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Fraud Prevention Resources Hub

Fraud Prevention Resources Hub

Everything merchants need to know about eCommerce fraud prevention. We look at fraud “red flags,” effective prevention tools, and best practices that can help stop fraud before it happens.

Fraud Prevention: The Ultimate Merchant’s Guide

Fraud Prevention

Fraud prevention is a leading concern for many online merchants. When looking at recent stats, it’s easy to understand why.

In short: you can’t afford not to.

Three-quarters of merchants reported increases in both fraud attempts and fraud rates by revenue in 2021. Plus, the average cost of fraud management increased five-fold in just two years. In 2019, eCommerce merchants spent an average of 2% of their annual revenue on fraud prevention. By 2021, that share had grown to 10%.

How can you tell if you’re getting the most out of your fraud prevention efforts? What are your credit card fraud prevention best practices? What fraud prevention solutions and tools can you deploy to protect your business?

In this article, we will seek to answer these questions, outline some common tactics, and discuss lesser-known fraud prevention secrets.

What Does Fraud Prevention Entail?

“Fraud prevention” refers to the strategies, processes, and technologies deployed by organizations to detect, prevent, and minimize fraudulent activities and financial losses.

A proactive approach involves identifying potential vulnerabilities and threats. You must also implement security measures, and continuously monitor and analyze transactions and behaviors. This is the only way to intercept fraudulent activity before it can impact you or your customers. Effective fraud prevention encompasses:

  • Authentication and verification procedures
  • Advanced data analytics
  • Employee and customer education
  • Compliance with regulatory standards
  • Use of sophisticated fraud detection systems

The goal is to create a secure environment that stops the unauthorized use of resources, theft of sensitive information, and other deceptive practices that could harm your organization's financial health and reputation.

Learn more about fraud detection

Know These Red Flags

Fraudsters can employ a variety of tactics to scam you out of your money. In another article on the topic of eCommerce fraud, we outline more than a dozen commonly used tactics like account takeover, new account fraud, triangulation fraud, friendly fraud, and more.

The first step towards preventing fraud is knowing what to look for. Even as criminals’ tactics evolve, there are a few key indicators that remain telltale signs of fraud. Red flags to watch for include:

Red Flag

New Email Addresses

Did a customer create a new or temporary (“burner”) email address to make a purchase? This may be a sign that the buyer is planning to commit fraud and then disappear.

Red Flag

High-Ticket Value

Fraudsters want to get the most value out of their efforts. To do this, they often buy high-value goods that they can easily flip and turn into liquid cash.

Red Flag

Transaction Velocity

When fraudsters gain access to valid account information, they often submit multiple transactions in quick succession to maximize profits before being discovered.

Red Flag

Expedited Shipping

Fraudsters tend to pick the fastest shipping option. They want the goods to arrive before they’re intercepted. They don’t mind paying extra. After all, it’s not their money.

Red Flag

Buying in Bulk

Again, fraudsters look for opportunities to maximize their efforts. They might pick a model of TV or other item and order as many as possible before maxing out the account.

Red Flag

Address Mismatch

The shipping address used by a fraudster will not match the billing address kept on file with the bank or that you have listed in previous transaction records.

Red Flag

Repeat IP Addresses

If the same IP address is tied to multiple transactions and multiple cards, it’s a sign that the fraudster may be using information stolen from multiple consumers.

These are some of the most common signs of fraudulent activity. Remember, though: this is not an exhaustive list.

Criminals come up with new strategies every day. They’re resourceful and can learn to leverage new technologies, shopping channels, and industry practices before you identify the threat they pose.

Learn more about fraud red flags

Using 3-D Secure to Prevent Fraud

3-D Secure (3DS) is a security protocol designed to enhance the security of online credit and debit card transactions. It acts as an added layer of protection to prevent unauthorized use of cards in e-commerce transactions.

The “3-D” stands for “Three Domain Secure.” It reflects the three parties involved in the process: the merchant, the bank that issued the card (the “issuer”), and the security infrastructure that connects them (the interoperability domain).

Basic breakdown 3-D Secure process

The implementation of 3DS offers several benefits. You’ll reduce the likelihood of fraudulent transactions. 3DS shifts liability away from merchants in the event of fraud, and builds customer trust by enhancing transaction security.

Also, with the evolution of 3DS protocols, including versions like 3DS2, the process has become more streamlined and user-friendly. It incorporates advanced technologies like biometrics for authentication, enabling a smoother shopping experience without compromising security.

