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GeolocationHow to Use This Technology to Detect & Stop Fraud Attacks

December 6, 2024 | 9 min read

What is Geolocation

In a Nutshell

The article explores the significance of geolocation technology in detecting and preventing fraud. Geolocation plays a crucial role in fraud prevention by enabling businesses to assess the risk associated with a transaction based on the location of the customer and the transaction's origin. It helps in identifying suspicious patterns, such as transactions originating from high-risk countries or mismatched billing and shipping addresses. By leveraging geolocation technology and integrating it into their fraud detection systems, businesses can enhance their ability to combat fraud effectively and protect their customers' sensitive information.

Geolocation: How Savvy Merchants are Modernizing Their Anti-Fraud Solutions

There’s an old saying: “time and tide wait for no man.” The same holds true for merchants and technology.

Any time eCommerce sellers manage to defeat a clever fraud scheme, it seems like another appears to take its place. Considering the rate at which technology advances, you have to be as proactive and receptive to change as possible. Emerging tech trends can influence all aspects of your business, whether you are aware of them or not.

Geolocation, for example, is a modern technology with far-reaching effects. It could help you prevent more fraud attacks and recover more revenue...if deployed correctly.

In this article, we’ll discuss the benefits of geolocation, as well as its downsides. We’ll also offer some strategies to help you master both.

What is Geolocation?

Geolocation

[noun]/j • ēō • lō • kā • SHən/

Geolocation is a broad term that describes any technology which accesses your location using the GPS or IP data installed on your devices for the purpose of locating you. It can be used for fraud detection by helping to verify customers’ identities.

Geolocation technology for fraud detection typically relies on IP address. This means it uses a computer, server, or mobile phone’s internet protocol (IP) address to determine the device’s geographical location.

For this to work, an IP address has to be assigned to a device by an internet service provider. When a device connects to the internet, an IP geolocation service identifies the device’s IP address and then queries a geolocation database, either directly or via an API, to retrieve the device’s approximate location.

A geolocation database maps millions of IP addresses to countries, states, cities, zip codes, latitudes, and longitudes. Some databases also include information about device connection types or internet service providers by collecting WHOIS Records, Wi-Fi, GPS, or crowdsourced data.

Once the geolocation service finds a match between the device’s IP address and a record in the database, it outputs the device’s location details to the end user. This information can then be used to help determine whether a buyer is legitimate.

IMPORTANT!

Geolocation databases are maintained by third-party service providers, and the accuracy of the results depend on the quality and volume of the data in the database. Typically, free databases are less accurate than paid databases. Network infrastructure and the use of VPNs of proxy servers can also influence location accuracy.

How Does Geolocation Help Prevent Fraud?

In card-not-present (CNP) transactions, geolocation data can pinpoint irregularities related to an IP address of origin. Geolocation helps you verify established cardholder details such as:

  • Billing Address
  • Shipping Address
  • Billing Phone Number
  • Zip Code
  • Phone Area Code

If the details of a transaction don’t match a cardholder’s known location, the transaction may not have been made by the cardholder. This information can be relayed to you, and the transaction would then be flagged as potential fraud.

Examples of IP Address Geolocation in Action

As we mentioned before, geolocation technologies can help detect and deter fraudulent card-not-present transactions. Here’s how it can help you discover and respond to threats in practice:

Identify Location Mismatches

Geolocation can flag suspicious purchases by comparing a buyer’s IP current address to the customer’s billing or shipping address on file. It can also flag addresses linked to proxies or VPNs, and can detect suspicious purchase patterns like sudden changes in login locations or several login attempts from varying locations. If the device’s current location doesn’t correspond with address information on file, it could be a sign of fraud.

Block Purchases From High-Risk Locations

Also known as geo-blocking, this tactic involves limiting or blocking transactions from regions with high fraud rates or locations that you don’t serve. When a buyer attempts to make a purchase, geolocation services identify the device’s address. If it is located in a blocked region, the purchase is automatically declined. Cardholders can also use geoblocking to limit the usage of their cards to specific regions, which can reduce the risk of account takeover fraud.

Analyze the Reputation of an IP Address

You can use geolocation services to evaluate the trustworthiness of the IP address involved in a purchase attempt. An IP address’s reputation is determined by factors including the internet service provider, the number of fraud reports previously received, the IP neighborhood, and when and how the IP address was used. You can prevent fraud by blacklisting high-risk IP addresses blocking transactions from devices tied to them.

