Six ways to beat fraud

Credit and debit card fraud cost the Canadian economy an estimated $500.7 million last year.

Credit and debit card fraud cost the Canadian economy an estimated $500.7 million last year. This figure is down slightly from 2008’s total of $512.2 million, according to Criminal Intelligence Service Canada’s 2010 Report on Organized Crime. Another study by Statistics Canada’s Canadian Centre for Justice Statistics found that bars and restaurants accounted for 2,165 of the 88,622 total incidents of fraud reported to police in 2009.

The numbers speak for themselves: the fraud business is alive and well in Canada, costing merchants and their customers big bucks.

The tricks of a fraudster’s trade are constantly evolving, adapting to new security measures and taking advantage of new opportunities presented by changing technologies. The tools available to protect merchants from fraudsters evolve too; as we’ve seen with the roll out of chip-protected credit and debit cards that require customers to enter a PIN in addition to presenting the card at the time of sale. Consumers understand what these changes mean for their purchases, but do you know what they mean for your business?

The following tips will help you make sense of the changes affecting the foodservice industry while keeping your restaurant off the hook for fraudulent charges.

Get chip capable
Canada is in the process of switching over to chip technology for all credit and debit cards. Although Dec. 31, 2015 – the last date you will be able to accept magnetic swipe Interac cards – is still years away, don’t wait to make the switch.

“I think deciding and pressuring their suppliers to make sure they get chip capable terminals in as quickly as possible if [merchants] don’t already have them is key,” says Jeff van Duynhoven, president of TD Merchant Services. “Without that, even if you have a chip card – and many financial institutions are rolling out chip cards to their consumers – the restaurateur is exposed from a fraud standpoint.”

The transition to chip technology can be costly, making it hard for small restaurants to make the switch. But Garth Whyte, president of the Canadian Restaurant and Foodservices Association (CRFA), says restaurants that don’t change over are taking a big risk without understanding how much it could cost them later on.

“It’s hard for them to see the value because it’s going to cost more for them to deliver and they haven’t really seen the fraud side of it. The cards and the banks keep that information pretty close to the chest, so we don’t really know the total cost of fraud,” Whyte explains. He says the value in switching to chip technology is actually the value of the promise that restaurants making the switch will not be held liable for fraud.

Pay-at-the-table
A growing trend in the foodservice industry is to have customers paying by debit or credit card pay their bill at the table. This is great news for restaurateurs who need customers paying with chip cards to key in their PIN, and for patrons who have been bombarded with warnings to guard their cards closely and keep them in sight at all times.

Pay-at-the-table also gives you greater control over your patrons’ experience in your restaurant, since customers no longer need to be led to the bar or a back corner of your establishment to pay their bill with plastic.

But Whyte warns that pay-at-the-table has its share of disadvantages.

“There is a major increase in cost,” he explains. “The machines cost more to rent, wireless data transmission is more expensive and even the paper for the machines costs more. Secondly, there are increased labour costs, because now you have to stand around while the patron enters their PIN and the transaction is being processed.”

Theft is also a concern for restaurateurs introducing wireless pay-at-the-table technology. The CRFA has heard from several members that have had their wireless terminals (which can cost upwards of $45 per month to rent) stolen. Whyte advises that if you do decide to make the switch to wireless terminals, “Be very vigilant and don’t leave them at the table.”

Never key in transactions
Some restaurateurs have found a solution to the problems posed by stationary chip terminals that can’t be brought to the customer, but this so-called solution can create new problems.

“Servers key the 16-digit [card] number into the terminal and they key in the dollar amount and they get a pre-authorization so they can print out the receipt and go back and get a signature from the customer,” says van Duynhoven. However, he warns, unless the card is swiped through the terminal, the restaurant will still be liable for a fraudulent transaction.

Liability for fraudulent charges isn’t the only downside to keying in transactions. A transaction keyed into the POS system costs more, in terms of the fees your restaurant owes to the acquirer, since it’s not considered a card-present transaction.

Return to low tech
It’s a fact of life: sometimes technology just doesn’t work. Magnetic stripes get erased, card chips stop working and POS devices break down. When high-tech toys fail, the low-tech tools of yesteryear are your best bet to guard against fraud.

“Every restaurant still should have an imprinter,” van Duynhoven advises. Although the devices have fallen out of favour as electronic systems have taken over, there’s something to be said for the old fashioned way of processing card payments. Imprinters allow restaurant staff to create an impression of a customer’s credit card, providing proof that the card was present at the time of sale.

“Some people have said, ‘I’ve got better technology now, I can just take a photocopy of the card,’” says van Duynhoven. But, he warns, “If they’re not able to swipe or insert the card, it’s important that they do get that manual receipt completed, and they have to have the actual physical signature on that as well.”

Following this procedure protects merchants, even if the transaction is ultimately proven fraudulent. Liability for the transaction falls on the issuing bank, while the restaurant’s coffers remain untouched.
 
Another low-tech option is to return to the days when cash was king.

“Some restaurants are installing private label ATMs in their locations and are moving away from accepting debit or credit cards,” says Whyte. “But the downside is that a lot of people may not have the cash and want to use credit.”

Know the rules
Changes are coming to the foodservice industry hard and fast. With so much going on, it can be hard to keep up to speed on the rules that impact your business, but there are tools out there to help busy restaurateurs stay in the loop.

Whyte recommends restaurateurs ask their credit card and POS suppliers for information and clarification on anything they don’t understand.

Meet all deadlines
If your acquirer contacts you about a possible fraudulent transaction, follow their instructions to the letter, paying special attention to the deadlines they establish. Failing to respond promptly can result in an automatic chargeback, leaving your restaurant liable for the full value of the suspected fraudulent transaction, as well as any additional fees to reverse the charge.

“I know it’s difficult for many small businesses when they’re trying to run their business and also deal with these payment items,” van Duynhoven says. “But I think it’s a straight hit to their profitability. We try and prioritize them for merchants and follow up with them, but it’s important that the merchant understands their accountability there as well.”