5 Ways to Reduce Online Card Fraud

5 Ways to Reduce Online Card Fraud

Online payments are classed as remote purchase or cardholder-not-present (CNP) transactions because you cannot physically look at and check the card or cardholder.

The anonymity of remote purchases means they are significantly more susceptible to fraud and, while online security is getting better, remote purchase fraud is steadily increasing as online sales continue to balloon.

Since online retailers are liable for losses from fraudulent activity, this trend is especially worrying.



£398.2 million

Remote purchase losses on UK-issued cards [Source]


20%

Year-on-year remote purchase fraud increase [Source]


70%

Of all card fraud is remote [Source]


Whether you manage an established multinational or a cash-strapped startup, card fraud is a disruptive waste of your time and money.

Unfortunately, when it comes to remote purchase fraud, the liability falls on you, the seller. It’s up to you to prevent as much fraud as possible and deal with any cases that slip through the cracks.

 

CardSwitcher Top Tips

A good fraud prevention plan doesn’t have to be super complicated nor does it have to take up days of your time.

Below are five simple tips you can implement to protect your business from fraud.

 

#1: Compare the billing address and delivery address

One of the most common fraud red flags is a disparity between billing address and delivery address.

While there are legitimate reasons for those addresses to be different, it’s pretty unusual to have something delivered to Botswana when your customer’s card is registered in Brighton.

There are several commercial anti-fraud services that automatically compare billing and delivery addresses and warn you of dubious orders as they come in. Alternatively, if you would rather not shell out for a third-party service, you can compare the details on orders details manually and hold back suspect dispatches.

If you suspect an order is not legitimate, contact the buyer directly and have them confirm key details like items purchased, their name and the shipping addresses.

 

#2: Consider using 3-D Secure checks

Originally pioneered by Visa under the name Verified by Visa, 3-D Secure is a security protocol that sits on top of online card payments. Most networks offer a similar protocol, for example, MasterCard’s SecureCode and American Express’ SafeKey.

A study from Ingenico showed just 29 percent of EUR transactions in the UK used 3-D authentication.

3-D Secure automatically runs after a user has entered their card details and typically require the user to enter in another password to authenticate their card. If the password entered is wrong, the order is rejected.

When introduced, 3-D Secure got a bad reputation for high levels of shopping cart abandonment as customers were frustrated with too much security and often couldn’t remember their own password.Nowadays, the card issuing bank decides which transactions will be asked to provide the 3-D Secure password based on the risk profile of the transaction. Factors such as value of goods, is it from a merchant the cardholder has purchased from before and time of transaction (does it fit with cardholder’s normal shopping habits) are all taken into account. In the UK, less than 5% of transactions where 3-D Secure could be applied are actually subjected to 3-D Secure checks. This refinement has led to abandonment rates dropping significantly. In certain countries 3-D Secure has been proven to actually improve abandonment rates because it increases user trust in your website.

Nowadays, the card issuing bank decides which transactions will be asked to provide the 3-D Secure password based on the risk profile of the transaction. Factors such as value of goods, is it from a merchant the cardholder has purchased from before and time of transaction (does it fit with cardholder’s normal shopping habits) are all taken into account. In the UK, less than 5% of transactions where 3-D Secure could be applied are actually subjected to 3-D Secure checks.This refinement has led to abandonment rates dropping significantly. In certain countries 3-D Secure has been proven to actually improve abandonment rates because it increases user trust in your website.

This refinement has led to abandonment rates dropping significantly. In certain countries 3-D Secure has been proven to actually improve abandonment rates because it increases user trust in your website.

 

#3: Restrict declined transactions

While it is relatively inefficient, brute-force fraud tactics will eventually succeed if they have enough time. Malicious fraud software can run every minute of every hour of every day, tediously trying out every credit card number in existence.

These tactics will eventually chance upon a successful match of card number and details.

The easiest way to block this type of fraud is to limit the number of declined transactions before you ban the user.

 

#4: Check IP address geolocation

Geolocation services usually work alongside address comparison tools. Unlike address comparison tools, these services use each user’s IP address to identify their exact location and compares that information with the registered address of the cardholder.

Once it’s got that information, the services can work in one of two ways.

One, it draws a radius around the registered address of the cardholder. If an order is placed from outwith the radius, it flags the transaction for you to check. Two, it blocks orders placed in ‘high risk’ countries or countries that you do not ship to.

 

#5: Challenge chargeback

Some chargebacks are lodged legitimately to challenge transactions. However, many are filed fraudulently by customers who have received goods or services but simply don’t want to pay.

This is also known as friendly fraud.

A whitepaper from Global Risk Technologies suggested 86 percent of all chargebacks were placed fraudulently.

Once a customer initiates a chargeback, the issuing bank forwards the disputed transaction to your acquiring bank. This effectively reverses the sale and the cardholder’s account is credited with the value of the transaction. Your account has the funds from the transaction frozen.

At this point, you are permitted to argue your case to the acquiring bank and prove that the disputed transaction is, in fact, legitimate.

All banks will have slightly different appeal systems so it’s essential you follow their rules to the letter.

If you prove your case and win the dispute, the acquiring bank will repay you for the transaction.

 

Your anti-fraud advice

How do you prevent online card fraud in your business? Let us know in the comments below!

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  • This blog is very nice!! Thanks for sharing.