Refund scams can cause serious losses for small retailers, but they often rely on simple distraction techniques rather than sophisticated technology. Learn how to spot the warning signs, protect your payment terminals and train staff to prevent fraud.
In this article:
‣ Why refund scams are a growing threat to small retail businesses
‣ How criminals use distraction techniques to target card payment terminals
‣ The warning signs that can indicate a refund scam
‣ Practical steps retailers can take to protect their business and train staff
Refund scams are a growing threat to small businesses, with criminals targeting card payment terminals to turn ordinary sales transactions into refunds and divert money to their own cards.
Recent cases highlighted by Devon & Cornwall Police saw businesses lose hundreds or thousands of pounds, including a £500 refund from a café in Exmouth, £1,000 from a café in Lyme Regis and £5,000 from a pharmacy in Redruth.
These scams can be easy to fall for because they often rely on distraction and pressure rather than sophisticated technology, with criminals exploiting busy shops and the natural instinct of staff to help customers. However, refund scams are eminently preventable, and ensuring both business owners and employees know what to look out for can significantly reduce the risk.
What is a refund scam?
A refund scam occurs when criminals target a business's card payment terminal and manipulate the payment process to issue refunds rather than complete a sale.
The fraudsters may use distraction techniques to take staff away from the terminal, allowing them to cancel a transaction and process one or more refunds to their own card.
In some cases, criminals may also use a different card from the one used for the original purchase, while a terminal may even be swapped for another device.
Why independent businesses can be vulnerable
Independent retailers and other small high street businesses can be particularly vulnerable because they often have smaller teams, with one member of staff sometimes responsible for serving customers, processing payments and dealing with other demands at the same time.
A busy shop can also create opportunities for criminals to create confusion, particularly when two or more people work together to distract staff.
The loss from a single incident can also be significant for a small business, with the cases highlighted by Devon & Cornwall Police showing that fraudsters were able to obtain refunds of £500, £1,000 and £5,000 through card payment machines.
How the scam can happen
UK Finance's anti-fraud website Take Five's example of Gloria, who runs a boutique clothing shop, shows how quickly the fraud can take place.
Two men entered the shop and one began making a purchase, but just as he was about to pay, his companion called the member of staff away to ask for help.
While the staff member was distracted, the customer at the till cancelled the transaction and processed several refunds to his own card before leaving the shop with his companion.
The fraud was only discovered when Gloria later reviewed the business's transactions and found several unusual refunds that did not match any purchases.
The case demonstrates how a seemingly ordinary customer interaction can be used to create an opportunity for fraud, particularly when staff are distracted and the terminal is left unsupervised.
What should you look out for?
Unmatched refunds
Refunds or charges appear in the end-of-day transactions without a corresponding sale.
A different card
The card used to obtain the refund does not match the card used for the original purchase.
Repeated use of the same card
The same debit or credit card is used to process multiple refunds.
An unfamiliar terminal
A card payment terminal appears to have been swapped, or starts printing receipts associated with another business.
Distraction tactics
Customers attempt to draw staff away from the payment terminal during a transaction, particularly when they are working in pairs or groups.
Be particularly cautious when a customer tries to rush a transaction, insists that staff leave the terminal unattended or creates confusion around a payment.
How to prevent refund scams
There are a number of things independent retailers, small and large, can do to prevent this kind of fraud from harming their business:
Only refund the original payment card
Refunds should only be processed to the card used for the original transaction. Businesses can check this by comparing the last four digits of the card number with the original purchase details held on their system.
Keep the terminal in view
Card payment terminals should be kept in a secure location when not in use and should remain visible to staff when processing refunds. A terminal should never be left solely in the customer's possession during a refund or payment process.
Be alert to distraction techniques
If a situation feels unusual, staff should pause the transaction, keep control of the terminal and report suspicious behaviour to a manager. Businesses should also retain relevant CCTV footage if a suspicious incident occurs.
Review transactions regularly
End-of-day sales and payment records should be checked for unusual refunds or charges that do not match a corresponding sale. Regular checks can help identify a scam quickly and allow the business to contact its card processor or bank as soon as possible.
Restrict refund access
Businesses can consider using PIN access for refunds and limiting the number of employees authorised to process them. Refund access should be restricted to trained staff, with the PIN changed regularly where applicable.
Be cautious about replacement terminals
Businesses should be wary of unexpected offers to replace an existing card payment terminal with an alternative. Any proposed change to payment equipment should be independently verified with the business's payment provider before a new terminal is accepted or connected.
How to train staff to spot the warning signs
Prevention depends on making sure staff know that customer service does not mean allowing a customer to take control of the payment process.
Staff should understand that they can pause a transaction if they are being distracted, should never leave a terminal unattended during a payment or refund, and should escalate any unusual behaviour to a manager.
Businesses should also have a clear process for checking refunds, reporting suspicious incidents and preserving CCTV footage, so that staff know exactly what to do if something does not look right.
Act quickly if you suspect a scam
Any business that discovers an unusual refund should contact its card processor or card acquirer immediately.
If a business does not normally offer refunds, its card acquirer may also be able to lower the refund limit on the terminal.
The key message for small businesses is that refund scams rely heavily on distraction and gaps in routine procedures, meaning that simple controls, regular checks and well-trained staff can make it much harder for criminals to exploit a payment terminal.
Visit the Take Five website for more on how to spot fraud
UK Finance has created the Take Five to Stop Fraud national campaign to empower individuals and businesses across the UK to protect themselves against financial fraud.
Visit the website to find out more.
Photo credit: RomanR/stock.adobe.com; deagreez/stock.adobe.com
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