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 Vol. 1 issue #5 Mar 27, 2002

Merchants' concern about online credit card fraud and chargebacks is rising at a significant rate. According to the 2001 Online Fraud Report conducted by Mindwave Research, 41 percent of merchants say the issue of online credit card fraud is "very serious" to their business.

As e-commerce continues to flourish, the number of instances of credit card fraud and chargebacks will continue to mount. It should go without saying that the need to take certain measures to reduce and virtually eliminate chargebacks and fraud is certainly paramount.

Here are some ways you can greatly reduce the instances of chargebacks and fraud, even potentially eliminate the risk altogether.

No. 10: Interactive Voice Response (IVR) Terminals
IVR Terminals, developed by VoiceStamps, are a relatively new solution that greatly reduces chargebacks and fraud by collecting a "voice stamp" or voice authorization and verification from the customer before the merchant ships the order. The voice recorded order verification is then automatically e-mailed to the merchant for filing in the event the customer tries to dispute the charge on their account.

No. 9: Collect CVC2 and CVV2 Verification Numbers
This tactic alone will not only reduce instances of chargebacks by 26 percent, according to Visa, but also reduce any pass-through fees that may be charged when a credit card order is conducted. On the back of MasterCard, most Visa and Discover credit cards is a three-digit security code located right after the credit card number. Requiring customers to give the three-digit code acts as an additional verification measure.

American Express cards also have a similar security code that is located on the front of the card right above the cardholder's account number, which is usually four-digits long. Most online payment processors support entering the security codes when processing credit card orders. Check with your payment gateway provider (i.e., Verisign, Authorize.Net, ECHO Inc., etc.) for details.

No. 8: Use Address Verification System (AVS)
AVS checks to ensure the address entered on the order form matches the address to where the cardholder's billing statements are mailed. People ordering products and/or services using a stolen card number will never use the real cardholder's billing address, so this is your chance to stop the order before it's too late. AVS only works with orders conducted in the US. Failure to use AVS when processing credit card transactions will always result in paying higher credit card processing fees.

No. 7: Scrutinize orders from developing foreign countries
A large percentage of fraudulent Internet purchases are made from Indonesia, Russia and other eastern European or developing countries. Accept orders from such countries at your own risk until a worldwide AVS system is developed.

No. 6: Let customers know what name will appear on statements
Many merchants who use third-party processing companies have run into problems because the company name that appears on cardholder's monthly statements is usually the name of the third-party processing company, and not the company name of the site where the cardholder made their purchase.

This isn't always the case, but in many cases it is. If you use a third-party processor, and even if you don't, make sure the customer knows what name will appear on their credit card statement at the end of the month. This will help to reduce any confusion that might otherwise occur.

No. 5: Handle suspicious orders accordingly
If an order seems suspicious, the best way to handle the situation is to either call or e-mail the customer and attempt to verify that they placed the order. As a rule of thumb, if in doubt, check things out. It may be a good idea that if a customer makes an unusually large volume purchase from your site to follow-up with a verification call. This is where a system like IVR terminals, previously mentioned above, can come in very handy.

No. 4: Watch out for orders using free e-mail addresses

Be wary of accepting orders from people who used a free e-mail address when ordering (i.e. Hotmail, Yahoo, etc.). Tracking people who used a free e-mail address is almost impossible. It's much easier for them to get away than if they used their ISP or their company's e-mail domain. To check whether an e- mail address is a freebie or not just take the part of the address after the "@" symbol, add "www" to the front of it and see what Web site it brings up (i.e. joe@yahoo.com = www.yahoo.com).

No. 3: Signatures on delivery
If your business delivers products, use a carrier that requires a signature on delivery and allows you to have a copy of the signature. Retain these for your records.

No. 2: Request fax copies of ID and credit card
You may want to request your customer to fax a copy of both sides of their credit card and driver's license. This tactic usually works best in a business-to-business sales environment. While this is not a defense under Visa or MasterCard rules, it is yet another way to deter fraud.

No. 1: Posting a warning message
Taking the time to post a warning message on your order page to those who may attempt to make a fraudulent order will greatly deter the number of instances of fraud. Be sure to mention that IP addresses are being logged. IP addresses can come in handy when locating fraudulent orders.

Taking measures to deter and eliminate fraud and chargebacks from occurring are a necessity in order to operate a successful online business. Each day companies dedicated to risk management are developing solutions to provide merchants, like yourself, with extra protection because of the financial burdens chargebacks and fraud can bestow if ignored.

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Jim Conley II is the CEO/Founder of MerchantSeek (www.merchantseek.com). Search free for a Merchant Account Provider that meets your business needs and budget. Plus learn details about different payment processing solutions available to you.
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