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Avoiding Online Credit Card Fraud

By Virginia Lawrence

Credit card fraud is a problem for all online stores. The extent of the problem depends on the type of products being sold. That is, an online store selling special items to mommies will have few people trying to defraud. In contrast, a site selling iPods is more likely to have many people using bad or stolen credit cards.

Any merchant with an online store can do a few things to greatly reduce the risk of getting hit with fraudulent credit card transactions. There are steps to take when building the store and steps to take when reviewing orders.

Three important steps to take when setting up the store:

1. Address Verification: Set up the Web store to use Address Verification while automatically processing the credit card charge for each order. When Address Verification is enabled, the processor is checking to confirm that the card is currently valid and that the billing address is correct.
2. Logging Order ISP: Use HTTP_USER_AGENT and REMOTE_ADDR code in the shopping cart so that you have a record of the ISP used by the buyer. In the case of a later chargeback, you have a chance of reporting the buyer to his ISP.
3. Anti-fraud Notice: Place a note on the Web order form that you have anti-fraud safeguards on the site.

However, it’s still possible that an order may be fraudulent even if the charge goes through. The person ordering may be using the name and address of the card owner while asking to have the order shipped elsewhere. In those situations, we must check other aspects of the order.

The following four situations are red flag situations, and the order may be fraudulent:

1. Foreign Ship To Address: If you make a rule to never ship any order out of the country, you will avoid a lot of credit card fraud. In particular, you should never, ever ship to Nigeria.
2. Large Quantity of a Single Item: After a few months of reviewing good orders, you will develop an understanding of the type of order that arrives legitimately. You must use that knowledge to note any order for five or ten of one product when the usual order is for one of that product. This type of order is commonly testing the credit card for future use.
3. Multiple Orders From One Person with Different Credit Cards: Occasionally, a legitimate buyer may want to use one credit card for one order and a second card for the next order. Unfortunately, such a situation may be due to someone testing stolen credit cards. When you see this happening, you should take a careful look at the order to see whether there are any other red flags flying.
4. Free e-mail Address: A large percentage of fraudulent credit card orders are placed using a free e-mail address, such as a Hotmail.com address. Because some legitimate buyers use Hotmail, don’t automatically label such orders as fraudulent; simply call the phone number on the order. You should talk to the person who answers, saying that you are confirming the order. Since theives will never give their own phone number, if the callee confirms, you’ll know that the order is legitimate.

If you implement those rules, you will cut way back on your store’s credit card fraud. As you’re reviewing orders, you’ll find that most fraudulent orders send up more than one red flag. So you’ll find that you noticed the odd choice of products in an order, and then you see that the same person placed a similar order two minutes later using a different credit card.

What to do about fraudulent orders that did get processed?

1. Process a credit for the order immediately.
2. Call your merchant account and ask them to give you the bank and bank phone number for the unacceptable credit card number.
3. Call the issuing bank and tell them that someone has used the card in a fraudulent transaction.

By issuing a credit right away, we will avoid a charge back. We will not ship the product, and our merchant account will not deduct the order amount plus charge back fee from our bank account.

If you need more information on fraudulent credit card transactions, here are a few online articles:

Don't Be Victimized by Online Credit Card Fraud
http://www.scambusters.org/reports/walker.html

How to Beat Credit Card Fraud
http://www.scambusters.org/reports/lang.html

–© 2006 Virginia Lawrence, Ph.D. SPAWN's Webmaster and Technology Editor, Virginia is a professional Web Developer and Online Marketing Consultant. She routinely places client sites on the first page of Google and Yahoo search. Contact her at virginia@spawn.org or visit her Web site at http://www.cognitext.com.

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