Credit card fraud is an ongoing risk for merchants and consumers. The online environment generally presents more risk than the brick-and-mortar one, as it is more effort for criminals to physically replicate a credit card with stolen details than simply to use them online. According to TransUnion, online fraud rose by 46% between March 2020 and March 2021, compared to the previous year. 

Credit Card fraud is a problem for online merchants on several fronts when the legitimate cardholder files a chargeback:

  • The merchant loses the value of the sale
  • The merchant loses the cost of the shipping and handling fees
  • The merchant has to replace the inventory
  • The merchant incurs chargeback fees 
  • The merchant’s chargeback ratio can increase, which may have multiple repercussions
  • The merchant loses credibility with the cardholder

The fight against credit card fraud needs to be waged on multiple fronts – 

  1. The use of robust security measures on the webstore itself
  2. The use of anti-fraud software tools
  3. Human awareness

Of these three, the last one, human awareness, is the one least considered by many merchants. However, making all team members aware of potential red flags can play a significant role in fraud prevention. Suspicious activity can be related not only to new customers but also to existing ones, whose accounts may be hacked by criminals.

Let’s look at some common red flags that your team should look out for:

New customers

Pay close attention to new customers, especially if there is a sudden cluster of new customers that is out of the usual pattern. The customer/s could be fake, using stolen card data. Criminals will often create multiple accounts to try out different stolen cards to see if any of them work.

Large orders

Orders that are notably larger than your average order value should be looked at carefully. Criminals know they have a limited time before the card is reported stolen, so they will try to get as much value as they can out of it while it still works

Big ticket items

Again, because criminals know the time for using a stolen card is limited, they will frequently go for expensive items that can be easily resold. 

Many items in various options

Criminals often buy multiples of the same item, only in different variations such as sizes or colours. Again this is for resale purposes. 

Multiple cards but the same shipping address

In this scenario, criminals will use multiple stolen cards, but will have all the goods shipped to the same address. This should be considered suspicious.

Different shipping addresses to previous orders

It is not uncommon for legitimate buyers to want to ship an item to an address other than their usual one – they may be purchasing an item as a gift, or they may have moved, or may even be on vacation and need an item. But merchants should be aware that it is a common tactic in account takeover fraud for criminals to use existing legitimate accounts and have goods shipped to themselves.

Multiple cards and/or accounts, but the same IP address

Of course it is very possible that two members of the same household could make purchases with their own cards at the same online store, especially during a holiday season. However multiple orders with different cards from the same IP address should always be given a closer look.

International orders and/or international shipping

There are several regions in the world considered fraud hot spots. This does not mean that an international order is automatically fraudulent, but care should be taken with international orders, especially if the country of purchase IP address does not match the shipping destination country. This could be a case of account takeover.

Retrying a declined transaction with a smaller amount

Criminals do not necessarily know what the transaction limit or the available balance on a card may be, so if a purchase is declined for a certain amount, they frequently try again with a smaller order to try and identify what the limits of the card are. 

Now many of the above-mentioned activities may be perfectly legitimate behaviours in isolation, although that does not mean that they should be ignored. But combinations of these red flag items usually mean fraud and must be investigated before processing and fulfillment. Real customers more often than not appreciate a check that a transaction is valid, even if it’s simply via an email to verify the transaction. Anything that deepens trust in the merchant is good for business.

It is not always possible to manually vet every transaction, that is the reason why fraud prevention software tools exist in the first place. However, educating your team on fraud red flags is an important weapon in your arsenal against fraud. Stopping even one fraudulent order saves you money. 

At Baer’s Crest we know the fight against fraud is ever-evolving. We provide payment solutions and excellent fraud prevention tools, at competitive rates. Talk to us about the right payment solution for your business.