Fraud Prevention

Many Effective Tools to Detect Stolen Credit Cards, Part 3 of 3

This is the third and final installment in a series outlining and explaining tools to identify and prevent credit card fraud. Previously, we discussed different methods of verification and geographic order tracking. Here are a few more methods you can use to combat fraud.

Fraud scoring systems

Through custom-built software or made-to-order fraud scoring services, results of the previous tests on good orders are scored and averaged. Every incoming order is then compared against that average, and given a rating of 1 to 100 with 100 being the highest. Points are given for different elements of a transaction, from IP Address, to free e-mail account, to time of day (most cases of fraud occur between midnight and 2 a.m., according to one source), AVS results, amount of sale, type of products ordered, shipment method, different shipping/billing address, certain zip codes, indicative browsing patterns, and so on. Merchants can set their own rules, lowering a score if the country isn’t one they’d normally mail to, or if the dollar amount is above their regular order volume. Orders that fall below the acceptable score are flagged for in-person review.

“Then we take the ‘truth’ data-what actually happened that showed up six months later-and feed it back into their models,” says Schwegman at CyberSource, which includes fraud scoring in its $1,500-flat-fee “Decision Manager” fraud-detection tool. “We look at whether or not this type of order eventually ended up as a chargeback.”

Merchants also can set negative parameters with this tool, stopping orders from a specific address for example. Payment gateways such as CyberSource and have an added bonus of being able to collect fraudulent results from across their hundreds of thousands of users, and factor those risks into a merchant’s rules.

Post-order diligence

Order confirmation pages can be another step in an e-merchant’s credit card fraud prevention strategy. One merchant who’s been hit repeatedly by credit card fraudsters uses his order confirmation page to clearly state that the order has not been processed, but will after the card has been verified.

The page spells out that only cards that verify will be processed, and any card that seems suspicious will be reported. This step alone has halted repeat fraud hits, he says. Then, if a card doesn’t clear his checks, he blocks the suspected fraudster’s account.

Other merchants go so far as to display alternate thank-you page for orders shipping outside the U.S. The page explains that, before shipping internationally, customers must fax either a photo of the credit card or a copy of a recent credit card billing statement. For the trouble, one merchant deducts $3 from their order.

“This is nothing more than what a brick and mortar merchant can see if the customer was standing right in front of him,” says Rahm at “Most non-U.S. customers understand this may be necessary and are happy to cooperate. For those who don’t, you may simply want to void the transaction. That’s up to you.”

A merchant’s terms and conditions pages should include a provision allowing the merchant to unilaterally cancel any order, at the merchant’s discretion; a maximum time frame for approved orders to be shipped out; and a clear return policy. Consider establishing a “holdover policy” on large orders.

Cards should be billed only after they’ve passed the fraud checks and before the item ships out. Merchants with the best results state, on their terms page and order form, that they have anti-fraud safeguards in place and, no different than land-based retailers, will pursue prosecution on fraudulent orders.

There should be a link to the terms and conditions page from the order form, along with a check box that must be checked by the customer indicated they’ve read the terms before submitting their order.

More options

If fraud is still suspected, call the credit-card company or card-issuing bank. Some sites are requiring that customers enter the issuing bank’s name in the order form. (Note that Visa, for example, is not a bank. Chase Card Services, the Visa card’s issuer, would be.) Ask if they’ll make a courtesy call to your customer to verify the charge. The service is free, but may take time: “With this service, called Charge Verification, you need to be able to delay shipping for three days,” says an American Express Dispute Resolution Team member.


Jennifer D. Meacham
Jennifer D. Meacham
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