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What are Fraudulent Transactions?

Jessica Ellis
Updated May 16, 2024
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Fraudulent transactions are orders and purchases made using a credit card or bank account that does not belong to the buyer. One of the largest factors in identity fraud, these types of transactions can end up doing damage to both merchants and the identity fraud victim. Avoiding fraudulent transactions is in the interest of both merchants and buyers, so it is important to take proper precautions when managing money accounts.

Merchants can keep an eye out for certain behaviors that indicate a fraudulent transaction. If a purchase is made in person, it is vital to check the picture identification of the buyer and make sure both the name and picture match. Checking the picture is especially important, as if a criminal has stolen someone's wallet, he or she may also have the name-matching identification. Be sure to follow business regulations if an unauthorized transaction occurs, usually quietly informing the manager is the first step.

Online fraudulent transactions may follow a few key patterns that savvy merchants can identify. One common type of fraudulent system, called card testing, will present as a series of declined credit card numbers. The thief is likely using a computer algorithm to systematically test card numbers until a match is made. One the credit card number is matched, the thief will then usually test expiration dates until a valid combination is found. While order values on card testing are generally low, many merchants are charged for credit card transactions whether they are valid or not; every time a thief tests another number, the merchant may lose money to transaction fees.

Other indicators of online fraudulent transactions include requests for vastly expedited shipping; offering to pay extra for a purchase; or using a fake sounding name, false email address, or disconnected telephone number. Using online security systems that verify all data can help pop red flags on many cases of fraud. When shipping larger or expensive orders, take the time to contact the buyer by email or phone and request an identification verification.

Victims of identity theft often find themselves in a swamp of fraudulent transactions. Credit or bank accounts may be maxed out and even overdrawn, leading to a lower credit rating and total loss of assets in some cases. It is vitally important to check bank statements regularly to ensure that no unusual transactions have occurred. In addition, try to protect personal information, including email, phone, and address information. If a person can steal a wallet, he or she is certainly capable of looking up a social networking profile on a victim to get more personal information.

Fraudulent transactions should be reported at once to credit companies and banks as well as to the police. In some cases, criminals can be tracked down if they are using stolen credit cards in a local area; merchants may be able to provide identifying details or even security videos. Many banks have a lenient policy for customers in regard to fraudulent transactions and will often right accounts for a victim if the transactions can be shown to be illegal.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Jessica Ellis
By Jessica Ellis
With a B.A. in theater from UCLA and a graduate degree in screenwriting from the American Film Institute, Jessica Ellis brings a unique perspective to her work as a writer for SmartCapitalMind. While passionate about drama and film, Jessica enjoys learning and writing about a wide range of topics, creating content that is both informative and engaging for readers.
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Jessica Ellis
Jessica Ellis
With a B.A. in theater from UCLA and a graduate degree in screenwriting from the American Film Institute, Jessica Ellis...
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