The Credit Card Fraud Cases in the Hospitality Industry Case Study

Background

Today, technology has made our lives easier and better. Suppose you want to go and grab some snack or shop for some goods at the local store, you don’t have to carry cash with you. There is always a tiny and convenient credit card in your pocket that can buy you anything you want.

And everyday technology is getting more advanced and things are becoming better and easier. And with new technologies being introduced, there is a higher potential of new fraud activities. Today, we will discuss credit card frauds in restaurants.

Credit cards were initially a bipartite agreement – between the shopkeeper and the customer. But now the rules have changed and the credit card issuers act as middlemen (Economy Watch, 2010).

Everyone, who ever had a credit card, is aware of that feeling of fear when he/she looks in his/her wallet and thinks that he/she has lost his/her credit card. And that fear is reasonable. If one finds/steals your credit card, he can easily buy goods from a local gas station or Wal-Mart.

Things get worse if the thief possesses some personal information about the credit card owner. One can easily do online shopping without getting caught. But those are obvious fears. A lot of people don’t realize that the threat of their credit card being stolen is even bigger than they can consider at the first sight.

Just imagine yourself sitting in a restaurant. You and your love ones are enjoying the nice and warm environment, eating good food and just having a good time. And once you are done, the waiter brings the check to you. You give him your credit card. He returns with a receipt and you leave the restaurant.

You are happy and looks like everything is all right, but you don’t realize that when the waiter took your credit card to charge you, he might have copied all your credit card information and this is when the credit card fraud begins.

Most of the waiters are smart enough not to use your credit card. They simply transfer all information to their friends or partners, who utilize the money by doing online purchases etc.

This is one of the most popular frauds in the hospitality industry and it happens everywhere including high-end luxury restaurants. Let’s analyze one of the most famous credit card frauds that happened in New York City in 2008-2009. Many waiters were arrested for stealing 3 million dollars in credit card fraud.

People who were coming to 40 different restaurants in New York and many other states did not know that their credit card information was stolen when they were paying for their dinner.

Waiters in many restaurants recorded customer’s credit card info and were giving it to the third person/organization that paid them for such information. Unauthorized purchases worth more than 3,000,000 dollars were made, according to the prosecutors.

Thirteen people were accused of unauthorized purchases on other people’s cards. People, whose credit cards info was stolen, were dining in Manhattan, other parts of NY, Florida, New Hampshire, New Jersey, Connecticut, and many other places.

It was proved that leaders of the conspiracy formed an organization that managed people who applied for jobs in restaurants and were hired as waiters. These people were given hand-held “skimmers” that could read and save information available on the magnetic strips of credit cards.

Some of these leaders worked in the same restaurants. They collected the devices afterwards and paid the waiters for stolen info from each card. The fee was $35-$50 per card.

This fraudulent activity continued from November 2005 to 2009. The suspects used the stolen information for making fake credit cards and paying with them (CBS News, 2009).

There are thousands of credit card frauds happening every year. And this number is rising every day. The government is not capable of defending each individual credit card holder. The government officials start pursuing a case when they see some big money thefts. Most of the thieves are humble enough to keep cash flow low so they wouldn’t be red flagged.

I have personally experienced such a fraud. Few months ago I went to a restaurant in Sunny Isles, Florida. All the locals know that the waiters serving in restaurants in this area are immigrants from post Soviet Union country.

They came here as exchange students and are willing to work during summer time to make some fast money and leave the country. They don’t care about what happens after they leave. I believe these are some of the reasons why my credit card information was stolen.

So in a couple of days, after visiting that restaurant and paying for my meal with a credit card, I noticed some suspicious activity in my credit card account. I saw a few unauthorized purchases in New York and Chicago areas. This is when I made a call to my credit card company.

Of course, in couple of weeks they returned my money but I believe nobody was arrested for stealing my information. They didn’t even ask me where I was shopping or eating. Nobody is interested.

Credit card fraud statistics, published in a respected industry newsletter, place U.S. payment card fraud losses for 2010 at $3.56 billion, or almost half of the total global fraud losses reported (Merchant Express, 2012).

Analysis of the dilemma

Credit card scam is categorically one of the major menaces having negative impacts on businesses throughout the world.

The hospitality industry is no exception and the managements of such organizations are stepping up their efforts in combating this threat and trying to safeguard their customers from being targets of the credit card fraudsters.

If the organizations are not alert and pay less importance to the credit card frauds, their reputation might be at stake besides costing them huge amounts of money (Westpac, n.d., p. 3). Before analyzing the dilemma, let us first understand the meaning of a credit card fraud.

