Merchant concern about online credit card fraud and
chargebacks is rising at a significant rate. According to the
2001 Online Fraud Report, conducted by Mindwave Research, it
revealed that, “41% of merchants say the issue of online
credit card fraud is ‘very serious’ to their business.” As e-
commerce continues to flourish the number of instances of
credit card fraud and chargebacks will continue to mount
higher. It should go without saying that the need to take
certain measures to reduce and virtually eliminate
chargebacks and fraud is certainly paramount.
Here are some ways you can greatly reduce the instances of
chargebacks and fraud, even potentially eliminate the risk
#10 Interactive Voice Response (IVR) Terminals
IVR Terminals, developed by VoiceStamps
http://www.voicestamps.com, are a relatively new solution
that greatly reduces chargebacks and fraud by collecting a
“voice stamp” or voice authorization and verification from the
customer before the merchant ships the order. The voice
recorded order verification is then automatically e-mailed to
the merchant for filing in the event the customer tries to
dispute the charge on their account.
#9 Collect CVC2 and CVV2 Verification Numbers
This tactic alone can not only reduce instances of chargebacks
by 26%, according to Visa, but also reduce any pass-through
fees that may be charged when a credit card order is
conducted. On the back of MasterCard, most Visa and
Discover credit cards is a 3-digit security code located right
after your credit card number. Requiring customers to give the
3-digit code acts as an additional verification measure.
American Express cards also have a similar security code that
is located on the front of the card right above the cardholder’s
account number and is usually 4-digits long. Most online
payment processors support entering the security codes when
processing credit card orders. Check with your payment
gateway provider (i.e. Verisign, Authorize.Net, ECHO Inc., etc)
#8 Use Address Verification System (AVS)
AVS checks to ensure the address entered on the order form
matches the address to where the cardholder’s billing
statements are mailed to. People ordering products and/or
services using a stolen card number will never use the real
cardholder’s billing address, so this is your chance to stop the
order before it’s too late. AVS only works with orders
conducted in the US. Failure to use AVS when processing
credit card transactions will always result in paying higher
credit card processing fees.
#7 Scrutinize orders from developing foreign countries
A large percentage of fraudulent Internet purchases are made
from Indonesia, Russia, and other eastern block or developing
countries. Accept orders from such countries at your own risk
until a worldwide AVS system is developed.
#6 Let customers know what name will appear on statements
Many merchants who use 3rd Party Processing companies have
run into problems because the company name that appears on
cardholder’s monthly statements is usually the name of the
3rd party processing company and not the company name of
the site the cardholder made their purchase from. This isn’t
always the case, but in many cases it is. If you use a 3rd
party processor, and even if you don’t, make sure the
customer knows what name will appear on their credit card
statement at the end of the month. This will help to reduce
any confusion that might would otherwise occur.
#5 Handle suspicious orders accordingly
If an order seems suspicious the best way to handle the
situation is to either call or e-mail the customer and attempt
to verify that they placed the order. As a rule of thumb, if in
doubt, check things out. It may be a good idea that if a
customer makes an unusually large volume purchase from your
site to follow-up with a verification call. This is where a
system like IVR terminals, previously mentioned above, can
come in very handy.
#4 Watch out for orders using free e-mail addresses
Be wary of accepting orders from people who used a free e-
mail address when ordering (i.e. Hotmail, Yahoo, etc.).
Tracking people who used a free e-mail address is almost
impossible, it’s much easier for them to get away then if they
used their Internet Service Provider (ISP) or their own
company web site e-mail address. To check whether an e-
mail address is a freebie or not just take the part of the
address after the “@” symbol, add “www” to the front of it and
see what website it brings up (i.e. email@example.com =
#3 Signatures on delivery
If your business delivers products use a carrier that requires a
signature on delivery, and allows you to have a copy of the
signature. Retain these for your records.
#2 Request fax copies of ID and credit card
You may want to request your customer to fax a copy of both
sides of their credit card and driver’s license. This tactic
usually works best in a B-to-B (business to business) sales
environment. While this is not a defense under Visa or
MasterCard rules, it is yet another way to deter fraud.
#1 Posting a warning message
Taking the time to post a warning message on your order
page to those who may attempt to make a fraudulent order
will greatly deter the number of instances of fraud. Be sure to
mention that IP (Internet Protocol) addresses are being
logged. IP addresses can come in handy when locating people
about fraudulent orders.
Taking measures to deter and eliminate fraud and chargebacks
from occurring are a necessity in order to operate a successful
online business. Each day companies dedicated to risk
management are developing solutions to provide merchants,
like yourself, with extra protection because of the financial
burdens chargebacks and fraud can bestow if ignored.
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