It’s no secret that small-business owners wear a number of different hats. Not only do we have our hands in everything that goes on at work — from business development to customer service to putting together furniture and handling IT emergencies — but we’re also consumers ourselves, we have family responsibilities, and much, much more.
That’s important for a number of reasons, but particularly as it relates to financial management and fraud.
For starters, small-business owners aren’t afforded the same legislative protections as the general consumer population, yet are held personally liable for small-business credit card debt anyway. That means we have to use general-consumer credit cards for financing purposes in order to attain debt stability.
Small-business owners have to approach the issue of fraud liability from different perspectives as well. When we play the role of consumer — whether we’re spending to meet business or personal needs — there’s very little risk that we’ll be held liable for any unauthorized access to our accounts, as long as there is no PIN involved. Visa, MasterCard, American Express and Discover all have blanket $0 liability policies for their credit cards as well as debit card transactions “verified by signature,” according to a recent study. Debit card transactions involving a PIN might be covered as well, but policies vary by network.
That’s great news when we’re on that side of things, but if the consumer isn’t liable for fraudulent transactions, who else is left?
The other parties involved in a card-based transaction are the card issuer, the card network, the payment processor and the merchant. Card networks and payment processors tend to pass the buck to the issuing institution, so that leaves the issuer and the merchant on the hook for everything. Of the $3.4 billion in losses resulting from payment fraud in 2006 — the most recent year for which data is yet available — issuers assumed 59 percent of the burden and merchants the other 41 percent, according to Federal Reserve studies. All told, retailers spend $6.5 billion of fraud prevention each year, according to Payments Journal data.
You need not be resigned to huge losses or expensive prevention measures, however. There are a few easy steps that you can take to reduce your behind-the-register liability.
—Follow protocol for card-present transactions: Merchants aren’t held liable for purchases made in person as long as they examine the card in question to make sure all of the holograms and other security features are in order; review the name, account number and expiration date embossed on the card; and compare the signature on the back of the card to that on the receipt from the transaction.
—Require enhanced verification for card-not-present transactions: While merchants can be held liable for purchases made online or over the phone, simply requesting that the consumer provide the three-digit code on the back of their card in addition to the card number and expiration date will significantly reduce the chances of a fraudulent transaction being approved by the payment processor. That won’t cost you anything. But if you want additional safeguards, you can pay for services such as Verified by Visa that offer enhanced fraud prevention functionality and contractually shift liability to the card issuer.
At the end of the day, it’s also important to keep in mind the fact that only a fraction of 1 percent of all card-based transactions are fraudulent. So as long as you take some common sense steps to protect yourself, you have very little to worry about, regardless of which of those hats you happen to be wearing.
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