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If you operate a retail or e-commerce business, accepting all major credit cards and electronic checks is an essential method of customer payment. However, business owners must also consider the potential cost of fraud when you decide to accept electronic payments. Studies have shown that both traditional and online merchants have lost billions in fraudulent transactions. Today, technology provides proven methods for identifying and preventing fraudulent transactions.
Fraud can come in many forms. Needless to say, fraud is bad for business. If you process a fraudulent customer order by the time you discover that the credit card has been stolen, you may have already shipped the product. Fraudulent orders usually result in a customer credit card chargeback for your business. Unfortunately, by that time, you’ve delivered and lost your product, you’ve lost your sales income and to top it all off; You will receive a chargeback fee from your credit card processor. I’m sure we can agree that there is a dire need to identify and stop a fraudulent order before you even deliver your product. Fortunately for the merchant, there are several steps and procedures that can be implemented to reduce and eliminate credit card fraud.
10 Ways to Reduce Customer Credit Card Fraud
1. Address Verification Service (AVS) – There is a simple and easy to implement process to reduce your chances of accepting a stolen credit card. When you process credit card transactions; Be sure to enter the cardholder’s billing address and zip code. For manual non-swipe (Internet & Moto) transactions, you will need to capture the cardholder’s details. However, there will not be a card present (swipe) transaction. Once you have the cardholder’s billing address and zip code, you are ready to process the sale. Your Point of Sale system will verify the AVS with the card issuing bank. You can get locality address matching only, zip code matching only or matching on locality address and zip code. If you do not receive AVS matching then you should consider declining the transaction. About 80% of fraudulent transactions in the US are AVS mismatches. Keep in mind, most AVS systems can be configured so be sure to check your AVS settings. Implementing AVS can make a big impact in reducing credit card fraud.
2. Card Verification (CVV/CVV2) – Similar to AVS. The CVV is the 3 digit code on the back of a credit card (4 digits for American Express). Like the AVS, the CVV is entered at the time of sale. The card holder’s CVV code is verified by the card issuing bank when the credit card sale is being processed. If you do not find a CVV match then you should consider rejecting the transaction. Online merchants should make CVV a required field.
3. Use Threshold Management Service – Threshold management allows the trader to set parameters for transactions that they will accept. For example, transactions can be examined on the basis of amount per transaction, number of transactions charged, transaction frequency, average user ticket, etc. Transactions that have been flagged as potentially fraudulent transactions will require additional review by the merchant. Threshold management services are usually an add-on service available.
4. Check orders with free email accounts – Fraudsters and thieves like to hide. One of the easiest ways to hide a thief’s identity is to use a free email account. Most fraudulent transactions use a free email service. Merchants should not decline all transactions with the free email service. However, you might want to provide those commands with more scrutiny.
5. Check for orders with a different Ship To address than the Bill To address – A thief with a stolen credit card may have the owner’s billing address and zip code. If so, you will receive an AVS and CVV match on their order. However, they will request that the order be shipped to a different address in order to receive your product. Merchants should review all orders with a separate ship to and bill to address. Pay even more attention to the order if the ship is to be addressed to a foreign country.
6. Research International Orders / Foreign Credit Cards – If your business model requires you to ship overseas, you should get an International Merchant Account. Since non-domestic orders have a higher fraud rate than domestic orders, having an international merchant account will give you a higher level of security. Additionally, an international merchant account will allow you to settle in the local currency. If you need a domestic and international merchant account, you should use a payment gateway with load-balancing. Load-balancing provides the merchant with the ability to use multiple merchant accounts within a single payment gateway account.
7. Understand that an authorization code doesn’t mean the credit card isn’t stolen. – An authorization code is provided when the transaction is approved. However, an authorization code simply means that the credit card is valid and credit is available to process the transaction. Ultimately, it is up to you, as the business owner, to decide whether to accept or decline the transaction.
8. Use Advance Fraud Protection Service – Advanced fraud protection services allow the merchant to block transactions by IP address, country of origin and other fraud filters. Advanced fraud protection services are usually an add-on service available.
9. Use a PCI Compliant Data Storage Service Merchants who need to store customer credit card data should use a PCI compliant data storage service. PCI Compliant Data Storage Service allows merchants to transmit and store customer payment information in a Level 1 PCI certified data facility. Once customer records are securely transmitted and stored, the merchant can initiate transactions remotely without directly accessing credit card or electronic check information. This process is accomplished without the merchant storing the customer’s payment information in their local database or payment application.
10. Review and enforce PCI (payment card industry standard) policies Merchants can review PCI standards online at pcisecuritystandards.org. If you are using a PCI compliant point of sale solution and you do not store payment data then you are already in good shape. However, merchants should contact their merchant account provider for further details.
Fraud prevention is an essential activity for both traditional and online merchants. Exposing your business to fraudulent transactions and high chargeback ratios is bad for business and could cost you your merchant account. Leading real-time payment gateway services provide advanced fraud protection tools. However, many fraud prevention techniques can be implemented at no additional cost.
Top Real Time Payment Gateway Services
1. Planetary Authority (Domestic USA & International)
2. Authorize.Net (Domestic USA)
3. PluginPay (Domestic USA)
4. Skipjack (Domestic USA)
5. eProcessing Network (Domestic USA)
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