What You Should Know About Fraud

Credit card fraud can be a significant problem for customers, merchants, and credit card issuers^[2]. Liability for fraudulent transactions belongs to the credit card issuer for a card-present, in-store transaction, but shifts to the merchant for “card not present” transactions, including transactions conducted online. This means that the merchant does not receive payment for a fraudulent online transaction. Fortunately, there are steps you can take to significantly limit your risk as an online merchant. The following important fraud prevention steps should be adhered to:

1. Choose a payment services provider that is well-established and credible. Your provider should also have in-depth experience in and a strong track record for transaction security.

2. Make sure your payment gateway provider offers real-time credit card authorization results. This ensures that the credit card has not been reported as lost or stolen and that it is a valid card number.

3. One of the simplest ways to reduce the risk of a fraudulent transaction is to use Address Verification Service (AVS). This matches the card holder billing address on file with the billing address submitted to ensure that the card holder is the card owner.

4. Use Card Security Codes, known as CVV2 for Visa, CVVC for MasterCard, and CID for American Express . For American Express, the code is a four-digit number that appears on the front of the card above the account number. For Visa and MasterCard, the code is a three-digit number that appears at the end of the account number on the back of the card. The code is not printed on any receipts and provides additional assurance that the actual card is in possession of the person submitting the transaction. As a merchant, you can ask for this code on your online order form. Even if you do not use this for processing, simply asking for it acts as a strong deterrent against fraud.

5. Watch for multiple orders for easily resold items such as electronic goods purchased on the same credit card.

6. Develop a negative card and shipping address list and cross-check transactions against it. Many perpetrators will go back to the same merchant again and again to make fraudulent transactions^[1].

^[2]Vacca, John R., Identity Theft, Prentice Hall PTR, 2003.