Credit card fraud is an increasing threat to businesses selling goods and services through the internet. Online merchants have to offer their clients payment by credit card if they want to increase sales and keep existing customers, however, if fraudsters have used a stolen credit card or its data to purchase goods the merchant loses money because of chargeback penalties. Merchants can refuse to accept transactions that they are suspicious of in order to avoid chargeback penalties; however, this can have a detrimental effect as the merchant could end up losing out on legitimate sales.

Normally a chargeback will start with the credit card holder noticing a discrepancy on their statement whereby they will have been charged for a purchase that wasn’t authorized by them, they will make a complaint to the credit card provider. Mostly, the merchant is responsible for the fraudulent transaction, unless they can show that the transaction was valid. The provider will take the original amount from the merchant plus an administration fee levied by them, so the merchant loses the goods or services provided, plus the amount paid for them and the fee levied. This is known as the chargeback penalty. There could also be currency conversion commissions to be paid. The bank collects the chargeback fees as they arise so the merchants’ bank account could become overdrawn and bank charges incurred.  The merchant can appeal if they disagree with the charge and if the appeal succeeds then the merchant will be refunded the charges. 

Sometimes, a dishonest customer will purchase an item using their credit card online and then make a complaint to the credit card company that it is a fraudulent transaction, after they have received the goods. In these situations merchants can have trouble recuperating the payment.

If the merchant is dishonest or just doesn’t have the money to return then the credit card provider is liable for returning the funds to the customer, so to minimize this risk, the merchants chargeback risk is assessed rigorously.  Many credit card frauds can be stopped when the customer inputs their personal details; if the merchant has an efficient security check he will prevent many chargeback penalties himself as well as gaining a reputation as a trustworthy business with the credit card provider.

Credit card companies set a limit to the number of chargebacks generated by a merchant. If the number of chargebacks goes above this limit then the merchant will be fined by the company.  As well as penalties and fines imposed, chargebacks can also harm a merchants business and reputation. If, even after a fine is imposed, the number of chargebacks continues to be high, the credit card provider can decide that the costs are too high and cancel the merchants account. The merchant would be unable to accept credit cards as payment on his website and consequently lose out on sales. For some online merchants this would involve losing the majority of their sales and result in the end of their internet business.

There are many effective and valuable online credit card fraud systems on the market today that can help prevent chargeback penalties. The systems are designed to identify attempted fraud in the early ordering stages and alert the merchant so they can void the transaction. Many online merchants have no understanding of the extent of online fraud and overlook it until it is too late; awareness arrives with costs, fees and penalties. Costs of purchasing an anti-fraud system will far outweigh penalties incurred and protect your business reputation. There are a number of good websites that provide anti-fraud systems. A good system will protect you from fraudulent transactions, meaning less losses and more profit for your business and ultimately benefit your customers.

As more and more retail and service providers make the decision to sell their products online in order to meet demand, online credit card fraud increases and millions are spent in expenses each year. Most online fraud is committed by using stolen credit card information; the most common method is copying information from retailers, online or offline. Merchants who sell and ship their products online have to deal with the security issue of the credit card holder and card not physically present at the time of purchase, (commonly known as CNP – card not present) so the merchant has to depend on the details that the buyer inputs online. It is impossible for a merchant to verify that the purchase is legitimate. There are various ways to try to identify and prevent credit card fraud.

Each computer has its own unique address that identifies the location of the computer network. This is known as the IP address. You can identify where the order was placed by finding out the IP address.

Always be cautious of orders where the address for the item to be sent to is a Post office box number or a mail forwarding address. Google can check an address and identify if it is a mail forwarding company.

Unusual orders should always be carefully scrutinized. These might be requests for vast quantities of the same product or the same item ordered in multiple quantities. Also watch out for multiple orders placed from the same customer or orders placed with different names but the same credit card number or the same shipping address.

If the customer requests the order to be dispatched straight away don’t be inclined to rush through the security checks in order to not lose the sale. Many fraudsters do this deliberately, on the basis that if they give you limited time details won’t be checked thoroughly.

Some order processing software has referrer information on orders so you can look into which terms the customer used to find your site. When searching for products, people will normally search the category or the keywords products are advertised under, when fraudsters are looking they will be more likely to search under ‘overnight delivery’ or ‘international shipping’ rather than the keywords associated with the product.

Normally the billing address matches the shipping address, so if these differ take care to check through other details provided.

Contact details provided can sometimes send up discrepancies. Look out for the area/city given as the address and see if the area code is a match. If the customer uses a free email account, such as Yahoo, Hotmail or Google, be wary of email addresses that don’t match the customer’s name.

Many fraudulent transactions can be prevented straight away with vigilance and an awareness of what to look out for. If you are really unsure of an order never complete the transaction unless you have done everything you can to confirm the details. As the merchant, if a credit card is a fraud then the goods or services are lost along with the payment, the fees for processing the payment, any currency conversion commissions and there will be a chargeback penalty. On the other hand, if merchants refuse transactions as they are suspicious they face the chance of losing a legitimate sale.

There are a number of good websites that provide anti-fraud systems. A good system will protect you from fraudulent transactions, meaning less losses and more profit for your business and ultimately benefit your customers.