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Innovate Now: Prevent Online Fraud & Maximize Revenue This Holiday Season (MAG Quarterly- Volume Six, Issue Four)

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By Brian Radford, Director of Marketing, Chargeback Gurus

December 6, 2018

Online fraud is a significant and growing threat for businesses, especially during peak holiday season, when merchants can face up to three times more fraud than normal. This can be devastating to your bottom line, business reputation, and can even hurt your customers. That’s why prevention is so important.  

Merchants today must make every effort to detect and avoid fraud, while being careful not to overzealously decline legitimate transactions or allow the costs of fraud prevention to harm profitability.

Finding this delicate balance can be challenging for most businesses, who may feel worried or overwhelmed that prevention can be tedious and expensive or may lower sales. While these are valid concerns, merchants can now feel empowered to fight back against fraud and chargebacks effectively, without having to worry about time, resources or expensive tools.

Types of Online Fraud
Fraudsters are creative, especially during the holidays. There are a variety of different ways to perpetrate credit card fraud online, and new schemes and techniques seem to crop up every day. Nevertheless, most fraud will fit into one of five different categories:

  • True Fraud: This refers to using stolen credentials—either identity theft or a credit card number—to make a purchase online.
  • Friendly Fraud: This is when a customer makes a legitimate transaction but then disputes the purchase with their bank, gets their money back via chargeback, and keeps the goods or services they purchased.
  • Phishing (Account Takeover Fraud): This refers to a variety of techniques used to gain access to other people’s personal accounts, such as an online store where they can use stored payment credentials to make purchases.
  • Refund Fraud: This is when a criminal purchases something with a stolen credit card, then returns it to the store for a refund to a different account, or for cash or store credit.
  • Card Testing: This occurs when a cyber thief “tests” a stolen credit card number to make purchases. This is particularly dangerous for merchants, who might get hit with separate chargebacks for many small purchases, incurring fees for each one.

Steps to Take to Prevent Online Fraud
Every type of fraud has strategies and tools that combat them most effectively. Coming up with an overall fraud prevention plan requires understanding what types of fraud are happening most often, what your biggest vulnerabilities are, and how the prevention methods you’re considering will affect the overall financial health of your business.

Here are some in-house strategies and external tools you can use to combat online fraud this year.

In-House Strategies

  • Activate AVS and CVV matching features in your payment gateway
  • Review orders that request rush or overnight shipping manually before fulfilling them, especially if they have different billing and shipping addresses
  • Trace IP addresses to identify the geographic origin of suspicious transactions
  • Flag orders that are unusually large, multiple orders from the same customer, and unusual international orders for review
  • If you have a suspicious order, call the customer to verify their phone number, email and physical addresses
  • Use an order management system compliant with the Payment Card Industry Data Security Standard to store order information
  • Make sure your merchant descriptors are easy for customers to recognize on their bank statements
  • Set realistic expectations about your products and/or services in your marketing materials
  • Maintain honest and ethical business practices
  • Provide friendly, easily accessible customer service
  • Blacklist customers who file chargebacks
  • Fulfill orders on time and track return shipments
  • Notify customers when you process their order
  • Have a rigorous, reliable process for identifying and fixing merchant errors

External Tools

  • Artificial intelligence and rule-based fraud prevention tools
  • Order insurance service
  • \Address verification tools
  • Email validator tools
  • Frictionless 3D Secure 2.0
  • Reporting tools that can analyze and identify chargeback root causes
  • Third-party chargeback management companies
  • Order management software that can flag/block problematic customers
  • Network Proprietary Tools
  • Chargeback prevention alerts

Fight Fraud, but Get Help If You Need It
When it comes to online fraud, it’s not just the lost product and incorrectly declined transactions that can cost merchants cash. The chargebacks that follow fraudulent purchases can also cost businesses millions. From the actual lost sales themselves to the chargeback fees, resources spent fighting the chargebacks and looming threat to merchant accounts, chargebacks pose yet another significant financial risk to online retailers.

That’s why prevention of fraud, as well as the chargebacks that come with them, is crucial to operating a financially healthy business. While some businesses may be able to handle prevention in-house, others may find it more beneficial to call in the experts and hire a chargeback management company. The main advantages of outsourcing chargeback management are access to expertise, 24/7 availability, and comprehensive reporting that can help you understand your business vulnerabilities.

No matter what option you choose, fighting fraud and chargebacks will continue to be an evolving process. The best thing you can do is stay educated, understand the threats you’re facing, and make every effort to protect your business and profits, especially during the peak holiday season.

If you plan to fight back against fraud this year, be sure to download a copy of An Introductory Guide to E-Commerce Fraud Prevention for tools and strategies used by leading merchants to combat fraud and increase profitability.

Brian Radford is the Director of Marketing at Chargeback Gurus, an industry leader in chargeback and fraud mitigation services. He may be contacted at