Avoiding Fraud


Any person experienced in e-commerce knows that building an online business takes a lot of work. Nothing can be worse than seeing all your hard work lost through credit card fraud.

Before the onset of e-commerce, credit card companies preferred not to give merchant accounts to companies that were deemed mail order/telephone order (MOTO) companies. Trying to get any cooperation or help from Visa or MasterCard was like trying to get blood from a stone. American Express was better: They took the side of the merchant first and the cardholder second. Not so with the other cards. If a MasterCard or Visa card holder had a problem with a mail order company, that company was deemed guilty until proven innocent, and the business had little or no recourse in getting its moneyor even its productback.

Times have changed. Today, Visa and MasterCard actively promote the use of their cards online. And for good reason: There has never been a recorded incident of an individual having a credit card stolen while being securely transmitted over the Net. In fact, there is more of a risk having your credit card number stolen offline than online. Although policies are in place to protect the credit card holder, the credit card companies have neglected to protect the merchants from the consumers. Unfortunately, there still is no protection. You bear the responsibility of protecting yourself. The merchant paysnot the customer.

But why doesn't your bank protect you against fraud? Because your merchant agreement with them says it can't. It's that MOTO thing again. Transactions by merchants on the Net fall under the heading of MOTO. Most credit card merchant account agreements leave you, the merchant, 100% liable for fraud committed at your website. And that's not all. You're also required to pay the $15 to $25 charge (the chargeback fee) that the bank hits you with when the charge on the customer's stolen card is reversed by his or her bank.

That's not a pretty prospect. And knowing that it's pretty much guaranteed that someone will try to defraud you sooner or later darkens the picture even further.

Warning: Avoid Customer Chargebacks with a Passion

If you accrue too many chargebacks, your merchant account can be terminated. After one is terminated, it's nearly impossible to get another merchant account. Settle customer complaints before they charge back their cards.


Protecting Your Business from Credit Card Fraud

So how do you protect yourself? By following these steps. Each one in itself might not be a red flag, but if you see more than a few, your fraud antennae should go up:

  • Don't assume that just verifying a credit card (getting an authorization number) is sufficient fraud protection. The verification process simply checks that the card has not been reported stolen and that it has sufficient free credit available to fund the purchase.

  • Your first level of fraud protection is the Address Verification Service (AVS). But it has its limitations. AVS compares the billing address of the customer with the records held by the card issuer. If the card number and billing address match, AVS gives it a thumbs up. The problem is, the card could still be stolen and a thief can ask that the order be shipped to another address. If you don't use AVS, make sure the customer's billing address matches the shipping address. If it does not, find out why the customer wants the products shipped to another address.

    Warning: AVS Warning

    AVS works only for addresses in the United States. If you sell software or information that can be downloaded instantly, AVS provides no protection. All a thief has to do is obtain a valid credit card number that corresponds to a stolen credit card number, and your instant buy becomes an instant fraud!

  • Another way to check to see if the customer information is valid is to compare the billing address to the phone numbers given. Do this by visiting www.Anywho.com (see Figure 16.2). With Anywho.com you can do a search for an address using their reverse phone number lookup.

    Figure 16.2. With Anywho.com, you can do a search for an address using reverse phone number lookup.


  • Place notices, buttons, and images on your order forms and your website content to let consumers know that fraudulent orders will be punished to the fullest extent of the law.

  • Look at the products being ordered. Does this match similar frauds you caught in the past? Look at the product mix. Does it make sense? We discovered that most orders for US Robotics modems were fraud orders. We guessed it was a very popular modem and could easily be resold at swap meets. Be wary of big orders, especially for brand-name items or peculiar ones, such as three MP3 players at once.

  • If the customer demands overnight delivery, this can be a sign of a fraudulent order. Because the scam artist isn't paying for it, he or she doesn't care how much it costsand wants to get it in a hurry.

  • Look at the email address that's provided. Most thieves use a free email address to hide their identity. With fraudulent orders, the customer's email address is often one of the free email services such as Hotmail, GMail, MSN, or Yahoo!.

  • Another clue is a suspicious billing address, such as 123 Main Street. You can check to see if an address is real by using <a href=http://maps.yahoo.com>Yahoo! Maps</a>. An address that includes a P.O. Box also could be a red flag.

  • Finally, if someone places a valuable order and asks that it be left at the front door, be suspicious. This could be a sign that a thief is using an innocent person's house as a drop-off point. If an order is for a high-priced item or one that you don't want to pay to replace, request that it be signed for.

If you suspect fraud, take these actions:

  • Call the customer. Use the phone numbers you requested and collected from him. When you contact him, don't automatically assume that you're dealing with a thief. The customer could have entered incorrect information, and you don't want to offend him and lose the sale. In general, though, a thief will not want to have a long conversation with you. If the phone number is wrong, try to contact the customer via email for a valid phone number. Be very suspicious about this, though: Most people usually don't give out wrong phone numbers unless they mistyped them.

  • If the billing address doesn't match or is incorrect, ask the customer to give it to you again. If the area code doesn't match the billing address's city, ask why.

  • Ask the customer for the name and phone number of the establishment that issued the card. Both are usually printed on the back. If the customer cannot supply it, this is a sign that he doesn't physically have the cardhe has just a stolen number.

If you still feel uncomfortable with an order, even after talking to the customer, ask for payment in advance. And if you're hit with a fraudulent order, document all contacts. This will give you greater protection and a better chance of getting your money or product back. Keep all voice mails and emails, along with caller ID, to prove your case. Ask for a signature to further protect yourself in these cases.

Remember, it takes a lot of orders to replace just one order lost to fraud. So it's better to pass on the ones that you're not 100% certain about. Follow these tips and protect your businessno one else will do it for you.

As you've seen, there's more than one way to make money from your Yahoo! store. In the next chapter, we show you how to mine the server logs for marketing data and use in your marketing plan.




Succeeding At Your Yahoo! Business
Succeeding At Your Yahoo! Business
ISBN: 0789735342
EAN: 2147483647
Year: N/A
Pages: 208

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