Payment Fraud Prevention for High-Risk Businesses


April 18, 2018

The convenience of online shopping is contributing to the exponential growth of eCommerce businesses. While giving consumers the flexibility to shop from anywhere and at any time increases sales opportunities, it can also pose significant risks to online businesses. Ecommerce businesses have to conduct card-not-present (CNP) transactions to process online sales, increasing the risk of payment fraud. Online retailers are projected to lose $130 billion to CNP fraud between 2018 and 2023.

The incidence of payment fraud is even greater in high-risk industries. Excessive chargeback fraud threatens the long-term viability of high-risk businesses. High-risk merchants need payment fraud prevention solutions to protect their business from financial loss. Fraud scrubbing tools can detect and block dubious financial activities before they are processed, safeguarding high-risk businesses from online theft.

How do Payment Fraud Prevention Tools Work?

Fraud mitigation tools are cutting-edge software solutions that reduce an eCommerce merchant’s exposure to online payment scams. These fraud-fighting solutions help merchants analyze transactions so they can identify signals for suspicious payment behavior. Identifying patterns for potential payment fraud can help merchants block suspicious transactions before they happen, safeguarding businesses from financial loss.

Fraud scrubbing technology uses rule-based filtering to quickly spot and stop potentially problematic transactions. The configuration of the rules is simple: “If A occurs, do Z.” For example:

  • If the shipping address does not match the billing address, flag the transaction.
  • If a transaction originates from a specified range of IP addresses, stop the transaction.
  • If there are multiple failed transactions, block the card number.

Payment fraud prevention programs make these criteria easier to configure by providing dropdown menus with options to select for each rule. The pre-set rules are based on patterns typically seen in fraudulent payments. These patterns include:

Behavior Anomalies

Exceptionally large orders, rapid-repeat transactions, users who consistently enter the wrong PIN numbers or Credit Card Identification Number (CCN) codes – anything that deviates from normal payment behavior and might result in a substantial financial loss – will be flagged by the payment fraud prevention software for review.

Unusual Activities

If a credit card is used for multiple online transactions within a very short period, it will be flagged as a security risk by the fraud scrubbing software. It’s typical for criminals utilizing stolen credit cards or payment data to try to use it quickly before the incident is reported by the cardholder. Of course, the consumer may legitimately be doing a lot of shopping at once, like for holiday presents. The transaction velocity checking filters on the payment fraud prevention software can be adjusted to reflect expected increased activity at certain times of the year.

Blacklisted Data

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Some transaction patterns point to very obvious problems, but it takes a fraud prevention filter to spot them. If the payment card number, consumer’s name, or other details associated with a transaction have already been flagged as high-risk, a fraud scrubbing check of blacklist databases will halt the transaction. This could include card data that is believed to have been compromised in a security breach or payments coming from countries with a significant history of international transaction fraud.

IP Mismatch

Does the consumer’s current IP address indicate that they are located in a different country than the one associated with their credit card? The consumer may be shopping online while traveling, but it’s also quite possible that their payment card has been stolen or cloned. Payment fraud prevention programs can track an online shopper’s IP address to check if it matches the cardholder’s billing address. If an IP mismatch is found, the transaction will be flagged for review.

Card Testing

It is common for fraudsters to test stolen payment data to check if the card is still valid. Since most of these cards were stolen weeks or months ago, fraudsters test card validity by making small, low-value purchases online. Card testing allows cybercriminals to find out which cards are canceled and which are still available for use. Payment fraud prevention software allows merchants to filter transactions by specifying minimum dollar amounts for sales to minimize the risk of card testing and chargebacks.

Configuring Fraud Scrubbers

Fraud scrubbing technology features a set of rules that specify what should happen if suspicious payment activity is detected. As discussed in the examples above, some actions that may appear fraudulent can actually be totally innocent. You don’t want to block customers from purchasing items, nor do you want to make it easy for criminals to defraud you. So, the default rules on the payment fraud prevention program can be configured to fit an individual business’s needs.

For example:

  • You have three or four customers who place extremely large orders regularly. You can place their names – or even specific credit card numbers – on an exceptions list.
  • You can raise or lower transaction limits based on the level of risk you’re willing to accept.
  • You can opt to be conservative and “block” suspicious activities entirely, or you can adjust the filters to “flag for review.”

You can also screen for innocent mistakes that result in chargebacks. For example, you can alert customers who have placed multiple, identical items in their carts, or have attempted to purchase multiple subscriptions. In these cases, the payment fraud prevention software may be set to flag for review or may trigger an error warning and ask the customer to manually confirm the purchase. Different options are available depending on the fraud scrubbing solution and the eCommerce platform that’s being used.

Fraud scrubbers can also be configured to decline sales before and after authorization. Merchants can use the payment fraud prevention software to abort a transaction before it’s processed by the acquiring bank and also to cancel the sale before shipping the product.

Choosing a Fraud Scrubbing Solution

A white padlock icon in front of computer code

Most merchants will need technical help to properly configure payment fraud prevention software. If you have the skills and technical know-how to work with fraud mitigation tools on your own, look out for these features to help you choose the best solution for your business:

  • A secure dashboard accessible through your browser to help you view fraud scrubbing activities and act on items flagged for review.
  • The ability to update and reconfigure your filtering through the dashboard, including the filters that determine actions based on customer history interactions, IP addresses, email addresses, transaction count and transaction amount, and velocity checks.

Consult with an expert to determine whether a fully-automated solution is the best choice for your business or what level of customization will best fit your needs. The right payment fraud prevention software, when properly configured, will block a majority of fraudulent transactions in real-time and enable you to scrutinize potentially problematic activity to determine whether it is genuine or fraudulent.

Work With a Fraud Scrubbing Payment Provider

Most merchants will find it challenging to work with payment fraud prevention technologies on their own. It is safer and more convenient to work with payment providers that offer fraud scrubbing tools with their processing services.

T1 Payments uses cutting-edge fraud mitigation software solutions such as Control Scan, Ethoca, and Verifi to protect merchants from CNP fraud and excessive chargebacks. Contact us now to learn how our fraud scrubbing technologies can help boost business profitability.