| Five Tools You Can Use to Prevent Fraud | By Julie Fergerson |
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As the co-founder of a company that creates e-commerce order processing software, I'm routinely asked about the types of tools that can help online merchants protect their businesses from fraud. Here I’ve outlined five that can help you:
1. Real-Time Credit Card Authorization
2. Address Verification Systems
3. Card Verification Codes
4. Rule-Based Detection
5. Predictive Statistical Model Software
While the first three tools are services available from a bank or credit card company, the last two are software packages you must purchase from software vendors. At the end of this article, I've provided some merchant rankings of these tools by their cost-effectiveness and success at fraud prevention.
1. Real-Time Credit Card Authorization
Obtaining a real-time authorization for a transaction from a credit card company is a good starting point for detecting and preventing fraudulent transactions. This will ensure that the credit card has not been reported as lost or stolen and that it is a valid card number.
However, an authorization does not tell you if the person using the card is authorized to use the card. There are many other tools that a merchant can use to anticipate a fraud, such as those discussed below.
2. Address Verification Systems (U.S. Only)
An address verification system (also called AVS) is a system that runs during the credit card authorization process. AVS will match the billing address provided by the customer with the billing address on file for that credit card.
This method is not foolproof, however. According to recent analysis by ClearCommerce, AVS returns a match in only about 40 percent of all transactions, when in reality a very small percentage of transactions are actually fraudulent. This means that many transactions that fail according to AVS are actually valid. Another important consideration is that 35 percent of the fraud cases examined by ClearCommerce matched addresses when run through AVS.
Card verification codes (known as CVV2 for Visa, CVVC for MasterCard, and CID for American Express) are a fairly new way of verifying that a credit card is valid. For American Express, the code is a four digit number that appears on the front of the card above the account number. For Visa and MasterCard, the code is a three digit number that appears at the end of the account number on the back of the card.
The code does not get printed on any receipts. As a merchant, you can ask for this code on your online order form. Note: Please contact America Express Establishment Services for CID Eligibility Requirements, 800-528-5200.
Next page: Rule-Based Detection and Predictive Statistical Models » Page 1, 2, 3
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