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How To Detect Fraudulent Activity on Your Merchant Account

Credit card fraud is on the rise as thieves develop even more inventive ways of stealing financial data for unauthorized purchases. The introduction of EMV credit cards is helping to prevent fraudulent activity within brick-and-mortar retail environments. However, in the online world, the security features that come with these chip-enabled cards offer limited protection.

As a result, experts predict that Web-based credit card fraud could reach $6.4 billion by 2018.

Some payment processors offer fraud protection to help limit your liability. Though a far more cost-effective solution is to prevent credit card fraud from happening in the first place. Because even when charges are reversed, you still pay a price in terms of:

  • Lost time
  • Extra paperwork
  • Diminished consumer confidence

These hidden costs are sometimes three times more than the dollar amount of whatever fraud took place.

Below are some best practices you can adopt to limit the amount of fraud that occurs within your payment environment:

1. Basic Fraud Detection Steps
"Card not present" transactions are the norm in e-commerce. You simply have to trust that the true holder of the card is authorizing each transaction. However, you can still ask for information that potential hackers might not have, including:

Address Verification
In addition to the 16-digit credit card number, you should also request a working address for each transaction. More specifically, you should verify the following:

  • Does the billing address match the contact information provided by the card-issuing bank?
  • Is the customer trying to use a different shipping address (if ordering physical items)?

Card Verification Value (CVV)
Most consumer credit cards come with a three or four-digit value that allows you to verify whether the card is truly present. Don’t authorize any transactions unless the customer can provide the correct CVV code.

2. Country-Specific Transactions
With more advanced payment processing solutions, you can use country-specific IP filters to block or accept certain transactions:

Geo IP Tracking
This option allows you to automatically reject transactions from whichever countries you choose. For example, you can eliminate all purchases made from France, Japan or Canada.

Card Issuing Country
With "card issuing country" filters, you have even greater control. This feature allows you to only accept a payment if the card was issued in countries that you specifically select. For example, your account only allows purchases made with French, Japanese or Canadian credit cards.

3. Advanced Fraud Detection Features
There are times when thieves do have the right address and CVV code, and using proxies, they can circumvent traditional IP-detection.

This is when you need to rely on more advanced security features:

Negative Database Security
Similar to spam detection, negative database security allows you to match each transaction against a list of high-risk card numbers and contact information.

Quotas and Thresholds
Set up your payment environment to only accept transactions above and below a certain amount. Anything outside of this range automatically gets rejected.

Unusual Buying Patterns
Limit the number of transactions that can take place within a certain timeframe. With some "velocity" filters, you can even flag certain IP addresses and dollar amounts to gain more control.

Paused Transactions
Using a variety of filters, you can automatically put a hold on suspicious transactions. This is particularly useful for big-ticket items — especially when dealing with conveniently round numbers. Don't let these transactions go through until you've had a chance to contact the cardholder directly.

Looking for More Fraud Detection Tips?
At BluePay, we specialize in online payment security. With our advanced processing solutions, we can help you detect and prevent online fraud before it happens.

To learn more, schedule a free appointment with our payment security team today.

Topics: PCI Compliance and Fraud Prevention

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