Require Multi-Factor Authentication For New Devices

A geolocation service can maintain a log of all IP addresses previously encountered, which you can use to distinguish purchases made by returning customers from those made by new devices. If a new device is identified (that is, one associated with an IP address not previously encountered), the buyer will be asked to undergo multi-factor authentication. Related technologies, like device fingerprinting, can help you go a step further by flagging and blocking fraudulent transactions made using multiple fake accounts on a single device.

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How Does Geolocation Spoofing Work?

No technology is perfect, however advanced it might be. Geolocation is no exception to this rule.

Geolocation fraud occurs when criminals leverage GPS and IP address information to falsify their location in an attempt to cloak or conceal the fraudster’s identity. This is sometimes called location spoofing. It’s designed to use the location data you rely on for fraud detection against your own system.

Location spoofers can avoid geolocation fraud detection by:

  • Using a virtual private network (VPN) or other proxy which can conceal the fraudster’s location via a remote operating system.
  • Engaging in app tampering, allowing them to insert false code into open apps and conceal their activity.
  • Adopting emulators and instrumentation tools used by app developers to troubleshoot glitches from a remote location.
  • Using GPS spoofing apps that make it very easy for fraudsters to spoof their location on a given network.

Other Problems With Geolocation

Of course, location spoofing isn’t the only shortcoming here. There’s also the threat posed by false positives.

Consider the example we looked at earlier. A buyer makes a purchase in Copenhagen, but the cardholder’s billing information places them in Portland. Sounds like a  clear-cut case of fraud, right?

That might have been the case in an earlier era. With the level of sophistication we see in today’s eCommerce, especially in the mobile commerce space, it’s not uncommon for a buyer to be on the opposite side of the world from their home and still make purchases. If you reject orders solely because of geolocation data, you could be turning away countless legitimate customers.

Remember: no technological advance is perfect. No matter how sophisticated the technology, there will always be someone who figures out how to manipulate it for their own gain.

Even despite these shortcomings, geolocation is still an incredibly powerful tool. To get the most out of it, though, you need to incorporate it into a larger fraud prevention strategy.

Adopting a Smarter Approach to Fraud Prevention

The trick here is to outsmart the crooks. When used in conjunction with other fraud prevention software, geolocation can be a crucial element in your anti-fraud plan. We recommend a multilayer fraud prevention strategy, including (but no limited to):

Alone, any one of these anti-fraud tools might be defeated by a cunning criminal. In combination, however, they are very difficult to overcome. For instance, a location spoofer might be able to bypass AVS and CVV verification. However, they're less likely to succeed if they also have to contend with velocity limits and two-step verification.

When you can draw on more data, you can create a more detailed and reliable profile of your buyer. This makes fraud decisioning more accurate. And, when you incorporate fraud scoring backed by machine learning technology, you build an even stronger firewall to deter fraudsters without hurting good customers.

Building a better fraud prevention plan means including as many failsafes as possible. Geolocation fraud detection is one facet of this plan.

No defense is impenetrable. However, it’s possible to defend yourselfand your clientsfrom fraud. You only need to have the right systems in place.

FAQs

How reliable is IP geolocation?

IP geolocation is generally reliable, but accuracy depends on the device and granularity of information requested. On the country level, IP geolocation is highly accurate, with success rates between 95% and 99%. On the state, regional, or provincial level, it is roughly 55% to 80% accurate. At the city or local level, it is between 50% and 75% accurate.

What happens if a scammer has your IP address?

Scammers who capture your IP address can use it to access your device, frame you for illicit activities, impersonate you, send you spam, track your location, or ban you from certain websites. Fraudsters can also sell your IP address to an illegal data broker or use your IP address to conduct DDoS attacks.

What if IP address geolocation is wrong?

If IP address geolocation is wrong, it means that the location identified by the geolocation service is inaccurate. Outdated geolocation database information, poor geolocation technology, or the use of dynamic IP addresses, VPNs, or proxy servers can contribute to inaccurate results.

Is geolocation data high risk?

Yes. Geolocation data can be used to pinpoint a user’s location, and can be linked with other sensitive information, which by itself poses significant privacy concerns. The fact that geolocation data can fall into the wrong hands invites additional data security risks.

Can IP location be traced?

Yes. using geolocation technology, merchants, websites, government agencies, internet service providers, and even bad actors can use your device’s IP address to determine your location.

What makes an IP address suspicious?

IP addresses that are associated with malicious activity, such as sending spam, hosting malware, or engaging in bot activity are typically considered suspicious and may be flagged or blacklisted by certain websites.

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