How to Avoid Becoming A Victim Of Credit Card Fraud

If you own a commerce site, especially adult products commerce site and you're serious about your Internet business, you probably already accept credit cards. And as we all know, there is a myriad of positive benefits associated with accepting credit cards including customer convenience, increased sales, professional image...and the list goes on.

But it's also important to know that credit card fraud runs rampant on the Internet. And unfortunately, as merchants we bear the primary responsibility for ensuring a transaction is legitimate before filling the order. In other words, if a transaction is fraudulent, and you failed to take the all important steps to verify the legitimacy of the order, you will be left holding the bill when the cardholder challenges the purchase.

In this article you will learn:

* important measures you should take to avoid becoming a victim of credit card fraud
* what you should do if you become a victim of credit card fraud
* what you can do if you suspect an attempted purchase is fraudulent.

Be Diligent...VERIFY!
When a transaction goes through on my website, the first thing I look for are those all important words...TRANSACTION APPROVED! It's like money in the bank, right?...Wrong! When I first got my merchant account, I thought that was all I needed to worry about. Unfortunately, I learned the hard way that this is only a starting point. Of far more importance to whether a credit card transaction is approved or declined, is the AVS response code given for that transaction. If you are not receiving an AVS code for each credit card transaction made on your site, you need to find out how you can get this crucial information.

AVS stands for Address Verification Service. This code will tell you whether or not the address given in the order actually matches that of the cardholder. On my real-time processing system, the AVS code is comprised of three numbers. The first corresponds to the numbers in the street address. The second corresponds to the zip code. And the third is an overall verification of both. For example, an AVS code of YYY means: "yes" the address matches, "yes" the zip code matches and "yes," both the address and zip code match the cardholder's. But an AVS response code of NYZ means "no" the address does not match, "yes" the zip code matches and only the "zip" code matches.

There are about ten different letters used for AVS response codes, and it's important for you to know all of them and what each means. For a list of the most common AVS response code letters and their meanings.

If a transaction is approved with an AVS response code of YYY, AND if the order is to be shipped to that same address in the cardholder's name, then you likely have a legitimate order. For larger orders, you may still want to verify the telephone number and call the cardholder directly to verify the purchase. But if the AVS code does not match, you need to decide whether to ship the product, or whether to do further checking before shipping the product. Be aware, however, that if you ship the product without further verification and the purchase is fraudulent, your account will be debited for the full purchase amount as a result of a chargeback by the cardholder.

If you receive an AVS code that is unacceptable to you and you'd like to do further checking, the first thing you should do is call call Visa/MasterCard, Discover or American Express directly. Click here for a listing of their numbers. You can get full name, address and phone number verification directly from Discover and American Express. When calling Visa/MasterCard, mention that you are calling for a cardholder's issuing bank phone number. You will need to give your merchant number and the first six digits of the credit card in question. They will then give you the number of the issuing bank for the credit card in question. Call that number and tell the person helping you that you would like a cardholder verification.

Calling the issuing bank of a cardholder has many advantages over simply calling Visa/MasterCard for an address verification. First of all, Visa/MasterCard will only tell you the same information your AVS code did, and sometimes a mismatch is simply due to outdated information. Calling the issuing bank enables you to verify not only the address and zip code of a cardholder, but also the cardholder's name and phone number (something Visa/MasterCard cannot do). You can even inquire if an address mismatch is due to a P.O. Box listing rather than a physical street address.

With all this information, you can make an informed decision about fulfilling the order. Be sure to take notes when you call the issuing bank for verification. Write down with whom you spoke, the date and time you called, and include notes concerning the outcome of the phone call. That way you'll have the information if you need to defend yourself against a chargeback later.

Be Observant! YYY can still mean "No, No, No!"
Don't be fooled by YYY response codes. Some crooks have access to the cardholder's address information. Be observant and know what red flags to look for. Pay close attention to: the product ordered and order size; the e-mail address given; the ship-to address and shipping method requested among other things. Be suspicious of sizeable purchases that are being shipped to a different address, especially if express shipping is requested. Pay attention to whether or not the e-mail address given is valid. If the e-mail address is a person's name, check to see if it matches the cardholder's name. These, among other things, are all red flags to look for.

