Square is a business technology platform that lets businesses handle in-person and online transactions. It provides tools for processing credit and debit card payments through mobile readers, registers, and online platforms.
As Square’s popularity has increased, so has the frequency of fraud and chargebacks for merchants.
In this article, we’ll explore the types of Square debit card fraud, the possibility of fraud protection, and best practices if you get scammed.
What Are the Types of Square Debit Card Fraud?
Here’s a quick summary of Square fraud types:
| Type of Fraud | Key Losses to Merchant |
| Stolen cards | Loss of goods shipped to the scammer |
| Overpayment fraud | Loss of goods and the additional funds sent |
| Friendly fraud | Loss of goods and potential refund to the scammer |
Stolen Card
Stolen card fraud occurs when scammers obtain someone’s card details, either electronically or by stealing the physical card.
The scammer uses these details to make a payment, and the merchant processes the transaction, assuming it’s legitimate.
The actual cardholder later notices the unauthorized charge and disputes it. By that time, the goods might have already been shipped, leaving the merchant at a loss.
Overpayment Fraud
In overpayment fraud, a scammer makes a purchase but intentionally overpays. They then ask the merchant to return the excess amount to a third party, such as a shipping company.
The merchant sends the funds, often by bank transfer or wire, and ships the goods.
When the actual cardholder disputes the charge, the merchant loses both the goods and the money sent to the third party.
Friendly Fraud
Friendly fraud occurs when a legitimate cardholder disputes a charge they initially authorized. It can happen because the cardholder doesn’t recognize the transaction or they want to bypass the merchant’s refund policy.
In some cases, it’s a deliberate act to get both the goods and the refund by stealing from the merchant.
Does Square Offer Fraud Protection?
Yes, Square does offer fraud protection. It automatically tracks all payment activity and sends alerts for any suspicious behavior using both automated algorithms and manual checks.
As long as you use Square for all card transactions, you don’t need to validate your PCI compliance or pay any related fees.
Square ensures secure transactions with industry-leading encryption and constant fraud monitoring. It’s also compliant with SOC 1, SOC 2, and ISO27001 standards to keep your data safe.
However, Square advises merchants to take the following steps to protect themselves from fraud:
- Use Square’s point-of-sale (POS) system
- Capture customer signatures for in-person transactions
- Manage your customer directory to maintain thorough records of all transactions and customer interactions
What To Do if You Become a Victim of Square Debit Card Fraud
Square actively monitors transactions and may notify you via email or SMS if they detect any suspicious activity.
If Square identifies a potentially fraudulent transaction, they’ll alert you. Immediately pause product delivery to the customer and don’t accept any more payments from them.
Here’s what happens next:
- Square will review the transaction and compare it with known fraud patterns, which takes up to one business day
- Square will send you a second email to inform you of the review outcome or request additional information
You also want to take steps to prevent fraud in the future. These include:
- Not accepting card payments for services outside your usual offerings
- Declining requests to split large orders into smaller payments
- Matching the billing and the credit card’s ZIP codes. If they don’t match, ask the customer why and see if the explanation makes sense
- Asking for government ID before fulfilling orders
In addition, consider moving some or most of your cash reserves to a high-security banking platform like FortKnox by Austin Capital Bank. FortKnox has a single focus—account security. It disables ACH debits and connections to payment apps like Venmo, Zelle, and Google Pay. It also limits external transfers to a single pre-authorized account.
While FortKnox might not protect you against the usual types of Square debit card fraud, remember that there are many more scam types—some of which involve hackers draining your checking account. With FortKnox, this isn’t a possibility.
