Fraud Prevention in the Music Space

Running a successful music shop involves many moving pieces — from managing employees to marketing and, of course, keeping track of inventory. Inventory is often the biggest expense for most retailers, so it’s understandable to worry about shoplifting or organized theft — especially when your products are high value and in demand. 

Most of us think of shoplifting as someone walking out with an item without paying, but fraud is just as much a threat. For every $1 of merchandise lost to fraud, businesses end up spending $3 to fix the issue.

Fraud is a real problem in the music retail space. With products that are easy to resell, it’s no surprise that fraudsters target businesses like yours. Each year, billions are lost to fraud — and with 73% of these cases occurring through card-not-present transactions, it’s important to stay ahead of these risks.

Here’s the good news: With the right tools and knowledge, you can protect your business from fraud. In this blog, we’ll dive into the most common types of fraud, how you can safeguard your music shop, and how the right point of sale (POS) system can help combat fraud.

Common Types of Fraud in Music Retail

In 2024, retailers lost an eye-watering $103 billion to fraudulent claims and returns alone. And that’s just one way people who commit fraud try to game the system. With online shopping becoming the norm and more people using digital payments, fraudsters are finding new ways to exploit vulnerabilities. In the music retail space, there are two primary types of fraud you need to be aware of: unauthorized payment fraud and friendly fraud.

1. Unauthorized Payment Fraud

Unauthorized payment fraud happens when someone steals a credit card and uses it to make fraudulent purchases. This occurs in store, online, or over the phone. People who scam often get their hands on stolen credit card information and use it to buy items — knowing they can later dispute the charge with the card issuer. Unfortunately, this leaves your music business on the hook for the loss.

2. Friendly Fraud

Friendly fraud is when the cardholder makes a legitimate purchase, but later disputes it with their bank. They claim the transaction was unauthorized, or that they never received the product. 

It’s called “friendly” fraud because the fraudster sounds like they’re being honest — the cardholder is the one making the purchase, but they try to claim it wasn’t their transaction. Unlike unauthorized payment fraud, friendly fraud is harder to detect and prevent since the person committing the fraud is the actual cardholder.

Fraud may seem easier to dispute than something like a smash-and-grab theft or smaller items — like guitar picks, violin strings, or accessories — vanishing from the shelves. Fraud leaves a paper trail, which makes it feel like there’s more evidence to work with. 

But that’s not the case. Fraud can take days or weeks to detect. For example, in friendly fraud, a customer can’t dispute the charge until the payment has been posted, which can take a couple of days. Then, they may have weeks or even months to challenge the transaction.

Not all business insurance policies cover fraud-related losses, so review your insurance closely. Even if it’s covered, handling fraud involves red tape, endless phone calls, and wasted time. You may only recover a fraction of what you lost. While you can’t prevent every instance of fraud, you can stay vigilant and proactive to help protect your music shop.

Key Fraud Red Flags To Watch For

Spotting fraud early can save your music shop time, money, and stress. Keep an eye out for certain behaviors to catch fraudulent transactions before they become a bigger issue. 

Here are several key red flags to look for in your music store or instrument shop:

• Swipe vs. tap or dip: Scammers often try to bypass the security of EMV chips by asking to swipe their card instead. When this happens, the liability for the transaction shifts from the card issuer to your business. If a customer insists on swiping their card or requests manual key entry, it’s a good idea to ask for a different form of payment to protect your music store.
• Split payments: If a customer tries to split a large purchase of musical instruments or high-ticket items across multiple cards — especially if the cards have different billing zip codes — be cautious. This may be an attempt to avoid detection if one card has been flagged. Always use EMV technology to process each card to reduce the risk of liability.
• Mismatched billing and shipping addresses: It’s common for gifts, like a guitar or music accessories, to be shipped to a different address — but pay extra attention when the billing address doesn’t match the shipping address. Fraudsters sometimes use freight forwarding addresses or vacant properties to receive stolen goods, which makes it harder for you to track them down and recover valuable instruments.
• Expedited shipping: People who commit fraud often want to get the product as quickly as possible. If a first-time buyer requests expedited shipping for a high-value musical instrument or equipment, take a moment to double-check their details before proceeding. This can be a sign that something’s off.
• Multiple payment failures: This is especially important for online transactions. If a customer has several failed payment attempts before one goes through, they may be testing multiple compromised cards. Look for patterns like this and be extra cautious before processing the order, especially for online music gear purchases.

While these red flags don’t automatically mean a transaction is fraudulent, they raise enough concern to dig deeper. Being aware of these signs helps protect your music shop or instrument store from the financial and logistical stresses of fraud.

