Combating online credit card fraud

One of the risks for merchants when it comes to selling goods and services online is credit card fraud. Basically, you are almost operating in a vacuum and you have no idea whether your online customers are trustworthy. Considering you will not actually see your online customers, there are two things you know about them:

1. They want to buy something from you and;
2. They want to use their credit card.

The next question is how do you know that your customer is not a child with his/her mother's credit card or a thief with a stolen credit card? You don't and that is why it is a good idea to identify suspicious customer behaviour. Just as you would watch a suspicious character in your offline premises, it is also important to be aware of the tell-tale signs of credit card fraud.

There are fundamentally two credit card fraud types:

* The smash and grab where the number of fraudulent acts is small, sometimes just a one-off, but the product value may be high.
* The "drip effect" where the number of acts is large and the value small.

According to the Worldwide E-commerce Fraud Prevention Network, an international survey highlighted online fraud as a significant problem. However, 70 percent of the respondents believed fraud prevention tools could keep it to a minimum.
Fraud reduction tools

The four most popular fraud reduction tools being used have been identified as:

1. Address verification systems (70 percent)
2. Customer follow-ups (54 percent)
3. Real-time authorisations (54 percent)
4. Post-process fraud management (43 percent).

According to the Worldwide E-commerce Fraud Prevention Network, an international survey highlighted online fraud as a major stumbling block.

However, when they were asked to list the most effective reduction methods the survey members put address verification systems in top place followed by real-time authorisations.

Almost 50 percent of online merchants surveyed said fraud had cost their business between $1000 to $10,000. Nineteen per cent reported costs at more than $100,000.

And almost 60 percent of merchants said they spent less than one per cent of total revenues on fraud prevention.

When it comes to credit card fraud, it is important to remember:

* Merchants are usually the victims of credit card fraud. It is rarely the customers.
* The card owner has a limited liability. Most of the liability rests with the merchant.
* You need good anti-fraud procedures in place to protect you and your customers.

For useful links to fraud information and prevention tips, see the Merchant Fraud Squad ( or visit
Fraud warning signs

There are a number of suspicious behaviours which can help highlight a potentially fraudulent act. Knowing what to look for is important. Consider the following:

* Watch out for large orders placed without regard to size, colour, style or price of stock.

* If an international customer demands a speedy delivery without regard to freight and delivery or transport costs, beware. Many international customers will opt for the cheapest method of transportation to keep costs down.

* A first-time customer who makes a very large order and wants it shipped over night should be treated with caution.

* Be wary of customers who always use free e-mail accounts as their reply e-mail addresses. Suspicious customers may use many of these types of accounts. Just proceed with caution until the customers establish themselves as being trustworthy.

* It may be wise to not fully trust customers who won't allow you to call them and insists on calling you or communicating entirely through e-mail.

* A common form of credit card fraud is a child using a parent's credit card. Just be cautious, especially if you get a large order for teenage-type products.

* If you get a number of orders on the same day from the same customer for large quantities of products it is best to make sure it is not someone using someone else's credit card.

* Research has also shown that stores that sell computer equipment, stereos and televisions are the most likely targets for credit card fraud as the goods can easily be resold.

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