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Credit Card Fraud Detection Techniques

Credit Card Fraud Detection Techniques

The Top 10 Credit Card Fraud Detection Techniques for eCommerce Sellers

When it comes to verifying a customer, a merchant with a brick-and-mortar presence has quite a few credit card fraud detection techniques to explore.

For example, one can look for suspicious actions exhibited by shoppers. This can include nervous or agitated behavior, high-dollar purchases, or seemingly indiscriminate purchases with no regard to size, style, or other characteristics. A merchant could examine the card in question: is it unusually shaped? Are the characters misaligned, or appear re-embossed? Is it missing a hologram?

If you’re a card-not-present merchant, though, you don’t enjoy most of these luxuries. You also have no way to verify the card in question using EMV chip technology. Worse yet…fraudsters know you’re in a difficult spot, and are more than happy to use it against you.

Fraud Costs on the Rise

The difficulty of identifying fraud online leads some businesses to adopt a defeatist posture. In fact, 47% of online sellers believe fraud is inevitable in the eCommerce environment. A further 20% think it costs too much to control; instead, it’s best to just maximize sales and hope to outpace the fraudsters. You can’t afford to take that stance, though: the cost of fraud is simply too high to ignore.

The average value of a fraudulent CNP transaction in the US was $403 in Q1 2019. That’s nearly double the average threshold for a legitimate transaction ($213). Of course, the dollar value of the transaction isn’t all that’s at stake; there’s also the cost of lost merchandise, fees, chargebacks, threats to sustainability, and more to consider.

According to Lexis Nexis Risk Solutions, merchants lost $2.94 in revenue for every $1 in fraud in 2018. All totaled, that means the average merchant loses $1,184.82 per fraud incident.

You can’t afford to accept fraud—or the resulting chargebacks—as a cost of doing business. That raises the question: what are the best credit card fraud detection techniques to employ in the eCommerce environment?

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10 Fraud Detection Techniques You MUST Put in Place

We’ve taken the liberty of compiling a list of the top 10 credit card fraud detection techniques you must implement into your business. Let’s kick things off with…

1. Screen for Suspicious Activity

There are certain red flags for which you should keep an eye out. For example, be wary of a new customer who makes a large or big-ticket purchase with no prior history, or who submits multiple repeat orders in quick succession. Also, look out for address mismatches: a fraudster will not likely know the correct billing and shipping information for stolen cardholder data. Address Verification Service (AVS) can come in handy here.

2. Locate Your Buyer

You don’t have to rely solely on the information provided by a buyer. There are tools you can use to at least approximate where your customer is located. For example, geolocation lets you pinpoint buyers and verify against their billing information. IP address verification can reveal if your buyer made multiple transactions from the same location with different information. Of course, you can’t know for sure whether a buyer is illegitimate, simply based on location; the cardholder may have a legitimate reason, such as placing an order while travelling. However, it’s a helpful indicator in context with other credit card fraud detection techniques.

3. Adhere to Best Practices

It’s a good idea to be flexible with buyers. If you’re too much of a stickler about returns, for instance, customers might take matters into their own hands and file a chargeback to recover their funds. That said, you must know when to bend the rules…and when not to. If a customer misses the return window by a day or two, it’s worth letting it slide to keep buyers happy and ensure loyalty. With fraud mitigation, though, don’t be afraid to lay down the law to protect yourself against loss. If a transaction looks fraudulent by your standards, don’t accept it.

4. Use Multiple Fraud Tools

There are a lot of fraud detection tools out there…just as there are a lot of different fraud threats. One or two tools isn’t going to cut it; you need to deploy a variety of different detection tools as part of a coordinated, multilayer strategy. CVV verification, AVS, fraud scoring, geolocation, velocity limits…these are just a few of the tools at your disposal. The more you have in place, the more refined your abilities to separate fraud from legitimate transactions.

5. Remember Fulfillment

Your customer interactions don’t end at checkout. Order fulfillment is just as important as any other credit card fraud detection techniques on this list. Fast, accurate fulfillment and consistent post-transactional communication will improve customer satisfaction, and with closer examination of order details, you could potentially spot fraud activity. Plus, order tracking and delivery confirmation are powerful tools against friendly fraud. They can provide valuable compelling evidence in the event of a dispute.

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6. Excellent Customer Service

Expanding on that point about communication, providing reliable and responsive customer service is another important fraud mitigator. We recommend you provide live service, 24 hours a day, seven days a week, across multiple channels including phone, email, and social media. If that’s not possible with your internal team, consider contracting with a third-party answering service to handle high-volume or after-hours calls. For email and social media, you can set up an autoreply to immediately inform buyers their contact was received, and when they can expect a live response.

7. Employee Awareness

Your employees are the ones reviewing and fulfilling orders and interacting with customers every day. They’re a vital line of defense against fraud. As such, you need to be sure they are up-to-date with all new developments and best practices. Identifying and gauging threats in the order-processing and fulfillment stages should be a standard part of your employee training. You should also go over this information on a regular basis, rather than just when onboarding.

8. Maintain PCI Compliance

The PCI security standards are a universally-applicable set of rules for how to handle, transfer, and store sensitive data. You should maintain compliance with PCI standards at all times. Compliance won’t directly defend against fraud like these other credit card fraud detection techniques, and even PCI-compliant merchants can still be vulnerable to attack by hackers. However, compliance ensures that you did your due diligence in preventing incidents, thereby protecting your reputation and helping prevent more cardholder data falling into the wrong hands.

9. Review Past Fraud Data

Here’s the sad truth: you’re probably not going to fully eliminate fraud. Even the most diligent merchants still see a fraudster slip through their defenses once in a while. When this happens, take it as a learning opportunity. Examine both successful and attempted fraud transactions. Pick out which key indicators were ignored or hidden, and incorporate that lesson into your strategy going forward.

10. Engage in Chargeback Mitigation

As we’ve seen, not all credit card fraud detection techniques involve engagement during the transaction process. Some are pre-transactional, like compliance and employee training. Chargeback mitigation is both pre- and post-transactional. You must identify potential chargeback triggers based on criminal fraud and merchant error risk factors. Then, you need to engage in tactical chargeback representment to address friendly fraud.

Need a Hand?

Any one of these suggestions sounds simple enough…but putting together a comprehensive, multi-layered management strategy can be a lot more complicated than it appears.

Take that last point about chargeback mitigation, for example: identifying chargeback sources is exceedingly difficult for merchants because you have to apply a critical eye to your own internal rules and processes. It’s hard for most businesses to be objective about this process. Then, you need to be able to not only identify friendly fraud, but also assemble the right data to build a strong representment case.

Need some help managing chargebacks? Want advice about other credit card fraud detection techniques? Click below and speak to one of our expert analysts today.


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