Learn more about 3D-Secure technology

Better tools. Better tactics. Better results. Learn how you can optimize your fraud prevention strategy today.REQUEST A DEMO

Fraud Prevention: Using the Right Tools

All the tactics we’ve outlined are important. The tools you use, however, will also impact your fraud prevention plan.

Deploying the right fraud prevention tools is vital to adopting the right internal processes. We talked about using 3-D Secure; however, that’s just scratching the surface. Below is a list of common fraud screening tools you can use to identify risky transactions:



CVV2 (Card Verification Value 2) is a three or four-digit security code printed on credit and debit cards. It’s used to verify that the card is in the cardholder's possession during online or over-the-phone transactions.

Learn more about CVV2
Address Verification Service

Address Verification Service

Address Verification Service (AVS) helps reduce risk by automatically checking the billing address listed in the transaction against the address registered with the issuing bank.

Learn more about AVS


Tokenization technology allows users to submit a randomized placeholder number (called a token) in place of sensitive personal data. This keeps their information safe from being intercepted.

Learn more about Tokenization
Proxy Piercing

Proxy Piercing

This is a technique used to identify the true IP address of a user who is accessing a service through a proxy server or VPN, which hides the user's actual IP address. This way, it helps prevent fraud or enforce geo-restrictions.

Learn more about proxy piercing
Fraud Blacklist

Fraud Blacklist

A blacklist helps ban known or probable fraudsters. Whether these individuals are engaging in criminal fraud or other suspicious activity, establishing a blacklist can ensure they never cause trouble more than once.

Learn more about chargeback blacklists
Device Fingerprinting

Device Fingerprinting

Device fingerprinting is a forensic technique used to identify a device. The methodology can gather unique information based on device configurations, hardware, and installed software.

Learn more about device fingerprinting


Geolocation technology pinpoints the user based on the IP address associated with the order. Comparing the user’s IP address against the information on file with the issuer lets you verify whether the buyer placed the order from a reasonable location.

Learn more about geolocation
Liveness Detection

Liveness Detection

A biometric authentication tool that is used to distinguish between a real person and a fake representation (like a photo, video, or mask) by analyzing characteristics of a live subject.

Learn more about liveness detection
Velocity Limits

Velocity Limits

Velocity limits, or velocity checks, scan for potential fraud based on the rate at which a buyer submits multiple transactions. This allows you to identify suspicious transactions in real time.

Learn more about velocity limits

Fraud Prevention: Best Practices

We’ve examined some of the fraud red flags, and some tools you can use. Given the volume of orders you process, though, you don’t have the time to manually review every transaction.

Below are some fraud prevention best practices that will help scale your fraud prevention efforts wisely.

Deploy AI and Machine Learning

Deploy AI and Machine Learning

You can deploy machine learning technology to help determine whether to accept — or reject — a transaction. The technology takes past evidence and data and uses it to refine your decisioning. The more data incorporated, the more accurate and intelligent the decision-making process becomes, which makes further improvements easier to accomplish.

Look for Multiple Data Sources

Look for Multiple Data Sources

Your fraud decisioning is going to be skewed if you’re drawing only on your own data. You should try to integrate fraud signals from other data networks beyond just your own. This will help you identify trends faster and be more in-tune with developing fraud threats and tactics.

Authenticate Buyers Based on Risk

Authenticate Buyers Based on Risk

For some transactions, indicators like address and geolocation suggest that the buyer poses relatively little risk. Other buyers, however, may require more in-depth screening or even manual review. You should segment lower-risk transactions from riskier ones. This way, you only have to introduce friction when it’s really necessary.

Be PCI-Compliant

Be PCI-Compliant

PCI standards are meant to ensure you’re taking the necessary steps to protect consumer personal data. These security protocols are complicated, but PCI compliance is an important baseline. It protects your customers and insulates you against fraudulent purchases made using stolen data, as well as the PR backlash following a data breach.

Train Staff Properly

Train Staff Properly

Think about your staff as your best line of defense against fraud. You want your staff to be trained properly and to know the warning signs of fraudulent activity, especially when conducting manual reviews of transactions.

Keep Software Up to Date

Keep Software Up to Date

Outdated software can cause multiple problems. Outdated fraud prevention solutions may fail to intercept new threats. Other outdated technologies can be exploited by fraudsters, potentially compromising your—and your customers’—sensitive information. Keep up with all software updates and patches and deploy them as soon as possible.

Conduct Regular Audits

Conduct Regular Audits

Don’t simply assume that you’re doing everything you need to in order to protect yourself and your customers. Conduct regular audits of all internal operations to ensure you’re doing what needs to be done. Are you staying up to date with tech changes? Are your employees abiding by your established protocols?

