The Anti-Fraud Tactics Online Credit Card Processing Merchants are Using

The Anti-Fraud Tactics Online Credit Card Processing Merchants are Using

Perhaps because I work with online credit card processing merchants, and I fully know the fraud risks involved, I get nervous when purchasing high ticket items online.

Recently my 16-year-old son joined a mountain biking team out of a local bike shop, which called for a significant upgrading in mountain bikes. We found one which was on sale for about $1,700, down from $3,000, and we decided to pounce.

He’s been working for nearly a year, and has saved a good bit of money, but not enough to cover the entire bike, so my wife and I pitched in. After reading some lofty reviews of the online bicycle retailer, we purchased it online, which was a seamless experience.

Upon completion, I thought I should be proactive and notify my credit card issuer to inform them the purchase was legitimate – I can’t remember ever making a purchase so large online – but I never had to. Less than a minute after checkout, I received an e-mail message on my mobile phone alerting me of a suspicious purchase made with my credit card, with buttons to affirm or decline. Naturally, I affirmed.

I was thankful for the quick notice from my credit card issuer, a fraud prevention tactic known as a multi-merchant velocity check. It is a tactic that measures a consumer’s purchase history against other online retailers and flags irregular purchases in real time.

I was impressed by my issuer’s rapid response. In January of 2015, that same credit card was used in a fraudulent online purchase of a Dell desktop computer. My credit card had a zero balance at the time, and hadn’t been used in years (it had been kept in a sock drawer); thus, the purchase should’ve raised red flags everywhere. Unfortunately, the purchase had already been completed by the time my issuer contacted me for confirmation.

Multi-merchant velocity checks are more widely used now, and far more effective than three years ago.

Fed Reserve study releases popular fraud prevention practices

Recently, the Federal Reserve Bank of Minneapolis performed a study of the most popular fraud prevention tactics in a pool of 166 e-commerce merchants. Most of the findings were generally encouraging:

Fraud fighting is a priority: 90 percent of the online credit card processing merchants surveyed indicated they take a multi-layered approach to handling fraud, using two or more methods.

Pick your poison: Fraud mitigation tactics vary widely among the merchants surveyed. No single tool is used by all of the merchants – not even close.

Embracing new tactics: A significant percentage of the merchants in the survey either use or plan to use cutting edge tactics such as artificial intelligence/machine learning, the aforementioned multi-merchant purchase velocity checks and fingerprint identification.

Currently, the most common fraud mitigation tactics are predictable, the Federal Reserve Bank of Minneapolis found:

  • 76 percent of surveyed merchants required CVV codes during purchase
  • 73 percent said they use a self-checking form of address verification
  • 69 percent indicated they use a third party for address verification
  • 67 percent of the merchants perform e-mail verification checks
  • 66 percent require a driver’s license for online purchases to be retrieved in-store

These are all good practices, but merchants are finding they need to do more, which is both encouraging and disheartening.

Cutting edge fraud prevention tactics a priority

More than ever, online credit card processing merchants are stepping up their fraud mitigation efforts, based on the Federal Reserve Bank of Minneapolis poll.

  • AI and machine learning are currently the most popular tactics: 28 percent of the 166 merchants surveyed use either AI or machine learning to flag possible fraudulent transactions and 16 percent indicated they plan to use them in the near future.
  • Velocity checks also popular: 27 percent use multi-merchant velocity checks while 13 percent are planning to.
  • E-commerce merchants using fingerprint ID: 19 percent of the surveyed merchants use fingerprint ID checks – similar to what consumers use when downloading a song from iTunes to their smartphone – with 13 percent planning to use it eventually.

When asked what fraud mitigation tactics merchants were most likely to add over the next six months to a year, multi-merchant velocity checks was among the top three responses along with 3D secure technology and geolocation.

Online credit card processing fraud should be a priority

Defending a business from fraud is not an option. Online credit card processing merchants, however, have many effective alternatives to prevent and mitigate online criminal activity. Instabill merchant account managers align merchants with the best acquiring banking partners – domestic, international and offshore – for their industries which also help keep fraud to a minimum.

Discuss the possibilities with one of our experts at 1-800-530-2444.

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