Credit Card Fraud Protection for Merchants

As described in the other articles on this site, credit card fraud is one of the major dangers of using credit cards. All the parties involved – credit card issuers, credit card holders and merchants who accept credit cards as a way of payment are fraudsters and at the same time victims of credit card fraud. Yes, it is a known fact that there are many weaknesses in the credit card system, which allow criminals to easily commit crimes but on the other hand there are many ways in which all the parties involved can protect themselves.

Probably the only party that manages to protect itself effectively against credit card fraud, though they still suffer great losses, are credit card issuers. This is not surprising because credit card issuers have much more resources to do it. Credit card holders are by default less organized but this is compensated by the federal protections they have in case of fraud. So, it looks like merchants are the ones left alone in the wild?

Not exactly. There are enough protections for merchants and if they start using them seriously, they can achieve really significant results in their fight against credit card fraud. Next are described some of the most common measures that a merchant can take in order to reduce the number of (or even eliminate completely) fraudulent transactions. Some of these measures apply to online shops only, others are good for face-to-face purchases but the majority of them are applicable for all kinds of credit card transactions:

• Use reliable gateways. If you use a payment gateway, it is important that you choose a reliable one – i.e. one that has great security and provides many screening features, like Address Verification System or CVV2 that help catch fraudsters early – i.e. before they make the payment and you ship the goods. A good screening system can save you a lot in terms of chargebacks!

• Perform phone checks. Before shipping the goods, call the customer for confirmation of the offer. This is especially important to do when the order is a large one, consists of strange items (i.e. a 70 year old lady ordering adult movies) or there is something suspicious with the shipping address. Phone checks are not very reliable but still they are better than nothing. They work in those cases when a credit card has been stolen, so when you call the legitimate owner (hopefully his or her telephone number is given), you can prevent a fraud to be committed.

• Email addresses and shipping addresses. Always examine the e-mail address and above all – the shipping address. Make a confirmation call, if there is something worrying – for instance the billing address and the shipping addresses are different. Be especially careful, when the shipping address is overseas or in a different state. Also, be cautious when separate items are purchased with different credit cards but the shipping address is the same. Some sites reject offers, if the primary e-mail address is a free one (i.e. Yahoo!, hotmail, etc.) because this also poses risk of a fake identity.

• Check if the card number is on the list of invalid or stolen credit cards. Probably this is the first ever step you should take. Needless to say, if the credit card number is on the list of invalid or stolen credit cards, you must reject any transaction and report the attempt. But on the other hand, if the card is not on that list, there is still no guarantee that everything is perfect.

• Signatures and Photo ID. Comparing the signature on the credit card itself and on the receipt is mandatory, though signatures can easily be faked. The same applies to Photo IDs (driver's licenses, passports, etc.), so you can't rely exclusively on this to catch a fraudster but still it is one more step that you can take.

• Urgent offers. If the customer insists on an express delivery, this must ring a bell. Yes, it is quite possible that he or she needs the goods urgently but many fraudsters also prefer to get the order before they are revealed. Ask for confirmation before shipping an urgent offer.

The above list is hardly exhaustive. There are many other measures that apply under different circumstances but even if you take only the measures listed here, you will protect yourself from most of the common types of credit card fraud.