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How Online Merchants Can Detect and Prevent Fraudulent Orders

One of the challenges facing online merchants today is fraudulent orders placed with stolen or fake credit cards. Since the credit card does not have to be present for online transactions and the personal, face to face contact is taken out of the equation, merchants need to have other ways to verify that orders are legitimate. Unfortunately, the two main fraud detection tactics that the credit card companies offer merchants have some flaws. Follow our steps below to get the leg up on fraud and ensure that you are not losing money when fulfilling questionable orders.

Fraud Protection Features from Credit Cards

The credit card companies and merchant banks offer two fraud detection features. The first is the Address Verification System (AVS) which lets merchants know if the billing address listed on the order matches the address the bank has on file for the card holder. The problem with this is that online shoppers very often ship to alternate addresses, like their work address, or if it is a gift for someone else. People using stolen credit cards also ship to alternate addresses and if they have stolen mail, then they still have the correct billing address. The second fraud protection feature offered by the credit card companies to merchants is the security code, which is also known as a CID or CVV code. It is the 3 digits printed on the back of Visa and Mastercards or the 4 digits printed on the front of American Express Cards. The problem with this is quite obvious, if someone has stolen the card, they have the numbers. Alternately, you would be surprised how many legitimate customers cannot read the security numbers because they have been rubbed off from regular use and then legitimate people cannot place an order since the security code is required.

How to Tell if an Order is Fraudulent

The first step is to try to filter through orders to be able to decide if you should fill an order or not. First sort them into three categories: legitimate, fraudulent, or questionable and needs more investigation. Here are 10 factors that can help you determine if an order is or could be fraudulent:

1. Look at the AVS address codes. Even though this is a flawed system, it can still help give you clues as to whether an order needs further investigation or not. It can also single handedly qualify the order as legitimate if it is a match and it is shipping to the same address. If the address does not match or if it is does match, but is shipping to another address, further information is required. For the most part, only U.S. banks support AVS, it is not supported in all countries.

2. Make sure the security code matches. Most credit card gateways and processors will decline the card if the security code does not match. If that is the case with your processor, then you do not need to worry about this, but do not assume that just because there is a match that it could not be fraudulent.

3. Check your gateway. Were there multiple attempts to order the same thing? If different credit cards were used and you see messages like decline, pick up, or hold card, then that is a clear indicator that this is fraud, they have a number of cards and this is the one that finally went through.

4. Examine the shipping address. If the order is shipping to an alternate shipping address, Google the address to see what comes up. Google will tell you a lot about an order. If Google Maps shows a nice house, chances are it isn’t fraud. If Google Maps returns results that show an empty lot, this is definitely a problem. Another problem is freight forwarders or mailbox companies. Of course, it does not always mean that there is a problem, but it also warrants continued investigation.

5. Check out the phone numbers. If there is a different phone number for the billing address, search the area code to see if it matches the billing city. If the order is shipping to another state or area entirely, chances are that this could be the card holder’s phone number and you can try contacting them for verification. Most of the time, if they are committing fraud, they will not answer the phone.

6. Is the email address legitimate? Anyone can get a free email address. If the email address is an .edu or an .org address, that can pretty much tell you it is a good order. If it is a free email, especially Hotmail or Yahoo addresses, that can indicate a problem. Even though Google email is free, most fraudsters are wary about Google’s propensity to track everything and everyone. That is still not to say that a Gmail address means it is not fraud. As you can see, there are many variables to consider.

7. Did they choose express shipping? One thing that is almost always present on fraudulent orders is fast shipping. Since the thief wants to get delivery of the merchandise before you realize that it is fraud, they will almost always choose the fastest shipping possible, no matter the cost. Of course, this can also be the case if you have a legitimate customer who just needs something right away, so it is important to try to quality orders as quickly as possible.

8. Can you find the person online? If you can find the customer online, either on social media or listed under their employment, etc. then the order might be legitimate as long as it is shipping to them. Finding the actual card holder online can give you a way to contact them to verify validity of the order.

9. Does the order look normal for your business? Does this order look larger than normal? Did they order things that your customers normally would not order together? This often indicates that they are ordering these with the intent to sell them at a flea market or similar.

10. Contact your merchant bank for verification. Unfortunately, this is last on the list because in our experience, we have not had much help from either the merchant banks or the banks that issued the credit cards. However, sometimes you can get lucky and find a bank representative that is willing to help. You can ask them to verify any information you have such as if the phone number you read them is linked to the account. If not, you can ask them to contact the card holder to verify if they placed the order and then call you back to let you know. You can ask them to have the card holder call you if they cannot. Sometimes they follow through and sometimes they do not. Unfortunately, what could be the easiest method of verification of an order is often a difficult waste of time.

Summary and Takeaways

Although this may seem complicated because of the many different variables in play, once you get used to this self-verification process for merchants, it only takes a few minutes. You also learn how to spot fraud or at least a suspect order very quickly. As merchants, our other option is to petition our merchant account banks to increase security measures and offer better support. Digital chipped cards, finger print, and pin numbers are all viable options to help reduce credit card fraud. Once these are implemented, us merchants will not have to worry about shipping fraudulent orders online because the banks can make fraud very difficult, if not impossible to pull off. Until then, practice our steps and you will learn how to spot a stolen credit card order.

Eric Thomas enjoys blogging for BrandMe. Sharing marketing and business knowledge, as well as gleaning knowledge from others is key to him.

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About Eric Thomas

Eric Thomas enjoys blogging for BrandMe. Sharing marketing and business knowledge, as well as gleaning knowledge from others is key to him.