How to Detect and Protect Your Online Business from Credit Card Fraud

, , Leave a comment

Credit card fraud is always something that is a concern for businesses that sell online. The technology features of the credit card and banking industry unfortunately have not caught up with technology of the internet, and it certainly does not keep up with cunning thieves who have learned how to get around what little security protocols have been implemented. With the holiday season upon us, e-commerce merchants should be even more vigilant, as this time of the year is the most popular time for credit card fraud. This article covers tips on what to look for when taking orders online that are paid with a credit card and how to try to better detect fraudulent orders.

Did you know who pays for online credit card fraud?

Unless you are an online e-commerce merchant, you probably do not know that it is the businesses that sell online that end up footing the bill and getting stuck paying for the fraudulent activity. The credit card and banking system is set up to protect the card holders, and most people know that if charges show up on their credit card that they did not make, they are not responsible for paying them. The credit card companies remove the charges and issue the card holder a new credit card. What happens then is that the credit card merchant sends a disputed charge document to the merchant and charges the merchant anywhere from $20 to $50 in fees for having a charge back launched against them. The merchant ends up paying that fee on top of the regular merchant fees they already were charged for processing the order in the first place. Not to mention, the merchant has to refund the charges and loses the merchandise and any shipping charges that they paid too. It is an unfair imbalance in the system that is weighed heavily against merchants. Large companies are able to negotiate these fees but small businesses suffer. Therefore, these tips and tricks for detecting fraudulent orders can really help.

Billing Address Verification

The reason why online websites always ask for a billing address is because it is one of the security measures that are put in place to help merchants look for fraudulent activity. The AVS, or Address Verification System checks to see if the street address numbers and zip code entered for the billing address match the same address that the bank has on file. This system can help offer clues for merchants as to the validity of an order, but it is severely flawed.  Especially during the holidays, orders are often shipped to alternate shipping addresses, which means it could be the actual card holder sending a gift, or even shipping their packages to their office; but it can also be a thief who has the card number and the billing address and is then having the package shipped elsewhere. Unfortunately, the credit card companies and banks do not allow card holders to list multiple addresses as “approved addresses” because this would easily eliminate a lot of time that merchants might be spending trying to figure out if an order with a different shipping address is legitimate or not.

3 Digits Credit Card Security Codes

If you have ordered anything online or over the phone, you are probably familiar with the 3 or 4 digit security codes printed on credit cards. They are called a CID or CVV security code and were added several years ago as an added safety measure in efforts to protect against credit card fraud. However, the serious flaw in this security measure is rather evident because if someone steals a credit card, they have the security code and can enter it online just like a card holder can.

How Merchants can Identify Fraud

As if business owners did not already have enough on their plate, the credit card situation has left them in a position where they need to try to be internet detectives too. Fortunately, some businesses do not lend themselves to fraudulent activity. Most of this is in the B2B sector, where is you are ordering Brandme Promotional Products, for example, these types of transactions rarely are fraudulent since they can be traced back to a business. There is not really any one particular thing that always means an order is fraudulent, but here is some of the tell-tale signs that mean the order is worth a little further investigation:

  • The billing address AVS matches, but the order is being shipped to a different address.
  • Express, next day, or fastest shipping possible is chosen.
  • A free email service is used. Hotmail and Yahoo Mail email addresses are most often used by credit card thieves. They usually set up an email address that has the card holder’s name in it plus a few extra numbers or letters.
  • Look to see if the alternate shipping address used is a freight forwarder or mailbox company. This takes a simple Google Maps search of the address.
  • If the order is very large and does not look like a typical order you receive, it should also throw up a red flag.
  • If you take international orders, some countries have higher incidents of fraud and you should exercise more caution or not ship to those countries at all. The countries with the highest incidences of fraud are Nigeria, Singapore, Malaysia, and Vietnam.

Any one or any combination of any of the above list of signs could mean an order is fraudulent, but it does not always mean it is.

What is the next step? This is where merchants learn to be a sort of “internet detective”. Internet searches become your friend. Here are some steps you can take in your investigation:

  1. Search the addresses and names in Google and see what comes up. In rare cases, it might yield results from other merchants complaining about fraud to this address. Usually it is not that easy though.
  2. The map results can tell you quite a bit though. If the shipping address is an empty lot, you know it is fraud. If the shipping address is a million dollar mansion, it is likely not fraud.
  3. The realty website can also help tell you about the residence of the shipping address too.
  4. Look at the email address. Is it a free email address? Enter that email address in a Google search too and see if anything is comes up. Gmail addresses are usually not used by fraudsters because of Google’s invasive nature. Yahoo and Hotmail addresses are usually suspect.
  5. The next step is to check the phone number for the billing address. In rare cases, putting the phone number in a Google search might return a name or a business name. You might be able to match it to the card holder if the AVS billing address is returned as a match.
  6. If no name is returned with a phone number search, you can check the area code of the phone number.  If it is the same city as an exact match billing address and the shipping address is in a different state altogether, you can try to contact the card holder to verify if they are the billing contact and if they did authorize the order. Of course, this is tricky because you have to make sure that you are not contacting someone who is not the card holder and is the one committing the fraud. If the area code is the same city as the alternate shipping address, do not call the number, if it is fraud then that is the person who is stealing, so they are very capable of lying too.
  7. In some cases, trying to contact the person either via email or phone can lead you to the conclusion that it is fraud. You can use your judgment based on the response to see if it becomes evident that it is fraud or that it is legitimate. Often people committing fraud do not return phone calls or emails.
  8. As a last resort, you can always call your merchant bank and ask for information about the order. Sue to security regulations, they usually cannot help you determine fraud and unless a credit card has been reported as stolen, they usually will not know. They can however give you the issuing bank phone number. In some cases you can call the issuing bank and ask them to help you. Some banks are more helpful than others, in some cases they can call the card holder and check with them and then call you back. In other cases, they can at least verify an address or a phone number for you. Unfortunately, calling the merchant or issuing banks are not as helpful as it seems they should be.

Leave a Reply

Your email address will not be published. Required fields are marked *


HTML tags are not allowed.