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Minimizing and Preventing
Credit Card Fraud

It would be wise to assume that sooner or later you will be the victim of credit card fraud.

Remember that it is the merchant -and not the customer - who bears the brunt of such fraud, as legislation generally exempts the cardholder from any liability for the unauthorized use of his card. How to Prevent Credit Card Fraud

The advent of the Internet has made credit card fraud easier to promulgate. The absence of having a customer in front of you, face-to-face, is one obvious problem. But even with retail transactions, the swiping of the card and a resulting authorization merely means the card has not expired and has not been reported as stolen.

And there are now available online software programs to enable criminals to create new valid credit card numbers and identities.

One excellent way to minimize credit card fraud is by using CoCard, which is the most comprehensive and cost-effective card-not-present credit card fraud prevention service online today. Setup is fast and easy, and support is toll-free. There is no charge for the first 30 days, no setup fee, and no implementation cost. After the first 30 days, preCharge costs less than the expense of 1 chargeback. There are over 100 comprehensive checks run, including IP geo tracking, zip code validation, free e-mail address check, proxy check, and much more. You can sign up and get started today! Use their easy API setup, virtual terminal, or direct link options to get started with your shopping cart or simple online transactions. You can even upload transactions via CSV or Excel formats.

If your chargeback rate does not decrease or you are unhappy with the preCharge service, you will not be charged. Your satisfaction is their number one priority. preCharge is 100% safe and secure. Get a risk FREE 30 day trial! There are no strings attached, no contracts to sign, and no equipment or software to buy or download.

Another way to minimize fraud is via OrderSpy. OrderSpy automatically analyses over 25 bits of information about online orders to determine if the order is fraudulent. Orders may be screened for fraud before or after they are processed by the merchant. Order information may also be entered in by the merchant manually. OrderSpy is easy to setup and install, available in Perl, CGI, PHP, and Python, and manual-mode is compatible with any operating system that can browse a web page. OrderSpy may be configured to give a fraud score, or to accept, reject, or have the merchant manually review the order before or after an order is submitted. Compatible with Windows, Mac, Linux/Unix and any operating system that supports a web browser. They can also install OrderSpy on your server for a small fee. OrderSpy comes with a 30-Day money back guarantee.

So what happens if a cardholder disputes an entry on his credit card statement, claiming it is fraudulent, that he never ordered the product from you or that someone else used his credit card illegally? 

The bank that issued him the credit card will either send you a merchant retrieval, with an inquiry charge, or take the sales funds from your merchant account - a chargeback - sometimes without notifying you. In fact, much of the incidences of fraud take the form of unmerited "disputed" charges, which are in most cases settled in favor of the cardholder. So not only do you lose the value of the product, and the shipping charges you incurred, you are hit with the chargeback fee, often $25 to $50. And if you are a start-up business selling high-priced products, a few fraudulent transactions can put you out of business. 

In addition, excessive chargebacks due to credit card fraud can result in your losing your merchant account (most merchant account providers will accept a chargeback incidence rate of 1% to 3% before canceling the account).

The 12 Steps to Minimizing Credit Card Fraud

Here are twelve steps you can take to reduce - but not eliminate - your risk of being victimized by fraud: 

1. Address Verification System. The address verification system, or AVS, compares a part of the billing address submitted by the customer with the records kept on file by the issuer of the credit card. The AVS service is offered for free by many merchant account providers; some however charge an additional fee. 

But AVS itself has some issues. For example, it generally only works with U.S. issued cards, obviously a problem if you will be taking orders from outside the U.S. Second, fraud artists can often supply a valid address for the stolen card, if they also obtained the true cardholder's address when they took the card (e.g. from a stolen purse or wallet). They then provide a different address - one to which they have access - where they ask that you ship the product to. But despite these drawbacks, AVS is still very capable of stopping many attempts at credit card fraud. 

2. Check the Order. If you are manually inputting orders, you should take the time to examine the data inputted by the customer to see if anything looks suspicious. 

3. Non-Matching Addresses. If the shipping address and the credit card billing address do not match, it may be an indication of credit card fraud. You should consider telephoning the customer to enquire why the discrepancy exists. 

4. Retail Sales. If you are selling face-to-face in a retail environment, always check the expiry date and see if the card is signed on the back. If it is, examine whether the signature matches the signature on the signed sales receipt. If you are still suspicious of potential credit card fraud, ask to see some photo I.D. 

5. Online Orders. With first time customers of big-ticket items, ask the customer to send you, by fax, a copy of his driver's license and credit card. 

6. Foreign Orders. Obviously it will be much more difficult for you to verify any address or other contact information for foreign orders. This is one item to consider before you make the decision to accept foreign orders. 

7. Seller Beware. Watch out for unusual sales; for example, sales of a large number of the the same product, which could be an indication that your customer plans to make a big hit off of you and then resell the goods. Also beware of rush overnight shipment requests, or multiple orders on the same card within a short period of time. 

8. Free Email Addresses. Free email addresses are very easy to obtain and the identity of the person owning the account is often impossible to ascertain. So if your customer has stolen the card and the owner's address, he can hide behind an untraceable email address from a free email service. To minimize this risk of credit card fraud, call the customer to take the order over the phone. 

9. Post Office Boxes. Any con artist can open a P.O. Box to have purchases resulting from credit card fraud shipped to. So, many vendors insist upon the customer submitting a street address. 

10. Check Websites. Some customer's email addresses will include, after the @ sign, the domain name of their website. Simply add www. before the domain name and check to see if the website is blank or under construction. Also, see that your order form collects the customer's IP address, which is an individual number assigned to each computer. With the IP number, you can locate the owner of the computer by doing an IP search. 

11. Website Warning. Place a highly visible warning on your website stating that your site employs strict safeguards to prevent credit card fraud. 

12. CyberSource. If you anticipate high sales volumes, you may want to consider CyberSource's IVR system, which it claims reduces credit card fraud levels to very low levels. IVR examines various characteristics of each sales transaction you submit for processing, and then assigns the transaction a weighted score which it then compares against a threshold, predetermined by you, to decide whether the transaction should be declined as risky.

It is expensive to set up and requires that you pay higher than normal transaction fees, but it is worth looking into if your sales volumes will be significant.

Extra Resource: teaches merchants how to avoid chargebacks, reverse disputes, dramatically reduce credit card processing costs and prevent credit card craud.

merchant account providers- how to minimize fraud

Sidenote: Here's something to think about. Most merchant account providers find a chargeback rate of 1% to 3% acceptable before they will 'pull the plug' on your merchant account. So you can expect to pay in the same range for lost sales and chargeback fees due to credit card fraud as you will be paying as your discount rate fee. 

The moral? Give as much attention to credit card fraud reduction measures after you obtain your merchant account, as you do to looking at the discount rate and other processing fees of the various merchant account providers before you obtain your account.

NEXT: Now that you understand what you can do to minimize credit card fraud, let's move on tohow to evaluate merchant account services.

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