Minimising Credit Card Fraud - For Online Retailers


by Rod Bland - Date: 2007-01-19 - Word Count: 1022 Share This!

Well organized criminal organizations steal credit card numbers in many different ways (virus programs especially) and use these numbers to purchase goods from Internet retailers using stolen Internet accounts or through anonymous proxy servers.

Often these transactions go unnoticed by the real cardholder until they check their statement which may be some months after the transaction occurred. These gangs arrange for the goods to be delivered to temporary addresses which are swiftly vacated after a couple of weeks to avoid authorities.

Once the cardholder discovers the transaction, they will lodge a claim with their bank to have the transaction reversed. You as the merchant will have no choice but to allow the bank to reverse the transaction and ultimately you will lose that money.

If your dream is to work for yourself in your own business, and that business consists of consumers paying for your goods using credit cards over the Internet, then beware.

I have been in business on the Internet for a few years now. One of my businesses is an online store selling memory products at www.ramcity.com.au. Over the years I have been caught out a few times, resulting in losses close to $2000 in total. I've been one of the lucky ones and fortunately through careful diligence I haven't encountered any incidence of fraud in over 12 months now.

Here is what I have learned about preventing fraud if you own an online business:

1. Be VERY suspicious of anyone who places an order and provides a free email account with their contact details. Of every fraudulent transaction I have had, they have all provided email accounts with hotmail.com or yahoo.com, or fastermail.com addresses.

2. If you do get an order and someone provides a free email account address, check the whitepages or phone directory to see if the address is listed. If it's not then give them a call to confirm they placed the order. Often times if I can speak to someone on the phone and ask them to confirm their credit card CVV code I will be satisfied that the order is legitimate. If they are at all evasive then I insist they fax a copy of the credit card statement and their drivers license so you can check the credentials. If the order is bogus it's likely that you will have been provided a false phone number anyway.

3. Some credit card gateways such as Eway now have the facility to identify the Bank and origin Country that issued the credit card. This is handy as you can ask the person placing the order which bank issued their credit card. It's unlikely that they will have this information if they are using a stolen card number.

4. Always send confirmation emails back to the email address provided in the order. If a crook uses an email address that belongs to someone else, there is a chance that the real owner of the email account will email you back saying that they know nothing about the order.

5. Never deliver goods to P.O. Box addresses, especially if you deal in electronic products. Always deliver your goods using a courier, with the requirement that someone must sign for the order. This may be a pain for some of your customers, but doing this alone will eliminate a lot of fraud straight away. Many criminals will establish a PO box in a false name for a month, have goods delivered to it, and then disappear with no way of tracing them.

6. If you are an Australian retailer, think long and hard about doing business internationally. If you retail "real" goods like computer equipment or electronics that are easily resold on the black market, you will be targeted by fraudsters. If you sell software or other "soft" products, then sell internationally if you want to, but expect to write off a certain amount of business due to fraudulent transactions from orders placed with stolen credit card numbers. Alternatively you could require international purchasers to always pay by direct deposit.

7. Assume that every order you receive is potentially fraudulent. Look for poor spelling, the use of all lower case in names, false or disconnected phone numbers, and especially free email accounts.

Here is what you can do if you think you have received an order that is fraudulent:

1. If you have a real-time credit card clearing facility then the money from the order would normally be deposited to your bank account the next day. In my opinion you should cancel the order and reverse the transaction immediately. Personally I always store or pre-authorise the transaction so that I can manually inspect the order before processing it. This saves you on accounting hassles down the track with managing reversals and refunds, as you can simply cancel the transaction if it's fraudulent.

2. Call your merchant bank or credit card authorisation centre to report as much detail about the order as possible. Here's the kicker: the bank wont provide you with any information about the transaction to confirm if the name of the cardholder matches the card number because of the Privacy Act. If the bank is satisfied the transaction is fraudulent they will report the card as stolen so that any further transactions posted to it will be rejected.

3. If you are unfortunate enough to receive a chargeback notice from your bank due to a fraudulent transaction then report the matter to the police as soon as you find out. The best place to do this is at your local police station. Provide them with a copy of the order, the transaction details from your credit card clearing gateway, the IP address from your weblogs, the time and date of the order, the signed consignment note, and anything else you have, including details of reversals, and the contact details of the person who you reported the matter to at your bank.

Be aware that if the transaction was for a few hundred dollars it is going to be a low priority matter for the police, but don't let this put you off. If everyone reports any cases of fraud then someone may recognise a pattern and possibly catch one of the bad guys.


Related Tags: credit, online, risk, fraud, card, retailing, stolen

Rod Bland is a Technology and SEO Consultant who owns several websites. Visit our site to learn more about how we use technology to improve business performance.

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