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Tips for Preventing and Detecting Fraudulent Orders on Your Website

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Small business merchants face many challenges selling online, one big struggle has been a silent one in the industry since the beginning of ecommerce and that is preventing credit card fraud.

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Detecting Fraudulent Orders

Unfortunately for small business merchants, credit card fraud is a hurdle that is very difficult to overcome because there is no help from merchant banks or the credit card companies such as Visa and Master Card, etc.

Who pays for credit card fraud?

Online merchants are burdened with the responsibility of paying for online fraud. Not only do online businesses lose the merchandise and the shipping costs associated with fraudulent orders, but they also have to pay upwards of $50 in fees when the actual card holder disputes the charge to their card.

Most consumer card holders do not know what happens when their credit card is used fraudulently, and after over 20 years of ecommerce, it is time that customers and the general public should be made aware of the injustice fraud causes to small business. I say small business because larger retail giants negotiate away their fees leaving only small to medium size merchants footing the bill.

After getting the consumer gets everything resolved with the credit card company and once they learn they are not responsible for any charges he or she can just forget about the problem, get their new credit card and move on.

The credit card issuing banks and the merchant banks do not absorb any of the costs; in fact they make money on it when they charge the merchants for the charge back fees, on transactions that the merchant already paid a percentage on in fees in the first place.

Since small business merchants are on their own in the fight against fraudulent credit card orders, it is imperative for them to know what to look for so that these types of orders are not filled and shipped out in the first place.

Here are some tips for merchants to help screen and verify orders received online. The key is putting together all the clues from the different tips here to see if they add up to be suspicious or not.

AVS Codes

AVS stands for Address Verification System. These are different codes that let merchants know if the address listed on an order is the same as the address the bank has on file as the card holder’s billing address.

The AVS system checks for several parameters and can alert merchants if there is only a partial match or no match at all. The AVS system is not full proof because not all banks around the world use this system, so many international orders are impossible to verify this way. Of course, the address verification system for the billing address also does not help if the customer is having their order shipped to a different address.

Many legitimate orders are often shipped to alternate addresses, whether they be a work address, or if the order is a gift. Most banks do not even allow their card holders to list additional addresses on file, which would help eliminate the issue since shipping to different addresses is a common practice among online shoppers.

CVV or CID Codes

CVV or CID codes are the extra security numbers that are printed on the credit cards. By now most everyone is familiar with the three digits on the back of Visa and Master Cards and the 4 digits on the front of an American Express card.

There are several things wrong with this type of “security” system. If a person’s card is stolen, the thief has those numbers. The numbers often get rubbed off or become unreadable in many cases and card holders do not want to go through the hassle of ordering a new credit card because of it. That leaves merchants likely declining legitimate orders for those situations and accepting orders for the other scenario.

Putting the Clues Together

Merchants who have been in the business for any period of time can tell you that there are certain signs to look for when trying to detect and determine fraudulent orders. What can you do when orders have a billing address match and security code match but are still fraudulent? Here are some patterns to look for:

Is the order requested to be shipped to an alternate address other than the billing address?

  • Is next day shipping or express shipping chosen?
  • Is a free email service being used?
  • Is it shipping to a freight forwarding or mail box company?
  • Is this a large order that is out of the ordinary from the norm for your company?

Unfortunately, there is no single tell-tale sign, or combination of signs; however, any of these factors present on an order should raise the red flag and require a closer look.

How Merchants Can Be Internet Detectives

It may seem a bit crazy, but merchants are left to their own devices when trying to figure out if orders are legitimate or not. Here are some tips to use the internet for ecommerce solution to find some background information:

Use Google

Google is the internet detective’s friend! When you Google a name, email address or physical address it can tell you a lot about the person or at least about the billing and shipping addresses. Use Google Maps and you can usually get right down to the street view. Is there a big, beautiful house at the address or is it an empty lot?

Search for information on the address

Zillow.com will actually tell you how much a house is worth in addition to facts like if it is for sale, or even in foreclosure. Unfortunately lower income areas are more likely to be fraud than a suburban single family home.

Check the Phone Number Area Code

This will help you determine if the billing information actually the card holder’s. A search online will help you check the location of the area code of the phone number and tell you what city and state they are in. Another resource is the Yellow Pages online and there can be other sources that come up during a Google search of the phone number.

Evaluate the email service provider

Yahoo and Hotmail free email services have the highest frequency in online fraud orders received. This does not rule out Gmail, however it is used less for fraudulent orders because of Google collects so much data about its users. Check if an active Google profile or an active Google Plus profile comes up, it is not very likely to be fraudulent.

Make Phone Calls

If the order is being shipped to a freight forwarder or mailbox company, a quick call to them can verify to you whether the recipient is a longtime customer or a new one with a bunch of new orders arriving all of the sudden.

A call to the issuing card holder’s bank might get you some assistance; in some cases they can contact the card holder for you to verify the order. Lastly, call the number for the customer; that can give you insight as to whether the order is legitimate or not.

Conclusion and How to Report Fraud

As you can see, there is a great deal of investigative work that can be involved with verifying an order. Following these guidelines from seasoned online merchants can help you detect fraud before shipping an order out.

When you do find fraud, you should let your merchant bank know and always report it to the police department of the card holder, and there is an FBI website http://www.fbi.gov/scams-safety/fraud/internet_fraud merchants can log the information on and report it directly.

Author Bio:

Eric Thomas is author and Brand Manager for BrandMe, Australia’s leading business gift supplier. He enjoys writing about online marketing and business tips.

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