fraud

Chargebacks are like nasty vermin of the business world.  They sneak in undetected and wreak havoc among your finances.

Perhaps you’ve already experienced one – or more – of these unpleasant situations.  If so, you know how frustrating it is; you have to refund the “customer’s” money, pay a fine to the credit card processor, potentially damage your future reputation with the processor, and on top of all that – you probably won’t get the original product back!

One of the main instigators of chargebacks is fraud (the other is faulty customer service).  Unfortunately, there isn’t much you can do about “friendly fraud” – customers who claim they never received the product when they actually did.  But there are, fortunately, several things you can do to detect and prevent actual fraud.

Tools That Help Prevent Fraud

There are four tools a business owner can – and should – implement to prevent fraud.  This will help weed out some of the more armature criminals and help verify purchases when the card is not present.

1. MasterCard SecureCode

Both MasterCard and Visa help merchants take extra precautions against fraud.  MasterCard has instigated the SecureCode – a code that helps verify the actual cardholder.  The purchase won’t be completed if the customer doesn’t enter the code or enters it incorrectly.

2. Verified by Visa

Take advantage of the Verified by Visa screen.  This extra step is added to the purchasing process after the customer clicks “buy.”  Customers will have to enter a prearranged password to verify their identity.  Like the MasterCard SecureCode, the Verified by Visa is a real-time authentication.  You don’t have to wait for a verification report.

3. Card Verification Value

By now, most people are aware of the three digits printed on the signature panel of their credit card – even if they are unaware of the name of the code.  By requesting the CVV2, a merchant is one step closer to verifying the purchase is made by the actual cardholder.  At the very least, the CVV2 ensures the card is actually in hand, and the account number hasn’t simply been stolen from another location.

4. Address Verification Service

When you submit a transaction for verification and authorization, ask for an AVS.  The issuing bank will verify the billing address listed on the order matches the cardholder’s registered address.

Indicators that Help Detect Fraud

While the above mentioned tools can help prevent fraud, professional criminals can still slip through the cracks.  Be mindful of the tips Visa has issued to merchants, helping them detect potential fraud.

  • New customers are great.  However, they also come with a certain risk.  Criminals are always looking for a new mark.
  • Big orders mean lots of profit.  However, that profit potential isn’t just for you.  A criminal might place a large order, hoping to score some serious profit potential in a short amount of time.
  • Normally, you might simply shake your head at quirky order – like ones that include several variations of the same item.  However, this is a strong indicator of fraud.  The more varieties the criminal has to offer to “customers,” the better the chance of earning a buck.
  • Big ticket items have a maximum resale value.
  • Rush or overnight shipping is something else to watch out for – especially if the shipping is already higher than normal.  The criminal wants to make money fast – the sooner the better.  They aren’t paying the extra shipping fees, so why do they care what it costs?!
  • Watch out for several transactions that come in close together and contain similar account numbers.  This could mean the criminal has stolen a batch of account numbers via hacking software.
  • Are there multiple orders – placed on multiple cards – that are being shipped to the same address?  Those could be fraudulent charges.
  • Criminals will try to “run a card” before the fraud is detected.  They might place a bunch of orders in a short period of time.
  • Be cautious of multiple orders that all use the same card number, but ship to different addresses.
  • If a criminal has access to a variety of stolen cards, he or she might sit at the same computer and place several orders.  Therefore, watch out for multiple orders placed from the same IP address.

Chargeback management is essential for businesses – both large and small.  If you don’t get your chargebacks under control, you run the risk of losing your credit card processor.  If your account is terminated, you won’t be able to secure another.

Take the necessary steps to detect and prevent fraud.  This is one of the best ways to reduce the number of chargebacks your business endures.  Be mindful of who the people are that make purchases with your company, and do all you can to sell to qualified customers.

Image courtesy of http://www.flickr.com/photos/dunechaser/.