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How to Catch a Fraudulent Transaction

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The anonymity of the Internet makes it enticing and comfortable for a thief in possession of stolen or falsified credit card information to go on a spending spree.

Unfortunately, the online merchant ultimately foots the bill.

If you haven't yet encountered credit card fraud, you probably will at some point in the future.

These five directives for verifying orders, if followed, will greatly reduce the risk of fraudulent transactions.

Suspect all orders of being fraudulent. This may seem like a harsh statement until you've encountered thieves using legitimate information, requesting that the merchandise be shipped to the cardholder's own home, then picking up the package while the cardholder is at work.

You don't need to become a warrior looking for fraud around every corner. However, don't be naï ve, and remember to use common sense.

Use address verification service (AVS) and the card company as your first levels of fraud screening. This will by no means verify absolutely that an order isn't fraudulent, but it will catch the obvious.

This step won't help with international orders. But for domestic orders, AVS can help you determine, among other things, whether the address you've been given matches the credit card company records for the billing address on the account.

For more information about the use of AVS and a list of common AVS codes, visit VerifyFraud.com.

If you're unable to obtain the necessary information through AVS, or you have further doubts or concerns, contact the credit card company directly. It will assist you in determining whether the credit card information you've been given is valid.

Research all orders with billing and shipping addresses that don't match. I can't emphasize this point enough. Verify with the cardholder that this is a legitimate transaction.

E-mail can only work to a certain extent; unless you have a sophisticated e-mail tracking system in place, you can only hope that the party you're e-mailing is the true cardholder.

If someone requests that you ship the product to a different address than the one on the credit card account, you should first ask yourself some common-sense questions to determine whether there might be a valid reason for the request:

Is it a business order? Businesses often have different physical locations than their billing addresses.

Is it a gift item? Often, customers would like merchandise shipped directly as a gift.

Be sure to contact the card company and find out whether the cardholder has authorized an alternate shipping address on the account. Call the cardholder to verify the transaction. Check to make sure that the address is not a drop shipment location. Check the e-mail address because most business professionals use company e-mail addresses that a thief would not have access to.

Know where you're shipping. Do a little research into the fraud rates of the location to which you're shipping the merchandise. Certain states and countries have a significantly higher rate of fraudulent orders than any others. For example, New York, California, Florida, Texas, and Arizona have the highest U.S. fraud rates.

Also, be especially cautious with apartments, post office boxes, and suite addresses.

I recommend that you don't ship internationally unless you have a trained and experienced staff. Consultants are available if you need help training your sales staff or risk management team.

Research all express shipping orders. An extremely large percentage of fraudulent orders specify overnight or one-day shipping. Each of these orders should be investigated to ensure its validity.

Ask yourself why the customer is requesting express shipment. It seems logical to request express shipment for certain items, such as software, gifts, and some computer equipment. We all want to receive items in a timely fashion; however, most consumers don't like the high price of express shipping.

A merchant who had received a next-day air shipment order for a $3,000 laptop computer once contacted us at VerifyFraud.com. The laptop was supposedly being purchased as a last-minute gift. American Express approved the transaction, but the merchant just didn't feel right about shipping the order.

We advised him to e-mail the cardholder and inform him that the order was on hold due to a battery part that wouldn't come in for another two to three weeks from the manufacturer.

At the end of the e-mail message, the merchant advised the customer that he would still be willing to ship the laptop via next-day air, but the accompanying part needed to run the laptop would not arrive for another two to three weeks.

When the customer requested that the laptop still be sent via next-day air, and the battery part shipped when it arrived, we knew we had a thief on our hands. After some brief research, we located the true cardholder in Aspen, Colo., not in Brooklyn, N.Y., where the order was to be shipped.

How did we catch it? Simple logic: If a true customer needed a laptop for a last-minute gift and requested next-day air at an additional charge of $39, that customer would want a complete gift with all the accessories. It's not logical for a true cardholder to pay next-day shipping charges for a product that won't be usable for another two weeks.

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