Manual Transaction Review Reduces Chargebacks

Reducing Online Credit Card Fraud with Manual Transaction Review

Online credit card fraud occurs when a product or service is ordered via an e-commerce website using unauthorized credit card information and cardholder identity information. Typically, the credit card number and cardholder’s personal information (name, address, etc.) have been stolen or obtained illegally. When the cardholder sees the unauthorized sale in their billing statement, it usually results in a chargeback being issued by the cardholder’s issuing bank. The merchant is liable for having accepted the fraudulent sale and must refund the sale amount, pay a chargeback fee, takes a loss on the product shipped or service provided, and has to deal with the added expense of processing the chargeback dispute.

There are many online fraud protection and verification tools available which can help reduce online credit card fraud and the resulting chargebacks and losses to the merchant. Systems like AVS (Address Verification System), CVV2 (Card Value Verification), 3-D Secure (Verified by Visa and Mastercard SecureCode), Geo-IP Address Match, and automated fraud scoring scripts, are all valuable tools in combating online credit card fraud and should be used when processing e-commerce credit card and debit card transactions. However, merchants can often increase protection against fraud by conducting manual transaction reviews prior to authorizing or capturing sales.

In many ways, merchants have the capability to be their own best fraud protection and can quickly become adept at spotting fraudulent transactions simply by quickly reviewing the details of an online credit card sales order. Depending on the number of transactions per day, it may not always be feasible to manually review each and every order. Merchants with high transaction numbers might want to only escalate orders to manual review that fail one or more of the system checks or have a high fraud score on an automated script. Some level manual review should be a part of every merchant’s anti-fraud policy.

Things to look for when manually reviewing an online credit card transaction for fraud:

Time of Purchase

Always compare the time of purchase to the time zone of the billing address on the credit card. Purchases occurring at odd hours or outside of regular business hours can be an indicator of fraud. Nobody knows the business better than the merchant. Do customers normally order from the website at 3am? Does the website marketing strategy make it likely that the a customer would even be able to find your site at that time? Purchases made at hours when it would be assumed that the cardholder would be asleep or not shopping could mean that the sale is not authorized.

IP Address

Always compare the IP address of the computer from which the order was placed to the billing address on file for the credit card. When the IP address is located in a different country or in a country known for generating online fraud (Vietnam, Malaysia, Nigeria, etc.) it is likely that the sale is unauthorized. Any time the IP address is different from the billing address, it is cause to investigate further. Compare it to the time of the order. If it’s in the same city, then the cardholder could have ordered from work, but not if the order came in at 3am, etc. If its in a different time zone, could you expect that the cardholder would be awake, etc.

Shipping Address

Any time the shipping address does not match the billing address of the credit or debit card, it is an indicator of potential fraud. If the shipping address is located in a different country or in a country known for generating online fraud (Vietnam, Malaysia, Nigeria, etc.) it is likely that the sale is unauthorized. If the shipping address varies greatly from the billing address (card bills to an address in Maine, and they want the product shipped to Arizona), then it is cause to investigate further. Always call to confirm the order when the shipping address does not match the billing address.

Missing Contact Information

When an online order omits contact information like phone number, email address, middle name or middle initial, it is an indicator that the order could be fraudulent. Always call to confirm orders with missing information.

Sale Amount

Transactions with unusually high sales amounts should always be reviewed and called to confirm the order. The objective of the fraud can often be to obtain as much or as high a value of product as possible in one or a single order. This is particularly true of small items that are high value and easily re-sold, like electronics or jewelry or auto parts. Transactions with very small sales amounts should also be scrutinized. Merchants with very small ticket sizes for memberships or downloads can often be targeted by testers trying to test stolen credit card numbers to see if they can get a sale to go through with the information they have available before moving on to a higher value purchase.

Know Your Customer

Merchants can often identify fraud by comparing the details of a suspect transaction to what they know about their legitimate customer base. Would a woman named Edith living in a rural area normally buy your product or service? Does a customer in a warm climate usually need $5,000 worth of winter camping equipment? If the profile does not match that of a typical customer, then always call to confirm the order.