Follow your gut instinct. Let me give you an example. I sell jewelry and watches of all types (dead ringer for credit card fraud). Many of my costume jewelry customers are high school aged boys buying large figaro chains (it's the "in" thing). Most of these guys are harmless and I enjoy their business. But last weekend, I received a $200 chain order on my costume jewelry site. The order was much larger than a standard order from that particular site and the quantity for each item was suspicious. The AVS code for the purchase came back as YYY, but the person's name on the e-mail address was different from the cardholder's name. The order was also being shipped to someone other than the cardholder and the person requested overnight shipping (a huge red flag as thieves want to receive their products before getting caught).

My gut instinct was that something was not right with this order. I called the phone number provided on the order and it was disconnected. First thing Monday morning I called Discover Card directly. Not only was the phone number on the order a mismatch, but the cardholder had called sometime after I received the order to report his card was stolen. In this particular instance, had I not been so diligent in verifying everything possible, I would be out the cost of those goods. Luckily, my instinct was correct and the perpetrator was an 11-year old boy who will be spending some time in juvenile court.

Obviously, you will need to adopt your own policy outlining how far you will go to verify information for each order. You may not want to worry about verifying small purchases of $20 or less. The fraudulent orders I receive are typically much larger than average. Look for things that are suspicious such as those I mentioned earlier, and make your guidelines accordingly.

What If I Become A Victim?

If you have the misfortune of sending merchandise to a crook, there are a few options available to you to try and recover your merchandise or to see justice done. This is a rather complicated issue for merchants though and you may hit several stumbling blocks along the way.

Be persistent! Try all your options.
The first thing you can do if you become a victim of credit card fraud is call the police to report the crime. Be aware, however, that until you're left holding the tab for the crime, you're not considered the victim, the cardholder is. If you're trying to stay ahead of the game and you're not sure yet who will ultimately be responsible for the lost dollars, you need to contact the cardholder.

Call the cardholder's issuing bank and ask them to do a courtesy call to the cardholder. Mention that you have the address where the product charged to the cardholder's credit card is being shipped. That information will usually entice the cardholder to return your call. Convince the cardholder to report the crime to the police in the town where the crime was committed (where the product was shipped). If that police department has a detective that works on credit card fraud cases, you can at least get the ball rolling to possibly recover the merchandise and/or see justice for the actual crime.

Some police departments will be more helpful than others. Find out the parameters of your state law concerning issues of credit card fraud. In some states, all credit card fraud is considered a felony and the crime is taken more seriously. You may be lucky to find a police department that has a detective dedicated to crimes involving credit card fraud. Such was the case in the incident involving the 11 year-old. Although, I never sent the product, we were still able to get some justice for the crime. And hopefully, he will be one credit card crook who learned his lesson early and won't do it again. In a case like this, you may or may not recover your lost merchandise, but at least you've done your part to help put an end to the crime.

Here in Colorado, as in many states, credit card fraud is considered a misdemeanor unless the actual dollar value of the loss (cost of goods in the merchant's case) reaches $400. From $400 - $15,000 the crime is considered a Class 4 Felony. Above $15,000 the crime is a Class 3 Felony. Admittedly, many police departments simply do not have the manpower to dedicate a detective to misdemeanor crimes and the cases are closed leaving the merchant holding the bill.

If this is the case in your situation, and if you truly feel you did everything you could to verify the cardholder information before shipping the product, then you need to take the issue up with the credit card company when you receive your chargeback notice. Take some time to write out a strong defense for yourself. Include the notes from your conversation with the cardholder's issuing bank. Hopefully, the credit card company will reverse the chargeback and you won't be responsible for the lost dollars in the crime. In this case, you may not see justice for the crime, but at least you've recovered your losses.

Be proactive! Put yourself in the cardholder's shoes.
There doesn't have to be a monetary loss or even a purchase made in order for a crime to be committed. As merchants we must be proactive against credit card fraud, even if it is only an attempted purchase. This is called "criminal attempt" at unlawful use of a credit card, and it is still a crime.

Pay attention to failed credit card transactions that are suspicious. Again, look for the red flags that I pointed out earlier and check the AVS response code. If you suspect a purchase attempt was fraudulent, you owe it to yourself and to the cardholder to do your part in stopping the crook before he succeeds.

Again, call the cardholder’s issuing bank and ask them to do a courtesy call to the customer. Be sure to give your phone number so the cardholder can call you back. Mention that you had someone attempt a purchase on your website with his/her credit card and you suspect it may be a fraudulent transaction. If you're right, hopefully the cycle will start all over again with the cardholder calling the police to report the crime just as if a purchase was actually made.

