Internet Credit Card Fraud – How to Mitigate Chargebacks

Do you sell products online using an Internet Merchant Account? If so, it’s important to understand how to protect yourself from credit card fraud.

Knowledge is the key to help you reduce your chargebacks and losses. Take the following steps to help prevent credit card fraud:

  1. Utilize a robust Payment Gateway Setup.
  2. Always ask: “Is the Order too good to be true?”
  3. Take extra precautions with international orders.
  4. Verify the credit card and the buyer.
Let’s examine each step in more detail.

Payment Gateway Setup

A payment gateway is the software that allows your shopping cart to process credit cards online. Choose a payment gateway that offers robust fraud prevention features, such as Address Verification Service (AVS) and Card Verification Value (CVV2).

AVS response codes tell you if the billing address matches the actual billing address of the cardholder. When a transaction is submitted, you will receive a response code from the issuing bank. You can find a list of AVS Response Codes here.

CVV2 (Card Verification Value) is a three-digit security code that is printed on the back of Visa, MasterCard, and Discover cards immediately following the account number. CVV2 for American Express cards is a four-digit security code that is printed on the front of the card.

John Doe Credit Card
The CVV2 value helps validate two things:

  1. The customer has possession of his/her credit card.
  2. The credit card account is legitimate.
You can find a list of CVV2 Response Codes here.

A robust payment gateway will also provide advanced filters to restrict authorization of the credit card based on the response codes from the issuing bank. In addition, there are even more advanced payment gateway fraud prevention features, such as IP Blocking and others too complex for this article. Check with your payment gateway provider on the advanced payment gateway settings and features that are available to you.

Is the Order Too Good to be True?

Internet Merchants should review certain types of orders with skepticism:

  • Orders with a shipping address that is different than the billing address. You may need to do additional verification unless it is a known, good-standing customer.
  • Orders with large purchase amounts, usually over $250. This number may be higher or lower, depending on the type of products you are selling.
  • Orders with multiple quantities of the same product. It is common for fraudulent orders to be large quantities of a single item.
  • Multiple orders being shipped to the same address and paid for with the same or different credit cards within a 12- to 24-hour period. Merchants need to be wary of this even during the busy holiday season.
  • Orders to be shipped to Post Office Boxes.
  • International orders requesting overnight shipping.

International Orders Require Extra Caution

Orders from foreign countries require special caution by Internet Merchants, particularly orders from certain high-risk countries. Many developing countries do not have the resources to assist merchants with credit card fraud, and the largest market for stolen credit cards is outside the United States. Here is a short list of countries that have a high incidence of credit card fraud:

  • Indonesia
  • Ghana
  • Malaysia
  • Nigeria
Please contact your Internet Merchant Account provider for additional advice on how to reduce your risk on international orders. 

Verifying the Credit Card and the Buyer

Following are precautionary steps to verify the credit card and the buyer to mitigate potential fraud.

  1. Verify the BIN number. The first six digits of a credit card is the bank identification number (BIN). The BIN number indicates the specific bank which issued the credit card. Visit and enter the BIN number. If the issuing bank is located in a country other than where the order is originating, further verification is recommended. This service also provides the issuing bank’s contact information.
  2. Match the card to the person. Contact the issuing bank to verify the card being used is issued to the name of the person making the purchase.
  3. Fax Verification. Ask the buyer to fax the front and back of his/her credit card and another form of identification. This works better than a phone call.
  4. Be aware that overseas banks are different than U.S. banks. Many overseas banks do not support CVV2 (Card Verification Value) and AVS (Address Verification System) during the credit card authorization process; therefore, be aware these fraud prevention features may not be available from many overseas banks.
  5. Contact your Internet Merchant Account processor for assistance regarding questionable orders.
  6. Purchase advanced fraud-detection tools. Many Internet payment gateway providers offer advanced fraud protection tools, and some Internet merchant account processors may offer guaranteed services at modest prices.
  7. Choose an Internet Merchant Account processor which has a dedicated chargeback department to assist you with any chargeback issues.
An Internet Merchant Account is a powerful revenue-generating opportunity. Using many of the steps outlined above will safeguard your profit margin on Internet Merchant transactions.

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