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Top 10 ways to avoid holiday fraud this season

By Connie Spencer-Adams, Vice President, Service Delivery featured in

With the holidays quickly approaching, there is no doubt that fraudsters are laying well-thought out plans on how they can conduct holiday fraud this season. That means it is also time for merchants to strategize on how to combat them. Losses from online retail fraud in North America totaled $2.7B in 2010, down from $3.3B in 2009. The only way to keep that number down is to stay a step ahead of the bad guys by developing a plan to stop fraud before it happens.
The holidays are a particularly difficult time to detect fraud, making it the perfect season for criminals. Higher transaction volumes and a demand for faster turnaround times place pressure on retailers and make proper screening difficult. Because of the short duration of the season, trending is also a challenge. By the time there is enough data to evaluate, the season is over. Furthermore, temporary or seasonal workers are not familiar with what “normal” transactions look like thus are less likely to recognize a fraudulent transaction when they see it.
Of course these issues arise during other high volume times throughout the year such as Valentines Day, Mothers Day, and Fathers Day, but they peak during the holiday season posing a substantial threat to the merchant’s bottom line. Merchandise loss, the cost of order fulfillment, and chargebacks occur without any offsetting revenue. Fraudulent transactions can also deplete stock leaving no product for legitimate customers. This negative customer experience can ultimately lead to future revenue loss.
Fraud comes in a variety of shapes and sizes making it difficult to fight. Some fraud is still comprised of amateurs trying to get away with a quick scam; however the real growth in fraud has been from organized groups using sophisticated technology to outsmart e-commerce sites. Because of the variety and the rate at which new schemes are identified, risk management plans must be comprehensive to protect the merchant from all angles. Here are ten strategies to help merchants better manage their risk this holiday season.
1. Monitor express shipping transactions closely. Fraudsters love when retailers offer express shipping because the faster they receive the goods, the harder it is for retailers to track or recover the merchandise.
2. Consider implementing device intelligence or identification software (also known as digital fingerprinting). Organized fraud rings use technology to make multiple transactions to the same merchant and make it look like they are coming from different IP addresses. With device intelligence software, devices that are used to submit orders can be uniquely identified by combinations of information such as name and type of device, IP address, operating system and the protocol used to transmit data, uncovering the true location of the buyer. Device detection software is also available to monitor mobile platforms as the threat of mobile fraud rises.
3. Leverage address standardization/validation software. These products can help you ensure that the address you are shipping to is valid by comparing it to the United States Postal Service address database. If the buyer cannot easily validate the corrected address offered, the merchant should raise a red flag. The software can also help reduce the cost of having a shipping company redirect packages.
4. Monitor not only sales and web traffic, but also why credit cards are declined. If there’s an increase in hard declines, especially “pick up” related declines, those transactions need to be monitored and reviewed more carefully. Also look for commonalities between declines. Further investigation often uncovers that these transactions came from a single source and points to fraud.
5. Take the time to match security codes (CVV2 for Visa or CVC2 or MasterCard). These codes help to verify that a customer actually has the card in their possession.
6. Incorporate 3D Secure authentication as an additional security measure during checkout. Verified by Visa or MasterCard’s SecureCode are programs aimed at eliminating fraud for those customers who elect to enroll in them. Support for this screening does add an additional step for customers during checkout, but if the customer is legitimate they shouldn’t mind entering a password to protect their credit card.
7. Keep a list of accounts with a history of fraudulent activity and check new orders against it.
8. Seek out fraud data. Keep up with publications that report the latest fraud trends as they arise to become familiar with them and make sure your efforts will catch them.
9. Communicate! Open communication channels with banks that provide alerts regarding cards that have been stolen or participate in retail groups or services that share information about fraud they have experienced. The more knowledge a merchant has about the fraud environment, the more powerful they will be in fighting it.
10. Don’t forget the fundamentals. It’s been said that common sense is not so common anymore, so here is a reminder to not forget the basic things to monitor:

  • High value orders
  • Large quantities on specific items (i.e. electronics)
  • Orders with big-ticket items
  • International shipping addresses
  • Transactions using multiple cards but shipping to a single address
  • Multiple transactions on one card but shipping to multiple shipping addresses
  • Multiple transactions on one card over a very short period of time

Finally, for live customer service teams, educate them on how to listen to buyers and recognize warning signs such as not knowing their address off the top of their head, not having complete information or trying to get off the phone when faced with requests for more detail.
Using a combination of these tactics will allow a merchant to formulate risk-scoring models that help flag suspicious orders. Based on that scoring system, orders can be blocked, placed on hold for manual review, or additional monitoring may be implemented to verify that the buyer is legitimate and the order is not fraudulent.
Implementing a risk management strategy requires an investment but more and more retailers are realizing the benefits of doing so. According to Forrester Research Inc., 29% of online retailers plan to invest in payment and web site security systems this year, up from 21% last year. Although fraud can be tackled using in-house resources, many merchants have turned to holistic fraud management systems, offered either on premises or as a service, to keep up with the growing sophistication of the technology used by organized fraud rings. Regardless of the approach, a comprehensive strategy is the only way to keep criminal activity at bay while allowing legitimate customers to place orders.
About Verifi
Verifi, an award-winning provider of end-to-end payment protection and management solutions, was founded in 2005 to help our clients effectively manage the payments challenges they face every day. Verifi helps merchants safely process paymentscombat fraud, prevent and resolve costly chargebacks, as well as increase billings andkeep loyal customers. Our best-in-breed solutions and white glove support are trusted by a wide range of industries from emerging companies to the Fortune 500. Headquartered in Los Angeles, California, we process more than $20 billion transactions annually and currently serve more than 8,900 accounts globally. For more information,
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