InComm Teams Up with Retailers to Fight Fraud

InComm is helping retailers fight several prevalent forms of prepaid card fraud by explaining what to look for and how to fight it.

By Bill Grabarek, Senior Editor

Every time a scam related to prepaid cards is perpetrated, retailers and their customers could lose hundreds, thousands, even millions of dollars. That’s a lot of lost profits and a lot of potentially unhappy customers. But retailers don’t have to be easy prey for fraudsters—there’s a lot retailers can do to protect themselves from the bad guys. Not only does good defense protect retailers from prepaid (and other kinds of) card fraud, it protects their customers’ wallets and the important relationships they have with their customers.

Prepaid distributor InComm, along with its affiliate ITC Financial Licenses Inc. (ITCFL), is assisting retailers to reduce their chances to be victimized by fraudsters by providing training, best practices and other support to identify and prevent the five major types of prepaid card-related fraud: method of tender, package tampering, employee fraud, victim-assisted scams and inadvertent retailer-assisted fraud.

InComm has identified these types of prepaid scams through its relationship with more than 400,000 store locations, including pharmacies, big box retailers, and convenience and general merchandise stores. In addition to helping retailers understand and combat fraud, InComm, along with others in the prepaid industry, work with law enforcement, including local, state and federal authorities.

“InComm is passionate about prepaid and making sure our retail partners and their customers have a good experience with our products,” says Skeet Rolling, ITCFL chief operating officer. “To that end, we try to protect the prepaid card business and make sure it’s as secure as we can make it, recognizing that people stay up all hours of the night figuring out ways to defeat systems and get money they’re not entitled to.”

Scams and How to Fight Them

InComm spends significant effort identifying and establishing ways to deal with the five major kinds of prepaid fraud, and now they’re sharing this information with Paybefore readers, so everyone can use these learnings as part of their own anti-fraud efforts—incorporating them in the ways that are appropriate for their business. The tightly knit prepaid value chain is only as strong as its weakest link.

1. Method of Tender

The Setup: A retailer accepts a credit card as payment for a prepaid card, only to discover the credit card was lost or stolen, so the transaction wasn’t “authorized” by the rightful credit card holder.

The Problem: If the retailer doesn’t follow correct card acceptance procedures, the retailer may be liable for the transaction through the chargeback process.

How to Fight It: Store clerks are the front line. Clerks must understand the absolute importance of their role to perform certain functions every time card-based tender is used to buy a prepaid product:

• Verify the embossed card number matches the card number on the receipt. If fraudsters skimmed a credit card, magnetic stripe data would be re-encoded, and the embossed and encoded numbers wouldn’t match.
• Never override a declined transaction.
• Request and record customer information if the clerk is suspicious about the transaction.
• Make sure the physical card is present, an electronic authorization is received, the customer signs the sales draft and the sales draft is properly recorded/stored so it can be retrieved, if necessary.

In addition, the store can limit the number of high-dollar prepaid products sold per transaction.

2. Package Tampering

The Setup: The card packaging is damaged (the original card is replaced), altered (a barcode sticker is added or replaces the original) or just looks suspicious.

The Problem: Fraudsters end up with an activated card and the customer’s card has no value.

How to Fight It: Again, store clerks are the first defense. By visually inspecting each prepaid card package sold, clerks can catch many instances of tampering. Train clerks to notice if:

• The edges and seals of the package are intact and don’t appear worn.
• If there’s a barcode, is it in the expected position on the packaging? Does it appear to be affixed over another barcode?
• The control number displayed through the aperture on the back of the card pack matches the control number on the receipt.

If clerks suspect tampering, they should feel empowered to instruct consumers to choose another card package and inform management for further investigation.

3. Employee Fraud

The Problem: Employees understand how prepaid product activation works, have access to cards and the means to activate them.

The Setup: Although store clerks are the first line of defense in preventing fraud, some may be complicit in card fraud and theft.

How to Fight It: Retailers must reconcile the prepaid category and their registers at least daily to check for discrepancies. Other defenses include sound internal procedures for reducing shrinkage, such as having clerks enter ID numbers into POS terminals when working the register and maintaining the store’s closed-circuit television to monitor for suspicious activity or to confirm misconduct.

4. Victim-Assisted Fraud

The Setup: Victim-assisted scams tend to target the elderly, financially desperate people or concerned family members. For example:

• An elderly person, perhaps a widowed grandmother, is instructed by phone to use a prepaid product to pay for emergency medical care for a loved one.
• A long-term unemployed person receives an official looking letter, announcing that he’s won the Jamaican lottery; all he has to do is to remit a $300 prepaid card to pay the taxes.
• A financially desperate person receives an email from a self-proclaimed Nigerian government official asking for help to transfer money out of the country and offering to share the money with the victim.

The Problem: Desperate, lonely and financially unsophisticated people are easy prey. With minimum personal knowledge about the mark, a fraudster can exploit the desperation or fears of a vulnerable population, enriching himself and leaving his victims empty-handed.

How to Fight It: Consumer awareness is the key, because it’s impossible to protect all vulnerable people from scams; fraudsters appeal to their targets’ emotions, clouding rational thinking. But, many scams generate similar types of activity that retailers can identify and potentially stop if they’re familiar with the signs.

• Clerks may observe elderly people, who don’t seem to be familiar with prepaid products, buying large denomination cards.
• Clerks may overhear comments from customers about paying old bills, paying emergency medical expenses for a relative, making a loan payment or paying taxes related to lottery winnings.

5. Inadvertent Retailer-Assisted Fraud

The Setup: A fraudster calls a store claiming to be from a trusted vendor and asks the store clerk to test the signal strength of a POS terminal by activating several prepaid card PINs. Or, a fraudster visits a store and removes the terminal for “repair.”

The Problem: Once the “signal strength test” is run and the store clerk has given the fraudster the PIN numbers, he will apply it to a GPR card and quickly withdraw the money. Or, if the fraudster has left the store with the terminal, he potentially can steal data from it, such as information on the product menus, before the theft is identified.

How to Fight It: Strong security is about training everyone—from clerks to managers—and empowering them to ask questions and escalate phone calls if anyone asks them to do anything that even appears suspicious. Clerks should never cooperate with anyone over the phone who is asking them to do something involving the terminal. And, a terminal should never be let out the door without the manager requesting information from the person attempting to remove the terminal and verifying with the service provider via its normal customer service number.

Strength through Training

The magnitude of prepaid card-related fraud for retailers depends significantly on the scope and effectiveness of their employee training, according to Rolling.

“Retailers experience very high employee turnover, which makes it difficult to ensure that all employees are trained fully and consistently at all times to defend against these types of fraud,” he says. “What’s more, prepaid cards are a little different from other payment cards, and what makes them a great product also can make them a tool of fraudsters. The fact that prepaid products are sold from a j-hook is part of the beauty and utility of the product.”

The fight against fraud is a constant battle. By committing to ongoing employee training, retailers can make a significant difference that protects their profits and their customers, while enabling them to offer a valuable and profitable product to their customers.

“Following best-practices procedures is very valuable, and we strongly encourage everyone engaged in the sale of prepaid products to be familiar with and abide by those best practices,” Rolling advises. “Fraud is a controllable expense and the degree to which you control fraud enables you to be more competitive and profitable.”