If your business accepts credit cards, then there may be a time when you have a customer use a credit card that is not rightfully theirs.
When customers commit fraud, then your business is exposed to the risk of chargebacks to recoup the lost funds for the customer who was victimized by fraud. By knowing what steps you can take to help mitigate the risk of fraudulent transactions and processing stolen credit card numbers, you can help protect your business.
While we have provided a comprehensive list of questions that you can ask to help verify the legitimacy of a transaction, you do not need to complete these steps in any specific order, and not all steps will apply to each transaction.
1. Has there been a series of declined orders with the same shipping address?
Fraudsters often have a list of stolen credit cards and will try each one until they get an approved transaction. Be vigilant and take notice of a series of "DECLINED" and "PICK UP CARD" notices.
2. Have there been prior chargebacks from a similar address or location?
Certain countries and regions have large fraud problems, and many online retailers refuse to ship orders to those regions. Look for patterns based on your previous chargebacks and make decisions on what you will allow. If fraudulent orders to a specific country go over a certain %, strongly consider banning that country from purchasing from your online store.
3. Are there multiple orders for the same customer using different credit cards?
Be on the lookout for multiple orders with the same shipping address but different credit card numbers.
4. Did you require the CVV during the payment/checkout process?
There are no longer any major card brand credit cards without a security code on the back. If you are manually entering your customer's card information, you should always ask for the CVV code and enter it as part of the transaction. If your customers are entering their own information during the checkout process, you should require the CVV code and not allow the security check to be by-passed. Just remember to never record or make note of the CVV, it is a violation of the Card Brand Rules.
5. Is the transaction size or the items purchased out of the ordinary?
Often fraudsters will purchase items that they can resell, like a specific shirt of every size or color, or a large number of the same item. Compare every new order with previous ones and be aware of orders that don't fit with the rest of a customer's order history. Very large transactions that seem too good to be true often are.
6. Does the shipping address match the billing address?
Although it can have a small impact on some legitimate sales, by only allowing the shipping destination to be the same as the billing address, you can greatly reduce your exposure to fraud. This is because fraudsters will often use the billing address of the stolen cardholder but will put their own address as the shipping destination. If you do not wish to enforce this limitation, make sure that the shipping address is at least within the same city, province or country depending on your risk threshold.
7. Address Verification Service (AVS)
The address verification service (AVS) takes the cardholder's street address (one line) and the postal/zip code and compares it with what their bank has on file. Chargebacks with an AVS response of X, Y or Z are most often ruled in the favor of the merchant if you have a proof of shipping delivery to that specific address. However, this does not apply if the chargeback was because of a dissatisfied customer (as opposed to a stolen credit card).
8. Is the information provided by the customer well formatted?
Although fraudsters will often make sure that their shipping address is correct, the billing info can sometimes lack proper formatting. Look out for street addresses without numbers, postal/zip codes that do not match the city, or even first and last names that are incomplete.
9. Did you call the customer? Does the telephone area code match the address?
A simple courtesy call to the customer to confirm their order and address will often give you a better sense of the legitimacy of an order. Did they sound nervous or dismissive? Do they challenge you when asked to confirm their information? The area code of the telephone number can also help in making sure that the customers are within the same region as their billing and shipping address.
Don’t let all these steps overwhelm you, what’s important to remember is that by keeping an eye out for common red flags and suspicious patterns, you can help protect your business from credit card fraud and the resulting chargebacks. If there is a transaction that you are not comfortable processing, then you can always void or refund the credit card and notify the customer.