Learn more about fraud prevention best practices

What is Strong Customer Authentication?

It should be clear by now that payment authentication is the cornerstone of stopping fraud. To this end, lawmakers have stepped in, requiring base standards for buyer verification. Strong Customer Authentication, or SCA, is one such example.

SCA is a regulatory requirement introduced under the European Union's Second Payment Services Directive (PSD2) to enhance the security of electronic payments. It mandates a multi-factor authentication process for electronic transactions to reduce the risk of fraud. Specifically, it requires verification using at least two of the following three elements:

  • Something the customer knows (like a password or PIN)
  • Something the customer has (such as a phone or hardware token)
  • Something the customer is (fingerprints or facial recognition)

Certain low-risk transactions may be exempt from SCA requirements based on transaction risk analysis. This analysis involves evaluating the risk level of transactions in real time to determine if SCA is necessary, taking into account factors such as the amount of the transaction, the payment history of the customer, and any abnormal spending patterns.

Learn more about strong customer authentication

Take the first step toward a more effective fraud prevention strategy.REQUEST A DEMO

What is Manual Review?

A manual review is the process of subjecting a transaction to human oversight. It can occur at any point in the transaction process at which the transaction is manually reviewed, as opposed to automatically reviewed using computer algorithms.

Manual review comes up when an automated system detects potential fraud indicators in a transaction, but the evidence is not conclusive enough to warrant automatic rejection. During a manual review, trained staff assess the transaction details, looking at various factors such as the transaction history, customer behavior patterns, and any anomalies in the purchase activity. They may also reach out to the customer for additional verification or clarification.

Manual review is a tedious and time-consuming process. However, it may also be necessary to ensure that you don’t lose valued customers to false positives.

Learn more about manual review

Automated Decisioning & Fraud Scoring

Fraud prevention strategies often incorporate automated decisioning and fraud scoring mechanisms. The goal here is to streamline the process of identifying and acting upon potentially fraudulent transactions.

Fraud scoring assigns a numerical value, or score, to each transaction based on a range of criteria that may indicate fraud. These criteria can include unusual purchasing patterns, discrepancies in billing and shipping information, the geographical location of the purchaser, and any deviation from typical customer behavior. The higher the score, the higher the risk that the transaction is fraudulent.

This scoring system enables businesses to make swift, straightforward decisions. Transactions with scores below a certain threshold can be automatically approved. At the same time, those above can either be flagged for manual review or outright rejected.

This binary, up-or-down decision-making process significantly enhances efficiency by reducing the need for human intervention in clear-cut cases. It allows companies to focus their manual review efforts on borderline cases where human insight is necessary.

Learn more about fraud scoring

The Bottom Line

Fraud prevention is about employing the right tools in a coordinated manner so they work together and complement one another.

Of course, even with the optimal strategy, tools, and tactics in place, there’s still no way to “fraud-proof” or “chargeback-proof” your business. Criminals get more sophisticated all the time, and staying up-to-date on the latest threats can be a full-time job on its own.

Chargebacks911® offers the most comprehensive chargeback management services and products available on the market today. Our experts are constantly uncovering new fraud threats and developing innovative strategies and technologies to fight back. This applies not only to fraud prevention but even to hard-to-fight challenges like friendly fraud.

Whatever you need to prevent chargebacks, we can help. Contact us today for a free demo.


What is the objective of fraud prevention?

The objective of fraud prevention is to proactively identify, assess, and mitigate fraudulent activities to protect an organization's financial assets and maintain the trust of its customers. It involves implementing strategies and technologies that detect and prevent unauthorized transactions, thereby minimizing financial losses and safeguarding against reputational damage.

How can you protect against fraud?

You can protect yourself against fraud by implementing multi-layered security measures, including strong customer authentication, real-time transaction monitoring, and fraud detection systems that use machine learning to identify suspicious activities.

What is the first line of defense in fraud?

You are the first line of defense against fraud. Being aware and careful with your accounts online is the very first step to effective fraud prevention.

What is the difference between fraud detection and fraud prevention?

Fraud detection involves identifying fraudulent activities as they occur or after they have happened, using systems to monitor and flag suspicious transactions. Fraud prevention, on the other hand, aims to stop fraud before it happens by implementing security measures and controls that block fraudulent activities from taking place.

How do you detect fraud transactions?

You can detect fraud by using advanced analytics, machine learning algorithms, and real-time monitoring systems to analyze patterns and anomalies in transaction data and user behavior that may indicate fraudulent activities. These tools help identify suspicious actions quickly, allowing for immediate intervention to mitigate potential risks.

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