Watch for These Fraud Red Flags to Stop Criminal Attacks & Keep Your Business Safe
Yes, credit card fraud is a threat to all merchants. That said, businesses in the card-not-present (CNP) space are generally more vulnerable to fraud than their brick-and-mortar counterparts.
Recent studies revealed some troubling information: card-not-present fraud is rising at a fast rate. Globally, the number of digital transactions suspected of being fraud attempts rose 46% year-over-year in 2021. And, while the problem is global in scope, the US is the source of more than one-third of card fraud losses.
- Fraud Detection: Here's How Merchants Can Stop Fraud in 2023
- What are Velocity Checks? How Do They Stop Fraud Attacks?
- ECI Indicators: How to Understand 3DS Response Codes
- What is Clone Phishing? How Scammers Mimic People You Trust
- 3DS2 Adoption: How is the Process Going?
- Liveness Detection: A Guide to Enhanced Verification
Spotting Fraud Warning Signs is Key to Prevention
47% of merchants believe fraud is inevitable, while 20% think it costs too much to control. Of course, both these beliefs are incorrect.
Preventing chargebacks caused by card-not-present fraud is vital to protect your bottom line. Where do you get started, though? Well, as the saying goes, “an ounce of prevention is worth a pound of cure.”
The best way to stop criminals is to familiarize yourself with the warning signs of fraud. Once you do this, you can deploy the right solutions to stop fraudsters before they can pull off an attack.
To spot potential credit card fraud, experts have identified specific fraud red flags that may give merchants cause for suspicion. By themselves, none of these warning signs necessarily point to a problem. Large purchases, for example, are not necessarily signs of a full-scale fraud issue, but at the same time, it's critical that you recognize the potential events warranting further investigation.
20 Most Common Fraud Red Flags
At Chargebacks911, we’ve identified dozens of potential fraud red flags. Some are less common, while others tend to pop up over and over again.
Below, we’ve compiled a roundup of the top 20 fraud warning signs to watch for in 2023:
Based on a survey of over 400 merchants, the report presents a comprehensive, cross-vertical look at the current state of chargebacks and chargeback management.Access the FREE Report
In this exclusive guide, we outline the 50 most effective tools and strategies to reduce the overall number of chargebacks you receive.Get the FREE guide
Any number or combination of these common fraud indicators should be investigated thoroughly whenever possible. Thankfully, with the right combination of fraud tools in place, many attacks can be thwarted before they ever impact your bottom line.
Remember: half the fight against fraud lies in detection. However, not every form of fraud gives you a hint in advance of an attack.
Some fraud occurs after a transaction has been completed. To make matters worse, these attacks aren’t carried out by a hardened cybercriminal or practiced fraudster. Instead, they’re committed by otherwise legitimate and trustworthy customers.
The Biggest Fraud Threat of All: Friendly Fraud
Knowing the fraud red flags outlined above will help you identify and prevent attacks originating from third-party sources. However, did you know that merchants are now more worried about first-party attacks than third-party ones?
It’s true. Friendly fraud was actually the #1 fraud threat concerning merchants in 2021. The situation is only growing worse; according to the 2022 Chargeback Field Report, six out of every ten chargebacks issued in North America in 2023 will be the result of friendly fraud.
Complicating things further, friendly fraud doesn’t provide you with any red flags. You won’t know you’ve been a victim until weeks or even months after the original transaction took place.
You have no way to predict when and where friendly fraud is happening. You can’t know whether banks have fully investigated customer claims or not. Finally, you have no way to guarantee that a customer has filed a dispute maliciously or accidentally. You can probably see why this all adds up to one big problem.
This certainly seems bleak. We have good news, though: there are steps you can take to mitigate your losses and prevent fraud originating from both first- and third-party sources.
4 Tips for a Multi-Layered Fraud Strategy
To fight back against criminal fraud, you have to beat it to the punch. A personalized combination of fraud tools tailored to your business needs is an excellent first step in crafting a comprehensive fraud strategy.
We recommend that you:
1 | Deploy Fraud Tools
No single tool can be 100% effective. But, by deploying a mix of multiple tactics, you can increase your odds of success. You may have to experiment to find the right mix of complementary tools, including:
2 | Use the Most Comprehensive Data Available
The more data you can cross-reference, the more accurate you can be. Tap into the best data you can find, and use machine learning to constantly fine-tune results.
3 | Keep Records Updated
Your authentication tools are only as good as the information you have on file. Perform regular account checks to update expired details held on-file.
4 | Best Practices Win
Excellent customer service and attention to detail are great for attracting and retaining customers. However, it can also lower your risk for both first- and third-party fraud.
- Revisit your order fulfillment process to identify and isolate weaknesses that could lead to merchant error.
- Confirm orders and provide tracking information so that cardholders can verify their purchases.
- Send follow-up emails. After a product has been shipped and delivered can not only guarantee that your customer received their items, it can also help you rectify and resolve errors before they become disputes.
Hone Your Prevention Strategy
Every business needs a coordinated, carefully planned strategy to make the most of the tools at its disposal. But, like we mentioned above, best practices and conventional tools to detect fraud red flags have little to no impact on threats like friendly fraud. To fight fraud from all sources, you'll probably need additional help.
Here at Chargebacks911®, we specialize in preventing post-transactional fraud that criminal fraud tools like those listed above can't reach. We work alongside other technologies to provide comprehensive, multilayered fraud defense. Continue below and get a free ROI analysis today.
What are the indicators of fraud?
Some of the most common fraud red flags include larger-than-normal orders, repetitive small orders, the same account but different shipping address, and the same shipping address but different cards. As a rule of thumb, remember that if something feels off… it probably is.
How do you identify eCommerce fraud?
Look for anything outside of the norm. This can be done using multiple fraud detection tools, all backed by fraud scoring.
Which is the most common incident of fraud in eCommerce?
Friendly fraud is a first-party, post-transaction attack committed by an otherwise legitimate customer. Merchants surveyed reported that friendly fraud was the number one threat facing their business in 2022.
What are the “red flags” for friendly fraud?
Unfortunately, there are no consistent warning signs for a friendly fraud attack. It's post-transactional, so there's limited things you can do to prevent it.