Anti-Fraud Measures for Your Site

Outsmart the bad guys with these anti-fraud tactics for your site.
Magazine Contributor
2 min read

This story appears in the September 2006 issue of Entrepreneur. Subscribe »

Online fraud rates might be going down--finally approaching the levels of brick-and-mortar stores--but fraudsters are getting more sophisticated. These were the key findings of the Merchant Risk Council's fifth annual survey released in April. The Austin, Texas, council consists of 7,500 merchants, vendors, financial institutions and law enforcement agencies.

Card-present fraudulent chargeback rates are usually less than 0.1 percent of sales, and 48 percent of the online retailers surveyed said their chargebacks match that rate--a significant improvement over 2004, when online fraud outpaced card-present fraud by as much as five times. "The numbers show a very positive trend, but fraud still requires vigilance from online retailers," says Julie Fergerson, board member of the Merchant Risk Council. Fergerson's fraud-prevention tips:

1. Create metrics for your business. "Keep track of how much fraud you are having, what your chargeback rate is, and what your review rate is," she says.

2. Aim for a low fraud rate--less than 0.2 percent, based on chargebacks.

3. Optimize your fraud-screening tools. In general, when merchants accept an order, they run it through their screening tools to determine if it's suspicious and if they need to review it manually. "Some merchants review 50 percent of their orders manually, which says they haven't optimized their fraud-screening tools," Fergerson says. "And others only review 1 percent, which says they may be letting fraud sneak through. In general, less than 10 percent is a good place to be."

4. Use a variety of fraud-prevention tools. The top three are Address Verification Services, customer follow-up when the order looks suspicious, and the use of Card Verification Codes.

5. Stay one step ahead. Says Fergerson, "Some fraudsters will get 100 different credit card numbers, but use the same e-mail address and order from the same computer." A velocity check across multiple fields is a hot new anti-fraud technology that allows online merchants to track how often they see different credit card numbers with the same e-mail or IP address.


Melissa Campanelli is a marketing and technology writer in New York City.

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