Related Webinar: WEBINAR: Fraud Prevention

Preventative Measures To Protect Your Music Shop From Fraud

If you take the right steps to protect your music shop from fraud, you reduce risks and help safeguard your inventory. 

Here are a few effective ways to prevent fraud and ensure your business stays protected:

• Validate identity: For in-person transactions at your music store, always check the customer’s ID and make sure it matches the information submitted with the payment. For online or phone orders, validate the full billing address and the card verification value (CVV). If the CVV or billing address doesn’t match, think twice before fulfilling the order. For pickup orders, require the customer to present the card used for the purchase to further verify their identity.
• Establish a clear return policy: A clear and transparent refund or return policy is a must for your music store. Whether in store or online, make this policy easy for customers to access. It can be printed on receipts, so customers know their rights and the process for returns or exchanges from the start.
• Maintain clear records: Keeping detailed records is vital for protecting yourself against fraud and chargebacks. Document every transaction, including receipts, shipping information, and any communication with the customer. If you have a phone conversation with a customer, always follow up with an email summarizing the discussion. This documentation serves as backup if a dispute arises regarding musical instruments, gear, or accessories.
• Require a delivery signature: For large or high-value orders, like expensive musical instruments or equipment, requiring a signature at delivery helps prevent “item not received” claims. If you already validated the customer’s identity and have a signature, you have solid proof that the transaction is legitimate.

These are small, yet effective changes you can implement and instill in your team to help combat fraud in your music shop. But there’s one more major tool you can use to safeguard your business — your POS system.

How To Use Your POS System To Combat Fraud in the Music Space

A reliable POS system is a valuable tool when it comes to preventing fraud in your music shop. It makes transactions safer and has features that help you spot and stop fraud before it becomes a problem. 

Here’s how a solid POS system helps protect your music store:

• EMV chip technology: Using EMV (chip) technology makes transactions more secure. Chip cards are harder to replicate compared to traditional magnetic stripe cards, which significantly reduces the risk of fraud from stolen card data. With high-value items like musical instruments and sound equipment, EMV provides an added layer of security during checkout.
• CVV checks: For online or phone orders, your POS system helps verify the CVV number to ensure the cardholder is legitimate. If the CVV doesn’t match, your system flags the transaction for review before it’s processed. This is especially important when dealing with large orders of music gear — where fraudsters may target high-ticket items.
• Fraud alerts and manual review: Many POS systems offer built-in fraud alerts that notify you when something looks suspicious, like a high-risk purchase or a mismatch in billing information. This gives you the chance to review potentially fraudulent transactions before they’re completed, preventing losses from compromised purchases.
• Secure payment gateways: Your POS system can include a secure payment gateway that protects against card-not-present fraud. It does this by verifying customer details in real time, so unauthorized purchases don’t go through. This is crucial for online sales of musical instruments and accessories, where fraud is more common.

The right POS system not only helps protect your business against fraud, but it also simplifies your checkout process. With these tools, you can spot potential fraud in real time and take action quickly to prevent losses in your music shop.

Related Read: What Is the Best Music Store Point of Sale System? 5 Top Providers

Limit Losses in Your Music Shop With Music Shop 360

When it comes to preventing fraud in your music shop, the right tools make all the difference. Music Shop 360 is a comprehensive, industry-specific POS solution designed to protect your business from fraud while streamlining operations. With its robust security features and fraud detection tools, it provides a strong defense against fraudsters looking to exploit vulnerabilities. 

The system integrates secure payment methods, which come with built-in fraud detection measures like suspicious activity monitoring, global fraud prevention, and risk assessment protocols. These features help identify and block fraudulent transactions before they happen.

Music Shop 360 also helps manage security at the employee level. By effectively controlling user roles and permissions, you ensure that only authorized staff can process refunds or approve transactions — preventing unauthorized activities. 

Plus, the PIN-driven roles feature adds another layer of protection by requiring employees to enter secure PINs for transaction approvals, further reducing the risk of fraudulent actions. The system includes transaction base security that captures customer signatures, which ensures transaction validity and provides proof of purchase, too.

With all of these features working together, Music Shop 360 offers a reliable framework to minimize fraud risks and safeguard both your business and customer data. Customers are increasingly concerned about the security of their personal payment information, and an outdated or insecure POS system can lead to lost trust. 

By using Music Shop 360, you can offer your customers a secure shopping experience, reducing fraud risks and giving both your music business and your customers the protection they deserve. 

Ready to see it in action? Schedule a free demo.