5 Ways to Prevent Fraudulent Credit Card Use

How Online Retailers Can Reduce Chargebacks and Credit Card Fraud

Feb 6, 2010 Miranda Miller

Credit card fraud and unwarranted chargebacks are a going concern for online retailers. Learn how to prevent fraud and monetary loss with these security measures.

Loss from credit card fraud and unnecessary chargebacks are not 100% preventable. However, online retailers can take measures to make it more difficult for scammers to cheat them through online credit card purchases.

Learn to recognize the warning signs of a possibly fraudulent transaction and use the measures below to prevent it from going through or discourage the scammer.

7 Signs a Credit Card Purchase May be Fraudulent

Set alerts to monitor these types of transactions and require additional security steps before the customer may cash out:

Different billing and shipping-to addresses
Total order size far above average
An order consisting of several big-ticket items
Several orders to the same address using different credit cards
International shipping (lack of international laws makes prosecution difficult)
Overnight or same-day delivery request
Orders with several of the same item if this is unusual

It might seem counterproductive to a goal of expediting the check-out process to add extra steps; however, most consumers are understanding if the site explains that these measures are necessary to prevent loss from fraud and subsequently higher prices.

5 Online Purchasing Security Measures to Prevent Credit Card Fraud and Chargebacks

It is not necessary to add all of these extra steps to every purchase. However, buyers who set off a red flag based on the warning signs above should have to comply with one or more of these additional verification measures:

Address Verification, or AVS- This system verifies that the billing address provided matches that on record with the cardholder's bank. This does not prevent fraud if the scammer has the cardholder's address.
Credit card security code verification- Different credit card companies use different codes, but this security measure requires the buyer to enter a code printed on the card. This prevents fraud if the scammer does not physically possess the card.
Display contact information and a return policy prominently on the site and in an order confirmation email to help with fraudulent chargebacks. The onus is on the merchant to prove the transaction was valid; this helps demonstrate that a chargeback was not the only option.
Require a signature on receipt of an item, especially for big ticket products. Incorporate the cost of this shipping feature in the price of the item. This is useful in proving delivery in chargeback disputes.
Use the company name on credit card statements- Most chargebacks are a result of the customer forgetting they made a purchase, especially if the credit card statement shows a numbered company instead of a name.

Credit card fraud and chargebacks are unavoidable. Reduce loss and the amount of fraudulent transactions with extra security steps. One particularly troublesome problem is that access to an international customer base opens the door to online purchasing fraud from countries well known for these kinds of activities.

Why International Shipping is Risky for Internet Merchants

Americart.com has identified the following countries as particularly high-risk for online retailers because "the vast majority of the orders from these countries are fraudulent:"

Belarus
Estonia
Ghana
Hungary
Indonesia
Latvia
Lithuania
Nigeria
Romania
Russia
Singapore
Slovak Republic
Uganda
Ukraine
Yugoslavia

Extra red flags to alert online retailers that a purchase may be fraudulent include a lack of concern over shipping prices, a bounced back order confirmation email, or an incredibly large order in the online shopping cart, as scammers often try to get as much as they can before they have to leave their delivery address behind and move to the next one.

Reducing Loss Due to Fraudulent Credit Card Purchases- The True Cost of Online Cons

The results of a Mindwave Research study conducted for the Merchant Risk Council appeared in chart form in the March 4, 2009 issue of Practical E-Commerce. Internet merchants lost a staggering $4 billion to online fraud in 2008. This is equal to the amount total online spending increased in the same year.

Use an Address Verification System, verify credit card security codes, and consider stopping international shipping altogether if fraud losses are high. Budget for these losses each year, based on previous experience.

To learn more about different types of internet merchant fraud, see Online Scam Artists Targeting Businesses.

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Reduce Online Credit Card Fraud and Chargebacks