How to Identify Credit Card Fraud

Fraud has been a risk of doing business since the advent of currency. Since then, it’s taken many forms. Suppliers defrauding sellers. Sellers defrauding customers. But in 2024, it’s credit card fraud we need to worry about most. And the vacation rental industry is hardly immune.

Property managers can use these tips to identify different types of credit card fraud, how to spot them, and how TrackPayments can eliminate some of the associated headaches.

The two types of fraud

There are two basic types of credit card fraud—intentional or what we call “friendly fraud.” Let’s examine each in more detail.

Intentional fraud

Intentional fraud is a straight-up crime that amounts to theft. A malevolent actor who has stolen credit card information from someone will attempt a booking, usually at the last minute, with the goal of getting a free stay. It’s safe to assume that they’ll attempt other purchases as well.

In a payment processing report, you’ll often see these attempts as repeated declines for different numbers capped by one successful transaction. That’s because most credit card thefts or data breaches are reported quickly, leading to declined charges. Basically, they’re hoping to get lucky and get out of Dodge before anyone is the wiser.

Assuming the fraudulent charge is caught by either the card owner or the issuing company, you’ll receive what we call a chargeback. A chargeback is a demand to refund the amount of a fraudulent or disputed transaction.

Can these malevolent actors be caught and brought to justice? Sometimes, but rarely. Chances are, you’ll be on the hook for spotting and dealing with chargebacks, all of which cost you time and/or money.

“Friendly” fraud

Friendly fraud isn’t necessarily fraud, though it often is an attempt to game the credit card system. That system is designed to protect cardholders more than merchants, so it usually begins when a guest disputes an otherwise valid charge.

An example of friendly fraud would be if a guest claims that your listing was false or misleading and contacts the credit card company to basically claim that you defrauded them by not providing the value you claimed. It’s a bit like ordering a steak, eating it, then asking for a refund because it wasn’t cooked properly.

Depending on your location, the nature of your properties, and other factors, you may see a lot of friendly fraud.

The red flags

Credit card approval involves a sophisticated system of electronic checks and verifications, all of which occur during the few seconds it takes for a transaction to be approved or declined. Examples of things that might muck things up include:

• Last-minute bookings (see above)
• Repeated declines with the same name but different card numbers
• The name on the reservation and the card don’t match. This doesn’t always indicate fraud, such as when the reservation is for the cardholder’s child or a friend. But many systems will flag it just the same.
• The amount of the charge is unusually high or exceeds the cardholder’s credit limit. Both can lead to a string of declines as the cardholder makes repeated attempts.
• The transaction is being attempted from an unusual location. Often, this will lead the issuer to place a temporary hold on the card until the holder can verify the charge.

Track partners such as Autohost, Safely, Superhog, and Guest Ranger offer technologies that help detect fraud, which helps you spot it quickly and potentially provide proof later on. Which leads us to …

How fraud is handled

All fraud management goes through the same basic process, which is a bit like a court case. The merchant has to prove the fraud to the card issuer’s satisfaction by providing as much “evidence” as possible. The issuer can then either reverse the chargeback or leave it.

Not every chargeback is worth disputing. Sometimes, it’s easier to issue a refund than to deal with the hassle. And, after you gain more experience with chargebacks, you’ll get a feel for which types and credit card companies offer your best shot at getting them reversed.

During this process, your money is tangled up in the dispute process, and even if you get it back, you might be waiting for weeks or months.The annoyance and hassle of dealing with chargebacks was one of the driving forces behind TrackPayments, our payment-processing solution announced in Fall 2023.

To this point, spotting chargebacks and potential fraudulent charges has largely been a manual process of reviewing statements and knowing what to look for. Even then, days or weeks might pass before a chargeback enters your awareness.

TrackPayments has sophisticated chargeback-management features such as real-time notifications that make it easy to jump on them and initiate the dispute process if you choose. The system can also spot suspicious transactions, such as a ZIP code and address mismatch, often accompanying fraudulent activity.

Flagged transactions will appear right in your centralized transaction screen, eliminating the need to constantly check transactions in a third-party tool. Also, reservation data accompanies the folio number, which is super handy when you need to contact the guest. Discrepancies are clearly noted.

Learn more about TrackPayments or receive a free live demo. If you struggle with chargeback management, you won’t believe how much easier it can be with Track.