeback filed negative impacts the merchant’s ability to continue accepting credit cards.

The hidden victim in most identity theft incidents is the merchant. While the consumer’s identity has been stolen, the merchant’s financial resources have also been stolen, through both the loss of revenue and merchandise.

Preventing Chargebacks Caused by Identity Theft

What steps can merchants take to protect their businesses from the threat of identity theft and criminal activity?

• Consult fraud filters. Automated systems screen each transaction as it is processed. Transactions that indicate a probability of fraud are flagged for further investigation. Merchants then have the option of canceling the transaction or proceeding with the charge despite the risk.
• Utilize chargeback alert systems. Businesses can benefit from networks of banks that alert merchants of incidents of criminal fraud. When a consumer reports fraudulent activity, the bank will notify the merchant, allowing for the opportunity to refund the transaction. This eliminates the fees and negative ramifications that would typically be imposed with a chargeback.
• Check fraud indicators. The Visa E-Commerce Merchants’ Guide to Risk Management outlines possible indicators for fraudulent transactions in the Analyzing Questionable Transactions section. Merchants can use this resource to screen transactions based on these warning signs.

Throughout history, identity theft tactics have grown and evolved. With each new strategy, business must adapt to reduce the risk of criminal fraud and the resulting chargebacks.

Have you experienced revenue loss as a result of identity theft? Have you ended up being the real victim because of chargebacks? Tell us about your experience in the comment section below.

Author: Stephanie Underwood works for Chargebacks911. She helps business owners understand the realities of friendly fraud, chargebacks and credit card fraud. In addition to helping businesses prevent chargebacks, Stephanie also shares tips that help merchants successfully dispute illegitimate chargebacks.