Credit Card Fraud Prevention Tools

Merchant Warehouse |

November 21, 2010

Credit card transactions are important to virtually all businesses operating in today’s market. While there are, of course, several set-up, maintenance and transaction costs associated with sustaining the merchant account that allows for such credit card processing, these are far outweighed by the daunting rise of credit card fraud, which can cost merchants far greater money in damages. There are several methods by which merchants can prevent credit card fraud and counteract the many forms that it comes in.

The first of these credit card fraud prevention tools is what is known as Address Verification Service – or AVS – for merchants that accept credit card transactions when neither the credit card nor the cardholder are present. It can also be used when the credit card is present, but the credit card terminal at the point of sale cannot read the magnetic stripe on the back. What happens is that merchants get customer address and zip code information (something that most e-commerce systems and shopping carts get automatically) and submit the AVS request through their credit card merchant processor directly to the specific credit card association for address comparison. Then when the transaction is processed, along with the approval code will be an AVS response that will indicate whether or not the card holder address matches, zip code matches, both match or neither match. A vast majority of fraudulent transactions in the United States are AVS mismatches.

Online and Off

Major credit cards MasterCard and Visa offer authentication services that enable verification of a credit cardholder’s account during an online web purchase. With Verified by Visa – or VbV – and MasterCard SecureCode, consumers are assured that using a bankcard of any kind online is as safe as using it in a nearby business. In this case, merchants are completely protected from issuer chargebacks on transactions that have been fully authenticated. And because the sales transaction is authenticated by the issuing bank, the merchant will ultimately be paid. Merchants don’t have to bear the risk or the cost of fraud as they have in the past.

When a cardholder shops at a participating Verified by Visa or SecureCode merchant site, the customer checkout process remains the same until the “buy” button is selected. If the bankcard is registered with a participating issuer, consumers will be asked for their Verified by Visa password or their SecureCode credentials. Through this simple checkout process, the credit card issuer confirms a consumer’s identity instantly.

Other Tools

Another important tool in the war against credit card fraud is credit card security verification, which collects the three or four-digit numeric code on the front or back of the credit card that is often provided at the time of purchase and checkout. Credit card processing companies submit the card verification request from the merchant to the individual credit card association. The card security value is then compared to the credit card issuer’s value that is kept on file. Credit card verification programs such as CVC2 for MasterCard, CID for American Express, CVV2 for Visa and CID for Discover Card are offered by the major credit card associations.

ID Authentication is a service that creates a virtual “card present” environment by performing immediate authentication of a purchaser’s complete identity. With the use of proprietary databases and statistical analysis, identity authentication procedures detect identification fraud. Identity authentication prevents criminals from stealing a consumer’s identity as well as deterring consumers from making an authorized purchase then later denying the transaction. Also, selected services many times provide a guarantee against fraud losses.

Scoring and Other Procedures

Transaction scoring is something that is essentially predictive technology. Access to third party databases, rules-based processing and expert human insight can provide businesses with a clear recommendation to either accept, deny or challenge a credit card sales transaction. Merchants also gain access to an online tool that provides detailed information on individual transactions to determine their viability.

There are many instances in which it is necessary to know the age of your customer. Merchants can now check the ID of visitors on their websites to authenticate identity and age. Age verification uses an international database of government-issued IDs to instantaneously verify age and identity online. It provides a fraud-screening tool. Though not yet common, consumers can optionally sign their name with a mouse, providing another layer of protection for the merchant. A few seconds after customers submit their name, ZIP code and date of birth, age verification providers get the exact identity of the consumer.

Common Sense Works Too

Take a very careful look at unusually sizeable orders and customers in a hurry to process an order “now.” Criminals usually order as much as they can, and want it shipped right away, to move out of the picture quickly. If you receive an unusually huge order, say, more than three times your usual order for items or services, take a careful look. Almost all fraudulent orders tend to be larger than average. In general, they hit hard and they hit fast and they want to get the most for nothing, and all at once. If anything points to those needs of a thief, beware!

Another thing to think about and act on is to not accept foreign credit card orders.
Approximately a third of all foreign orders are fraudulent. It ultimately depends on what you sell and your target market. A site selling stereos will have a much higher foreign fraud rate than a small stationery store selling envelopes, for instance. If you must sell to foreign countries, consider only selling to those that maintain a solid track record, such as those in Europe, or Canada and Australia. Far Eastern, African and Middle Eastern countries have very high fraud rates. AVS fraud protection does not work in foreign countries, so the only way to verify names and addresses is for merchants to do it themselves by getting the customer’s telephone number and the customer service number from their credit card and then calling each party.

In general, most service providers offer all of the tools necessary to stop fraud at its roots. Be sure to take advantage of the offers made by such companies and gateways.