Online payments are classified as card-not-present (CNP) transactions because a customer doesn’t physically present the card when making a purchase. Although remote sales are convenient for both the buyer and seller, their anonymity makes them significantly more susceptible to fraud than card-present payments.
Whether you run an established firm or a cash-strapped startup, e-commerce fraud is a disruptive waste of time and money. Nevertheless, you can avoid the hurdle by following the tips below.
- Address verification
One of the most common indicators of a potentially fraudulent transaction is a disparity between a customer’s billing and delivery addresses. While it’s not impossible for these two addresses to be different, having something delivered to Los Angeles when the buyer’s card is registered in New York may suggest a case of identity theft.
An Address Verification System (AVS) is the most common method to reduce the risk of selling to a criminal. Many payment processing companies also offer commercial anti-fraud services that automatically compare the two addresses and warn you of any dubious orders.
If you suspect an order is illegitimate, contact the customer directly and have them confirm all the essential details.
- 3-D Secure checks
Originally introduced by Visa as “Verified by Visa,” 3-D secure is a security protocol that typically requires customers to enter in another password to authenticate their card.
3-D secure was unpopular at first because it prolonged the checkout process and consequently resulted in high levels of shopping cart abandonment. Today, however, the customer’s card issuing bank decides which transactions will be required to provide the password, based on factors like the value of goods, time of payment, and how often the cardholder shops with the merchant.
- Declined transactions
E-commerce fraudsters rarely employ brute-force tactics, but a desperate criminal will likely look to exploit any open windows. Malicious software can be designed to run in the background, tediously trying out one credit card number after another.
A sudden increase in the number of declined transactions is often a fraud red flag. Although an IP checker may help identify if the orders are originating from the same terminal, the easiest means to stop this type of fraud is to limit the number of declined transactions allowed, before blocking a user.
According to Global Risk Technologies, 86 percent of all chargebacks are placed fraudulently, usually by customers who receive the goods or services, but don’t want to pay.
Once a fraudster initiates a chargeback, the card-issuing bank forwards the dispute to your bank, actually reversing the sale. At this point, you can argue your case to your bank and prove that the disputed transaction was, in fact, legitimate.
Regardless of the outcome of the resolution, however, a chargeback will likely cost you money, either due to reversed funds, chargeback fees or both. Thankfully, many e-commerce payment processors offer chargeback prevention services, which help merchants to detect disputes quickly and challenge them in time.