Fraud Prevention Tips for Online Merchant

Internet has become one of the most popular and common medium for sharing almost everything in our life. With billions of people turning to the internet, E-Commerce has become one of the cornerstone of our daily lives, and is getting popular as a new economic ecosystem for online business. Along with the opportunities, however, comes a greater level of risks.

Credit card fraud on the Internet has reached gigantic proportions, and the merchants providing goods and services over the net are suffering tremendous losses through chargeback from the financial institutions who serve the targeted credit card holders. Internet fraudsters are becoming wiser and more sophisticated. Merchants who offer products or services online may suffer the risks of not only losing the products cost sold online, but the added chargeback fees, and the possibility of having their merchant account terminated by their financial institution, if having lots of chargeback cases. Therefore, strategic actions must be taken to effectively cope with the fraud cases.

According to the statistics shown in the 13th annual survey provided by Cybersource®, merchants reported losing an average of 1.0% of total online revenue to fraud and that is about $3.4 billion revenue loss, in year 2011.

Nothing is perfect; in this article, we share a few tips and advices for Merchants to minimize the risks of credit card fraud cases, and to protect their business sales.

1. Review and validate the order details
Process only if the order is completed with legit information, e.g. company name, full address, contact number and etc. Be wary of unusual large orders as well as those orders that shipped to a single billing address but transacted with multiple credit cards. Besides, be extra cautious of multiple transactions made with the same credit card number.

2. Geolocation by IP address, shipping country and billing address
Make sure the country derived from customer’s IP address is similar to the country given in the billing address. By using fraud detection services or geolocation tools, you can easily find out the country of the customer’s IP address who placed the orders. Check also if the order is coming from “High Risk” country. Pay more attention if the credit card or the shipping address is in an area prone to credit card fraud.

3. Background search on the customer’s company Web site
Try to visit customer’s Web site, whenever possible.
In most cases, you can easily guess the customer’s website by appending the www prefix to the given email address. Check if the contact information published in their website matches with the details provided in the orders.

4. Check whether a free email address was used
There is a much higher incidence of fraud case originated from free email services, as it is easier and faster for the fraudsters to register multiple free email addresses for their malicious activities. Hence, it will be safer to send an email to confirm customer identity by asking them to supply additional information, as well as to provide their ISP or domain based web address (if they are in business).

5. Check whether an anonymous proxy server was used
When you think about a proxy server, ‘anonymous browsing’ may be the first impression strike out your mind. Originally, it was introduced as good for the legal usages. However, it has been turned ugly by fraudsters who use it to perform malicious activities behind the scene. The common trick play out was forging the IP addresses, so that they can hide their true location and identity – anonymous. And, you may not even know if they are behind the proxy because it looks perfectly ordinary like a normal browsing. In order to dig them out from the ground, you need a tool from a third party provider. They usually provide a hassle free method to keep the always up-to-date anonymous proxy server list as web service.

6. Check the phone number
Fraud orders rate is usually higher when the orders were found with invalid ZIP Codes or mismatch between the ZIP Codes and Area Code. Try to determine and match the telephone area code to a postal ZIP Code by using some other third party services.

7. Compare the credit card issuing bank’s country with the billing address country
Another key point to bear in mind is to check the issuing country and the billing address. Make sure the issuing country and billing address country are the same. This is especially important, because minor banks may not have rigorous identification procedures.

8. BIN check and contact the credit card issuing bank for further verification
The issuing bank phone number is based on the first 6 digits of credit card number known as the Bank Identification Number (BIN). It is useful to determine if the credit card holder and the issuing bank are located in the same country. If the order looks suspicious, just pick up the phone and confirm the customer’s identity. This is to ensure the right person have the right card to make the valid purchase.

In Summary

Managing online fraud continues to be a significant and vital task for merchants of all sizes. Although it is something that can never be completely eliminated, but rather something that must be managed. One of the most important factors in managing the online fraud is the implementation of security measures that can adapt to the level of risk in each transaction. Applying fraud detection web services such as FraudLabs™ supplies in the order management can greatly reduce credit card fraud. This article discusses on preventive methods and management of online fraud.

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