Manual Methods Of Reducing Chargebacks and Fraud Transactions

Credit card fraud in 99.9% of cases results in a chargeback case. Chargebacks are the cause of serious expenses and fund losses, eventually – bankruptcy, bad credit card processing history, terminated merchant files, etc.

Reducing fraud online credit card transactions is no easy job for an e-Commerce merchant. One could use automated methods of reducing fraudulent transactions, initiators of 90% of chargeback cases, but automation does not guarantee full anti-fraud protection as ‘robots’, i.e. script code and special software, cannot predict human behavior. There are many advanced systems of automatic fraud protection, but these are expensive and cannot really be depended on, though they prove to be of the greatest help to an e-Commerce merchant as a supplement to manual e-Commerce credit card processing fraud and chargeback reduction.

We will go dig deep into the most effective method of reducing chargebacks by preventing fraudulent orders on e-Commerce websites by simply analyzing the order information.

First of all, knowing the nature of online credit card fraud is the key element in knowing how to fight it. The psychology behind credit card fraud is one of the most important things e-Commerce merchants should know when using manual methods of reducing fraud by analysis.

The ‘Anarchist Cookbook’ contains a chapter dedicated to online and MOTO (mail order/telephone order) credit card fraud.* This chapter reveals the ins and outs of cheating e-Commerce merchants online, by mail and phone/fax. The psychology of carders and fraudsters should be studied thoroughly in order to secure your business. We’re going to provide a summary of Chapter 2: ‘Credit Card Fraud’ for the sole purpose of informing the e-Commerce merchant on the basic tricks and psychology behind credit card processing fraud. (Please read the disclaimer at the bottom of this article.) The summary will have bold commentaries with tips and hints on how to reduce the chance of fraud transaction while processing credit cards online using an e-Commerce merchant account.

This guide is divided into 5 simple steps: Gathering Information, Recognizing Information, Testing Credit Card, The so-called Drop, and Making a Transaction. Each step can be used informatively by the e-Commerce merchant as it directly affects the facts that shall later on be used upon analyzing the order information. So here we go…

The information gathering is the hardest part of a fraudster’s plan to order online using a stolen identity and a stolen card. The credit card number is the most vital piece of information that can be used to cheat e-Commerce merchants online and MOTO services. [Keep customers credit card numbers securely stored in a password protected database to prevent online spoofing (the gathering of information by intercepting and reading internet data transmissions).] Credit card numbers are gathered in many ways, and spoofing off an e-Commerce merchant’s credit card processing gateway is one of them. The next step for a fraudster would be to gather personal information on the cardholder. This may be accomplished by digging in phone directories, internet directories and resources, etc. [Make sure that your e-Commerce website is 100% secure and that all order forms along with cardholders’ details are SSL 128-bit encrypted before data transmission. Always advise your customers not to leave their personal information and credit card information ‘lying about’ in the Internet. Most of today’s credit card processing gateways have automated AVS (address verification system), which excludes the possibility for a fraudster to provide fake credit cardholder address details.]

The recognition part does not affect an e-Commerce merchant. The fraudster’s success depends on how well informed the he/she is.

Testing the credit card involves a process called ‘bogus’ or ‘test’ order. The fraudster engages into an online credit card transaction and either cancels it or orders something irrelevantly cheap to a fake shipping address. This is done in order to test the functionality of the stolen card. [e-Commerce merchants should be extra attentive to a credit card number or pseudo-cardholder that tries to buy something really cheap, including stickers, VoIP balance for $1.00, etc. Such orders should stick out and it is up to the e-Commerce merchant to verify whether the payment has been authenticated and authorized by the original cardholder by contacting him/her. This will also help the cardholder report his stolen credit card information in time. Interrupted transactions can also be an early warning sign. If a much more expensive order is placed by a cardholder who had placed and cancelled a transaction a few minutes earlier should be thoroughly investigated. If a potential fraud transaction owner calls you by phone or contacts you ask as much information as possible, that will ‘scare’ him/her and make him/her less determined to ‘filch’ from your e-Commerce resource.]

Step four – referred to as the ‘Drop’ denotes the location for receiving the shipped package that is safe for the fraudster, arousing no suspicion. This always differs from the shipping address unless a fraudster plans to intercept merchandise directly, which is quite impossible. [Different shipping address should always arouse incredibility when approaching fraudulent online credit card orders. As soon as such an order is pending it is recommended to contact the cardholder to verify the authenticity of the order.] Now, when it comes to services fraudsters have an advantage because services are not shipped and delivered. [e-Commerce merchants selling software licenses might want to compare the software registration details to the order details. Other tricks can be used when handling other e-Commerce provided services online.]

The final step is the transaction. Fraudsters usually choose the fastest shipping method, usually the most expensive one. [This fact should be a cause of concern. e-Commerce merchants are advised to contact the cardholder in such cases.] Fraudsters are not advised to order anything over $500, but anything less than $200 is usually not considered. [Order values of more than $500 should be verified immediately.] Online orders are usually placed deep in the night between 2 AM and 6 AM. [Such orders should arouse suspicion, but e-Commerce merchants should bear in mind time zone differences.]

That’s about it. It is important to keep in mind THE NUMBER ONE RULE: ALWAYS VERIFY ONLINE ORDERS BY CONTACTING CARDHOLDERS. e-Commerce merchants will get the feel of fraudulent transactions after successfully detecting, intercepting and cancelling a fraudulent transaction. Remember, knowledge is power – your power to keep your e-Commerce revenues safe.

* Please note that GSPay.com, being an e-Commerce merchant account provider, is in no way encouraging credit card fraud. The information in this article is provided for the sole purpose of detecting and fighting online credit card fraud more effectively which remains one of the main interests of our credit card processing company – protecting our clients.