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How Businesses Can Manage Cryptocurrency Fraud

How Businesses Can Manage Cryptocurrency Fraud


With cryptocurrency payments on the rise, businesses must learn how to safeguard against potential risks.

By James Hunt, Subject Matter Expert Payments, Feedzai

Businesses across the US are seeking innovative payment methods, with an estimated 75% of retailers looking to embrace cryptocurrency payment options in 2024. However, with cryptocurrency becoming increasingly synonymous with fraud, businesses must continue to take the right steps to protect themselves and their customers.

Weighing up the risk and benefits

Approximately 2,352 US businesses have embraced cryptocurrencies such as Bitcoin for transactions. However, it’s crucial for business owners to weigh the pros and cons before diving in. A significant concern is the reputational risk associated with cryptocurrency acceptance. Not all customers view cryptocurrency favorably, and there are valid concerns to consider. For example, the Federal Trade Commission warns that cryptocurrency payments lack the legal protections that accompany credit or debit card purchases, particularly when disputing transactions. Traditional financial institutions and card issuers offer mechanisms to recover funds, whereas cryptocurrency transactions are not reversible, even in the case of fraud.

However, the finality of cryptocurrency transactions can offer a safeguard against chargeback fraud. This type of fraud occurs when a customer falsely claims a transaction was unauthorized or defective before seeking a refund from their bank or card provider. With the average cost per chargeback costing retailers $128, the adoption of cryptocurrency could ease some of the financial burden stemming from these fraudulent chargeback claims.

Nonetheless, while cryptocurrency may offer a deterrent to certain types of fraud, it does not eliminate the risk of fraud. The digital wallets used to store and manage cryptocurrency are not immune to cyber threats. Businesses can face the peril of their funds vanishing into the ether if these wallets fall prey to hacking, sophisticated phishing attacks, or even flaws within the wallet software itself.  Furthermore, the decision to accept cryptocurrency payments could inadvertently lead customers to let down their defenses, making them more susceptible to impersonation scams. In such scenarios, fraudsters might masquerade as your business through text, emails, or phone calls, attempting to swindle cryptocurrency from your customers. This tactic mirrors the deceptive practices seen in Amazon scams, where customers are tricked into sharing their credit card information.

Cryptocurrency – like any innovation – is not a one size fits but it can offer great opportunities. For some businesses, it could open the doors to previously inaccessible markets and offer a more inclusive financial gateway for global customers. For others, the lower transaction fees associated with cryptocurrency could translate into cost savings for the business. And for some, it may not be the right fit at all. Overall, it’s important that businesses have the right defenses in place to prevent fraud and misuse of cryptocurrency, and the following tips could help in that effort.

Protecting your business and customers

If you do choose to accept cryptocurrency payments, there are a few steps you can take to protect your business and customers from fraud. It’s also crucial to consult with financial experts to fully understand the implications for your business and any specific regulation in your area.

  1. Be mindful about the coins you accept.

Being selective in the currencies you choose to accept can help you balance innovation with reputational integrity. For instance, choosing to accept widely recognized and established currencies such as Bitcoin or Ethereum, rather than more volatile or meme-driven coins like Dogecoin can align you with the more stable end of the crypto spectrum. Although no digital currency is immune to the fluctuations inherent in these markets, the broader market acceptance of leading cryptocurrencies may offer a semblance of stability to your customers.

  1. Find the right payment processing method for your business

The method you choose to accept cryptocurrency payments should be tailored to the unique demands of your business. For instance, physical stores might benefit from implementing QR code payments. This system enables customers to quickly scan a QR code at the checkout, which is linked to the store’s cryptocurrency wallet. Vigilance is key in securely displaying this code to prevent fraudulent replacements by scammers. When managed correctly, QR code payments offer a swift, secure, and contactless payment option suitable for bustling retail environments.

Additionally, there are various cryptocurrency Point of Sale (PoS) systems designed to facilitate the acceptance of crypto and its conversion into traditional currency. It’s crucial to partner with a reliable crypto payment processor that can efficiently convert your cryptocurrency earnings into fiat currency. The choice of platform can range from specialized services like Coinbase to versatile processors such as PayPal.

  1. Set limits for cryptocurrency payments

Setting transaction limits or payment thresholds for customers is a great risk management strategy when it comes to accepting cryptocurrency payments. By setting the maximum amount that can be transacted within a specified time frame, it gives you as a business more control over how funds flow and helps mitigate the impact of fraudulent activities and large losses.

  1. Educate your staff and consumers on cryptocurrency fraud

Educating both your staff and customers about the risks of cryptocurrency fraud is a vital step in safeguarding your business against fraud. One effective method to raise awareness among customers is through your existing marketing channels. For example, incorporating reminders in your email communications warning customers not to click on links from unexpected texts, emails, or social media messages, even if they appear to originate from your business. For your staff, it’s important to add awareness about cryptocurrency to their training and keep this up to date in line with the latest developments.

  1. Stay updated on the cryptocurrency landscape

It’s important to stay up to date on the latest regulations – especially when it comes to accepting cryptocurrency payments. Failure to do so can land your business in hot water. It’s also valuable to monitor recommendations from bodies like the Federal Trade Commission on how to manage fraud risk.

While blockchain technology can enhance payment security by reducing fraud risk, protecting customer information, and ensuring transaction integrity, it is not a panacea for all types of fraud. Businesses must, therefore, carefully assess and manage the risks associated with accepting cryptocurrency to make an informed decision.

About the Author

How Businesses Can Manage Cryptocurrency FraudJames Hunt holds over 20 years of experience across fraud, risk, and payments. He is currently the Subject Matter Expert, Payments at Feedzai. Prior to joining Feedzai – a financial fraud detection software company – James worked at GoCardless where he was a Senior Manager, Risk Operations. He was also previously a Senior Director at CyberSource – a leading payment management company, owned by Visa Inc.

You can learn more about Feedzai by visiting our website: https://feedzai.com/



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