This happened just recently on my site and I did just as I stated above. When the cardholder returned my call, she was so grateful I had taken the measures I did. She didn't even know her purse had been stolen until she got the call from American Express. Because I was proactive, we were able to stop the crook right away, and criminal charges are now pending against him.

Don't be passive about potential credit card fraud just because you may not be out anything...YET. As a community of Internet entrepreneurs we must stand strong and stand united against credit card criminals. If you are a netrepreneur, trust me, it's only a matter of time before this crime affects you in some way. Be proactive against the crime, regardless of what your loss may or may not be.

5 Ways To Avoid Online Credit Card Fraud

If you take credit cards online, you're already paying rates and fees significantly higher than traditional storefront retail businesses. You pay for the fact that you can't require a customer's signature, ask for photographed identification card, or swipe it through a credit card terminal. If you do accidentally take a fraudulent credit card order, you're the one who will eat the loss, including a chargeback fee of up to $25 (U.S.).

Online businesses cannot rely on traditional security measures to detect credit card fraud. With the account number, expiration date, and billing address of the cardholder, an e-thief can circumvent most online antifraud safeguards.

For example, possessing the address allows the e-thief to foil the Address Verification System (AVS), the most common means online for sifting out fraudulent transactions. AVS matches the billing address provided in the order to the billing address registered with the account; differences raise flags and prompt either further verification or a "decline" from your credit card processor. If the addresses match, however, AVS can't offer much help to online merchants.

E-thieves don't need the actual credit card. If the card remains with the cardholder, he or she won't freeze the account. Thieves can operate with stolen account information for weeks before detection.

Here are five suggestions for keeping fraudulent orders from eating away your online profits.
1. Question Orders From Free E-mail Accounts

Verifying orders via email is a wise practice and generally quite easy to do. But be especially cautious when processing orders from services that provide free, anonymous accounts, including yahoo.com, gmail.com and hotmail.com, among others. Many businesses now refuse orders from these accounts unless the customer can provide further identification. If you receive a suspicious e-mail order, write the customer back asking for further information, including another paid e-mail account and telephone number.
2. Be Wary of International Orders

International credit card orders online are more likely to be fraudulent than orders from your home country. Take extra care when accepting credit card orders from foreign sources. Countries in particular to watch for include Russia, Nigeria, Romania, Hungary, Mexico, Egypt, the Philippines, and Indonesia.

Consider a policy of not shipping an order to a foreign destination until the charge has cleared. Your customer will not appreciate the delay, but waiting may be the only means of ensuring the charge is legitimate. If you are defrauded through a foreign order, contact the financial institution that issued the card. If nothing else, your alert may lead to the account being closed. It may not repay your loss, but it may spare other merchants from suffering the same fate.
3. Look Twice at Rush Orders

Be wary of customers who seem to be in a rush to receive your product and are unconcerned about any additional charges that rush orders entail. Credit card thieves often ask for the quickest shipping method available, often overnight delivery, because the longer they wait to receive the goods, the greater the risk that they'll be detected.
4. Watch Out for Peculiar Shipping Addresses

Be suspicious of any shipping address other than an actual street address or official post office box. Thieves are especially fond of private post boxes, general delivery, and other mail drops that can be acquired under false identities.

Also be cautious about orders in which the billing address and the shipping address differ. If the billing and shipping addresses are different, consider calling the customer to confirm both addresses.
5. Use the Telephone to Verify Orders

A telephone call is a simple, effective way to verify credit card purchases and reduce your vulnerability to fraud. A phone call also gives you the opportunity to connect with your customers, answer any questions, and build a reputation for customer service.

If you still find the order suspicious, you can use a reverse directory to check whether the person you spoke with on the phone is the person authorized to use the credit card. The reverse directory lets you find the name and address associated with any listed telephone number. Be concerned if the address returned by the directory does not match the billing address of the credit card. Find a free online reverse directory for US addresses at http://www.reversephonedirectory.com

In either event, you may wish to ship your product with a carrier or service that requires a physical street address for delivery, or that requires a signature and identification for pick-up. The U.S. Postal Service will ship with "restricted delivery," allowing only the addressee to accept the package. Contact your shipping agent to ask what services they offer.
Additional Resources

* Internet Fraud Watch - A nonprofit site that provides news alerts on the latest Internet fraud activity.

* Scambusters - A nonprofit organization providing information, links, and other resources for detecting and avoiding Internet-based fraud.

* Antifraud.com - A commercial site offering some free antifraud information and antifraud products and services.