When a person utilizes another person’s credit card for his/her personal use and the actual owner of the credit card is not aware of such transactions, it may be accounted as being a credit card fraud.

Besides, the person who is utilizing the credit card is not connected to the owner in any manner and has no plans to contact him/her (the owner of the credit card). In such instances, the user doesn’t even have any intention of repaying the amount spent (Bhatla, Prabhu & Dua, 2003, p. 1).

Basically, there are four kinds of credit card frauds namely, bankruptcy fraud, theft or counterfeit fraud, application fraud, and behavioral fraud (Delamaire, Abdou & Pointon, 2009, p. 59).

During the years, the credit card issuing authorities have taken effective measures to counter the credit card frauds. Simultaneously, the bigger business houses have introduced new means to save their customers’ details from being hacked by the credit card fraudsters.

But there are many small business people in the hospitality industry who don’t have any counter methods in place. Data Security Standard (DSS), put into practice by the ‘Security Standards Council’ (SSC) lays stress on the protection of customers’ interests (Protecting the credit privacy of your clients, n.d., p. 2).

On the other hand, the credit card issuing authorities have ensured that all the guidelines laid down by the ‘SSC’ are followed accordingly. But unfortunately, there are many small business owners who are unaware of any such guidelines (The Data Dilemma, para. 1).

The owners of businesses alone cannot avert the credit card frauds. It needs a combined effort from the accounts department, the information technology department and the operations department to ensure that there are no credit card frauds in their organization (Trieber, n.d., p. 6).

An even bigger concern for the hospitality industry is the use of credit cards by unauthorized guests for adjusting their hotel charges (Goldman, n.d., para. 1). This has proved to be an even bigger problem that is posing a great warning to the hospitality industry.

It is estimated that out of the total credit card frauds, those in the hospitality industry account for 55% frauds and among the hospitality industry credit card frauds, 85% happen in small business establishments (Haley & Connolly, 2008, para. 3).

So it is the smaller organizations that are the most affected and as such, efforts should be made towards educating them.

Customers are very important in any kind of business. People in the hospitality industry are in a fix. They don’t know what to do in cases where some of the customers themselves are fraudsters. How can they differentiate between a genuine customer and a fraudster?

Well, there are certain measures that, if taken, may avert maximum frauds. Any businessman will be happy when a customer buys a lot of things from his shop. But he should not be carried away by the huge amount of sales. There are chances that such big customers are taking undue advantage of some other’s credit card.

Such customers buy huge quantities of supplies and don’t even bargain the prices. Business owners should train their staff to believe their gut feeling and report any such ambiguous person immediately (Nab, n.d., para. 6).

Another dilemma for the hospitality industry owners is to believe or not to believe their staff members. There have been instances where billing clerks or other staff members have passed on the credit card information of customers to hackers in return of benefits (Federal Trade Commission, 2012, para. 2).

The privacy of customers is yet another issue that the owners of the hospitality business have to tackle with. The reputation of the industry depends a lot on the level of privacy that is offered to the guests (Haley, 2005).

Some of the banks have taken steps to counter the menace of credit card frauds. One of the immediate steps that they have taken is to ensure a call to customers if there is any ambiguous purchase (Parmar, n.d., p. 1).

References

Bhatla, P. Prabhu, V. & Dua, A. (2003). Understanding credit card frauds. Web.

CBS News. (2009). Waiters arrested in $3M credit card fraud. Web.

Delamaire, L. Abdou, H. & Pointon, J. (2009). Credit card fraud and detection techniques: A review. Banks and Bank Systems, 4(2), 57-68.

Economy Watch. (2010). Credit card fraud. Web.

Federal Trade Commission. (2012). Protecting against credit card fraud. Web.

Goldman, P. Credit card fraud: The threat to hotels and restaurants everywhere. Web.

Haley, M. (2005). The privacy dilemma. Web.

Haley, M. & Connolly, D. (2008). The payment card industry compliance process for lodging establishments. Web.

Merchant Express. (2012). U. S. Credit card fraud stats lead world. Web.

Nab. Credit card fraud protection: How to protect your business and your customers. Web.

Parmar, B. (2013). Banks take steps to make credit card payments more safe. Web.

Protecting the credit privacy of your clients. Web.

The Data Dilemma. (2013). Web.

Trieber, J. Where the rumors and myths end, and the facts begin. Web.

Westpac. Merchant business solutions. Web.