Detecting & Mitigating Fraud

5 Ways to Help Prevent Credit Card Fraud in Your Online Business

There’s never been a better time to operate an online business, as consumers rely more and more on the internet to find the products and services they need. In fact, Forrester Research predicts that by 2018, online sales will account for 11 percent of all U.S. retail sales. But along with all that growth comes a problem — credit card fraud. Here are five things you can do to help prevent it.

1. Use an Address Verification Service

Although not sufficient alone to prevent credit card fraud, an address verification service (AVS) should be part of your fraud prevention plan. It works by comparing the numerical part of the customer’s address to the information on file at the issuing bank. For instance, if the customer inputs 123 Main Street, Anywhere, USA 97113 as an address, the system will verify 123 and 97113. It then sends a code to the merchant that rates the validity of the address so the merchant can decide whether or not to allow the transaction. The possible codes are full match, partial match address, partial match zip code, no match, international, and unavailable. David Montague at The Fraud Practice recommends that merchants contact their payment processor to implement an AVS because payment software or gateways can’t provide an actual AVS check.

2. Get the Card Verification Code

In order to ensure the customer is in possession of the credit card, you should ask them for the card verification code. Credit cards use a three digit security code located on the back of the card after the account number — except for American Express, which uses a four digit code on the front of the card above the account number. MasterCard calls this code a CVC2, Visa calls it CVV2, and Discover and American Express call it the CID.

3. Investigate Orders Containing Multiple Large Ticket Items

When thieves gain access to a stolen credit card, they try to make as many purchases as they can before the card is reported as stolen. Many times, thieves will order large ticket items with the intention of selling the merchandise to make money. If you receive an order that contains multiple large ticket items, you should flag it as possible fraud. A credit card thief would likely enter his own phone number on the order, so the safest way to investigate the order is to request the card issuer make a courtesy phone call to the cardholder with the phone number on file. Discover (800-347-2000) and American Express (800-528-5200) will call the cardholder for you, while MasterCard (800-622-7747) and Visa (800-847-2750) will give you the issuing bank’s phone number, so you can ask them to make the call.

4. Review Multiple Orders Shipped to the Same or Different Addresses

Credit card thieves don’t always work alone and are often part of a crime ring. If someone uses the same credit card to place multiple orders, all going to different addresses, it could be the sign of organized criminal activity. Likewise, if you received multiple orders all going to the same address, but with different credit cards, that’s a red flag. Use the numbers listed above to check with the cardholder before you send out these types of orders.

5. Be Careful With International Orders

You should pay special attention to international orders as there are many overseas thieves committing online credit card fraud in the United States. Some of the red flags you should look for are rush orders to international destinations, orders placed with a U.S. card, but shipped to a foreign country, and orders placed from an IP address that doesn’t match the address on the credit card used for payment. You can look up an IP address at sites like IP-Lookup.

As an online merchant, if you fall victim to credit card fraud, you will be responsible for the charges. That makes it even more important to give due diligence to every order that falls outside of the norm.

Chapter 7.
Does Your Business Need Better Internal Controls to Prevent Fraud?3 min