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How to Prevent Fraud & Chargebacks

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With all of the systems put into place in order to ensure consumer safety, the merchant has been neglected. Where is the protection of consumers defrauding merchants? Consumer are well protected when it comes to credit cards. Listed below are some tips you can use to limit your number of fraudulent transactions and chargeback disputes. To avoid any issues with your merchant account provider, it is highly recommended that you implement the ideas contained in this page.

Preventing Fraudulent Transactions
  1. Possible Signs of Fraudulent Transactions"

    1. Larger orders beyond the normal range
    2. Orders with several quantities of the same item
    3. Orders made up of big ticket items
    4. Orders that have been placed on rush or overnight delivery
    5. Orders using free email address providers like Hotmail or Yahoo
    6. Orders shipped to the same address but use multiple credit cards
    7. Shipping international - Address Verification Service (AVS) does not work
    8. Multiple purchases in a short time period
    9. Different ship to and billing addresses

  2. VISA and MasterCard implemented a security feature known as "CVV2" and "CVC2" . You can include the code in your transaction and expect to receive a “match” or “no match” response. If you are using a shopping cart, make sure it is capable of collecting these numbers. You are not allowed to store them per V/MC regulations. Keep in mind this is not fool proof and fraudsters can have these codes.

    American Express customers will have a four-digit code on the front, far right side of the card. Discover Card is the same as Visa & MC.

  3. Use Address Verification Service (AVS) on all keyed in transactions to verify the billing information provided in the order with what is on file with the issuing bank . At a bare minimum, the zip code should match before the transaction is approved. For future use during a chargeback dispute, it is best to retain the AVS response and a record of any follow up actions.

    The AVS messages are:

      Y – Exact match on street address and 5 or 9 digit zip code
      A – Address matches, zip code does not
      Z – zip code matches, address does not
      N – No match
      U – Address information is unavailable or Issuer does not support AVS
      R – Issuer authorization system is unavailable, retry later
      E – Error in address data – unable to complete check
      G – Non-US Issuer not participating in AVS - Visa only
      S – Address information is unavailable or Issuer does not support AVS - MasterCard only

  4. It is best to avoid international orders all together. There are no fraud preventing tools or services available on international cards, such as AVS or reverse phone lookup. In short, you have no way to verify their true identity.

    If you do plan on shipping International, the most important aspect to keep in mind is the country of origin.

    The vast majority of orders from the following countries are fraudulent:

    1. Belarus
    2. Estonia
    3. Ghana (a rising star of fraud!)
    4. Hungary
    5. Indonesia
    6. Latvia
    7. Lithuania
    8. Macedonia
    9. Malaysia*
    10. Nigeria
    11. Philippines
    12. Romania
    13. Russia
    14. Singapore*
    15. Slovak Republic
    16. Thailand
    17. Uganda
    18. Ukraine
    19. Yugoslavia

      *People in Indonesia use Singapore or Malaysia as the destination country name; and still receive the package because Singapore/Malaysia Postal Service figures out where to send it. Our advice is to simply avoid these countries all together.

    The following countries are on the U.S. Department of the Treasury sanction list:

    1. Cuba
    2. Iran
    3. Iraq
    4. Libya
    5. North Korea
    6. Sudan

      Other countries, regimes and people are also listed, with varying sanctions. A good document outlining corporate responsibility regarding this topic is http://www.treas.gov/ofac/t11facei.pdf.

  5. One of the most effective ways to help eliminate fraud or chargebacks is to simply call the customer. A confirmation over the phone is most definitely advised for any large purchase.

  6. You can do a reverse lookup on any customer's phone number that is listed in the phone book and it will allow you to verify the billing/shipping address information provided by the customer. Such web sites are www.anywho.com
Preventing Chargeback Disputes

You should find the following tips helpful to avoid receiving chargeback notices from your credit card processing company.
  1. Provide easy access to your customer service phone number and contact information. Make it as easy as possible for a customer to contact you with any problems or concerns to discourage them from calling their issuing bank to initiate a chargeback dispute.

  2. State your return and shipping policies on your website and in all correspondence with the customer such as invoices or the checkout page.

  3. One of the main reasons consumers file chargeback disputes is that they do not recognize the charge on their credit card statement. Your company name and phone number should be listed on their credit card statement. It is best to use the name they are familiar with.

  4. Make it a policy to request the name of the card issuing bank for any purchase over a pre-determined amount. If the customer cannot provide it, it is a big red flag.

  5. When the billing and ship to addresses are not identical, then other precautions should be taken into consideration.

  6. Send a confirmation email to the customer verifying their order.

  7. Consumers can take advantage of merchants when the transaction is not in person by claiming they never received the product or service. To help discourage consumers, it is best to pay for the signature delivery service offered by any commercial mail carrier (FedEx, UPS, USPS, etc.). Keep in mind the signature service is not fool proof and does not satisfy all disputes of this nature, but can be worth the cost.

  8. Placing fraudulent notices, buttons and images on your web site and order forms will help discourage any person trying to place a fraudulent order.



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