Member Article

5 Ways to Reduce Online Card Fraud

Payments made online are classed as cardholder-not-present (CNP) as you cannot personally check either the card or cardholder.

Remote purchase fraud is significantly more susceptible to fraud because it’s inherently more anonymous. And while online security is getting tighter, remote purchase fraud is continuing to increase every single year.

Considering that online retailers are liable for losses from fraudulent activity, this trend is very worrying. If you don’t think it’s a serious problem, consider the following:

• £398.2 million is lost to remote purchase fraud on UK-issued cards [Source]
• 20% increase in remote purchase fraud compared to last year [Source]
• 70% of all card fraud is remote purchase [Source]

As we mentioned previously, liability for remote purchase fraud falls on you, the seller. That means it’s in your best interest to prevent as much fraud as possible and establish policies and deal with any cases that slip through the cracks.

My Top Tips

Contrary to popular belief, a solid fraud prevention plan doesn’t have to soak up hours of your time and it doesn’t have to be super complicated.

In this blog, I’ll share five simple tips that you can implement to give your business a bit more protection from fraud.

#1: Compare the billing address and delivery address

Perhaps the most common red flag for remote purchase fraud is when an order has a different billing address and delivery address.

Yes, there are legitimate reasons for the addresses to be different but there are definitely limits. For example, there’s not too many reasons why you’d have something delivered to Botswana if your card was registered in Brighton.

There are loads of off-the-shelf anti-fraud services available to automatically compare billing and delivery addresses and they’ll usually flag up dubious orders when they come in.

Alternatively, if you’d rather not fork out for a paid, third-party service, you can check customer manually and hold back suspect dispatches. If you think an order smells fishy, contact the buyer directly and ask them to confirm key details.

#2: Consider using 3-D Secure checks

Originally designed and built by Visa under the name Verified by Visa, 3-D Secure is an extra layer of security that sits on top of online card payments.

3-D Secure checks automatically run after a user has entered their card details and generally ask them to enter another secret password to make sure they are actually the cardholder. If they enter the wrong password, the order is rejected.

While 3-D Secure earned a bad reputation in the early days for causing cart abandonment, it’s got better over time. The card issuing bank now decides which transactions you will be asked to provide additional details for and that depends on the risk profile of each individual transaction.

Less than 5% of transactions that could have been subject to 3-D Secure are actually subject to to 3-D Secure checks.

This has led to abandonment rates dropping significantly and has actually improved abandonment rates in certain markets because it increases user trust.

#3: Restrict declined transactions

While it’s hugely inefficient, brute-force fraud tactics do work… eventually. Malicious software can run every minute of every hour of every day, tediously testing every credit card number in existence until it chances on one that works.

The easiest way to protect yourself from this type of fraud is to simply limit the number of declined transactions before you ban the user.

#4: Check IP address geolocation

Knowing where in the world someone is can give a huge boost to your fraud prevention. Geolocation tools tend to work alongside address comparison services but, unlike the comparison services, use the user’s IP address to find out their exact location in the real world.

Once it knows where the person actually is, it can work in two ways.

First, it draws a radius around the registered address of the cardholder. If an order is placed from outwith the radius, it flags the transaction for you to check.

Two, it blocks orders placed in ‘high risk’ countries or countries that you simply don’t ship to.

#5: Challenge chargeback

A lot of chargebacks are lodged legitimately by someone whose card has been used fraudulently. However, there are a significant number that are filed for fraudulent aims.

A whitepaper from Global Risk Technologies suggested that over 85 percent of all chargebacks were placed fraudulently.

The good news is that just because a customer lodges a chargeback doesn’t mean the money is lost. All acquiring banks will let you argue your case and try to prove that the transaction was actually legitimate.

If you prove your case and win the dispute, the acquiring bank will repay you for the transaction.

Your anti-fraud advice

Do you have any tips or tricks for reducing online card fraud? Let us know in the comments below!

This was posted in Bdaily's Members' News section by Stephen Hart .