Reducing Card Not Present Fraud
According to CyberSource, a leading online fraud-prevention company, on average merchants lost approximately 1.4% of revenues to credit card fraud in 2008. This is an average, however, and many merchants employ tactics that lower credit card fraud rates to less than 0.2%. Some merchants, like marketers of electronic goods, are more prone to fraud. Others, like men’s sundries catalogs experience very low credit card fraud rates.
Regardless of your circumstances, there are two levels of fraud control tools at your disposal: Intrinsic and external. Intrinsic methods are schemes provided by the card Associations like Address Verification Service (AVS) and the credit card Security Code (CVV2, CVC, CID, etc.). With AVS, you pass billing address and zip-code information along with your authorization transaction and request the service. The response, either positive or negative, gives you information on which to base fraud decisions. What’s more, it’s required information in order to obtain the best interchange rate. All you need to do is provide the information and make the request and you will get the preferential rate – regardless of the result. If you do not request AVS, you will receive a
downgrade.
PIN based solutions like Verified by Visa® and SecureCode™ by MasterCard® ask for a personal ID number during check-out. Another benefit of these programs, depending on brand, is that they may provide the merchant with certain chargeback protection or lower interchange rates. While this is a great fraud tool, some merchants complain that the extra checkout step increases shopping cart abandonment, and adoption has been slow.
Other intrinsic methods might include fraud scoring based on order characteristics (value usually being one parameter). Merchants can also externalize their fraud detection function to companies like
CyberSource,
41st Parameter, and
Accertify. These companies utilize a variety of methods to combat fraud including sophisticated risk scoring, heuristics, and negative files.
If you are not certain how fraud is impacting your company, chargeback rates are a good indicator. CB rates between 0 and 0.4% usually represent minimal fraud activity, and are best dealt with intrinsic methods. CB rates between 0.04% and 0.7% may indicated moderate fraud and may dealt with using intrinsic methods, external solutions or a combination of both. CB rate above 0.7% should be considered high, and the merchant would be flirting closely with the Associations’ 1% limit. In this case merchants should use all available methods to abate the high fraud rate. In every case, merchants should work closely with their processer to minimize fraud risk in particular and chargebacks in general.