How To Reduce Credit Card Fraud

If you are an ecommerce business selling over the web, accepting credit cards is absolutely necessary. Many businesses get hung up on the credit card processing fees and forget about the costs of credit card fraud, which can cost them much, much more. In fact, in 2007 businesses lost approximately $3.6 billion in online revenue, simply due to fraud!

Fraud comes in many forms, but in general it is usually an order you shipped, and come to find out later the card was stolen. This usually results in a credit card chargeback to your business. At that point you are out the product, out the money, and to top it all off, you receive a chargeback fee from your credit card processor.

Fortunately, there are many steps you can take to reduce, even eliminate credit card fraud.

10 WAY TO REDUCE ONLINE CREDIT CARD FRAUD

1. Understand that an authorization code on a transaction does not mean that the card is not stolen.

An authorization code only mean that the number on the credit card is a valid number, and that the customer has enough credit available. It does not mean the credit card has not been stolen. The credit card companies leave it up to you, the business owner, to ultimately decide if the card is good or not. An approval code is only the first step in that process.

2. Use AVS – Address Verification Service.

AVS or Address Verification Service is a simple, and easy way to decrease your chances of accepting a stolen credit card. When you enter a transaction, make sure you enter street address and zip code of the card holder (most ecommerce systems and shopping carts obtain this information automatically). Then when the transaction is processed, along with the approval code will the an AVS response, that will tell you whether or not the card holder address matches, zip code matches, both match, or neither match. Approximately 75% of fraudulent transactions in the U.S. are AVS mismatches. This one step alone will have the biggest impact on reducing your fraudulent orders. To use AVS, if you get a mismatch, simply void the order and do not ship the product.

3. Only Ship to Billing Address

Often times the thief will have the correct billing address and you will get a correct AVS response. However, the thief will then want the items shipped to another address. If your item is high priced, it’s good practice to only ship to the billing address on file.

4. Use CVV2 / Card Code.

Similar to AVS, this is the 3 digit code on the back of a credit card, and is entered at the time of transaction. It too is matched at the time of approval, and a code is returned telling you the result. If it doesn’t match, you should consider voiding the transaction and not accepting the card.

5. Do not accept foreign (non U.S.) credit card orders

This is a biggie. Approximately 30% of all foreign orders are fraudulent. Of course it does depend on what you sell and your market. A site selling Ipods will have a much higher foreign fraud rate than say, a bakery shipping cookies. If you must sell to foreign countries, consider only selling to those that have a good track record, such as Europe, Canada, and Australia. Middle Eastern countries, those from Asia and Africa have very high fraud rates. AVS does not work in foreign countries, so the only way to verify names and addresses is to do it yourself. You can do this by getting the customers phone number and the customer service number from their credit card (see item 9 below), and then calling all parties.

6. Watch out for orders that use “free” email accounts such as yahoo, gmail, etc.

Thieves want to hide, and they do so by hiding behind a free email address that cannot be tracked to an ISP like comcast.net or att.net. Approximately 50% of fraud orders use free email addresses. Now you don’t need to reject all orders from free email accounts, but this should be on your list of red flags as you check each order.

7. Scrutinize unusually large orders and those customers in a super rush

Thieves tend to orders as much as they can, and they want it shipped in a big hurry. If you get an unusually large order, say, more than 3 times your normal order, you should scrutinize it much more closely. In addition, if the customer is very impatient and wants it shipped immediately and as fast as possible, this is another sign that the customer is really a thief. Almost all fraudulent orders tend to be larger than average. After all, the thief will try to get as much as they can out of you!

8. Use Other Fraud Prevention Tools.

There are several fraud services available that will also check things such as the IP address of the customer, and then compare it against known bad IP’s. Some will also check for excessive orders from the same IP, excessive authorization attempts, as well as amount filters. Authorize.net Fraud Detection Service is a great tool that we recommend.

9. Obtain the customer service number on the back of the credit card.

Consider asking for the customer service number on the back of the customers credit card when you take the order. Many shopping carts allow you to add custom fields, so this information could be easily obtained as part of the order process. Then if you find something suspicious about the order while you are fulfilling the order, you can contact the customers credit card issuing bank to verify the customer’s information. This works especially well with verifying foreign credit card orders, and most foreign banks will speak English.

10. Have the customer fax you a copy of the front and back of their credit card.

Now this is an extreme measure, and you don’t need to have every customer do this. But if you go through all the other steps and the order looks fraudulent, this would be the wise thing to do. This will prove whether or not the card is physically present with the customer. Most thieves would not have the card in their possession, or go to the bother of faxing you the front and back of the card when there is easier prey.

CONCLUSION

Many of these fraud prevention tools and steps can be implemented for little to no cost, through an e-commerce gateway, such as Authorize.net. Authorize.net offers many fraud prevention tools including AVS, Card Code verification, and a fraud prevention service where each transaction is scored. Using this method will automate much of the screening. You can then choose to manually review the orders that the automated system rejected, or you can simply manually review all orders. Whatever you do, do something. Inaction can cost you dearly.

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