Fraudulent payments and chargebacks are a real problem for online merchants. Fortunately, there are many simple and automated ways to reduce fraud risk. eCommerce merchants who develop strong fraud prevention practices can minimize their losses, making it a manageable cost to do business online.
Here are some simple ways you can detect and prevent fraud:
Decide what payment methods you will accept.
Contrary to belief, not all payment methods are equal in terms of risk when it comes to cardholder vs. merchant. Some payment methods (like AMEX) tend to be in favor of the cardholder when it comes to disputes. Other payment methods are more relatively more merchant-friendly in disputes. Some even have seller protection using shopper verification and other techniques to further prevent loss of profit and detect fraud. As an online merchant with fraud risk, choose the methods that best suit your practice.
Use Card Verification Codes
There is your function on your eCommerce website payment methods that require the customer to enter the CCV2 code on the back of their credit card for all purchases. The code is not stored in the magnetic strip, making it difficult to purchase without the physical card. The EMV chips cards continue to these codes as well.
You can implement this security measure by navigating System > Configuration, scrolling to Sales in the left-hand column, selecting Payment Methods and selecting the Payment gateway used for your website. Then you can set the Credit Card Verification field to "Yes" or "No" like as shown below:
‘Authorize only’ in Payment Methods
Usually, the merchant is liable for chargebacks and fees as a result of capturing funds on a fraudulent order. By using the gateway setting ‘authorize only’, you can inspect each order for signs of fraud before manually invoicing the order, which then captures the payment and allows the order to be shipped. Not all payment gateways offer this, but our most-recommended gateway, authorize.net does offer this option. ( **NOTE: The merchant is responsible for invoicing the orders and MANUALLY invoicing them, otherwise, the payment will not be captured and the order will not be shipped.)
Learn to configure these settings Here.
Map the shopper’s addresses
As the merchant, you know the shopper’s billing and shipping addresses. You can use google maps to see the location, satellite view or even street view. This can help you identify if the address is indeed related to the customer and allow you to see if the address is residential or commercial.
Call the shopper
As part of the normal checkout process, customers are required to enter their phone number, which is then stored in your system. Even if the customer is not registered to your site, you can still see this information on the Orders page when selecting a specific order. If an order looks risky, call the shopper. Ask for the customer by name. Can you get through? Who answers? Is the number legitimate? This can also help build customer relations, as it shows that you are an involved merchant and care about the services or products that your customer is purchasing.
Critique the billing and shipping addresses
Many legitimate orders have different billing and shipping address, especially during holiday seasons. Card thieves, however, overwhelmingly use a different shipping address than the billing. If the orders are high dollar risks- critique these orders closely. You can take a very conservative step toward fraud prevention by requiring the shipping address to be the same as the billing address. Keep in mind this could limit your online sales and increase abandoned carts, but the option is available.
Learn how to configure these settings Here.
One of the most important tools is YOU, as the merchant. Develop an individual awareness and intuition about the online orders you receive. Use a critical eye and a practical mind. If an order looks suspicious but you’re not sure, even a second opinion helps.
Don’t be afraid to say ‘No’
While you may not want to miss out on making a sale, you could end up being the real loser if you ship a fraudulent order. If you suspect the order is fraudulent, it is okay so say “no” and cancel the shopper’s order. It is recommended to do whatever research necessary before canceling a customer’s order, even if it means reaching out to the customer yourself to verify the authenticity of an order. Look for the all the clues mentioned above, if you feel it in your gut and the data suggests fraud, you can politely decline the business.
Contact your payment gateway
Some payment gateways, like Authorize.net, offer additional services when it comes to fraud protection. It never hurts to contact the payment gateway that you are using and explore what, if any, fraud protection services.
These are just a few practices and tools you can use to reduce online fraud risk. Fraud will be an ever-growing battle, especially for online merchants. The fraudsters keep changing their tactics but technology is changing with them, and there is technology available and expertise to mitigate the risks. If there are techniques at your disposal to prevent fraud, utilize them!