Economic and health uncertainties will continue to shape the post-COVID world. These factors are contributing to an increase in fraud and could result in high levels of fraud becoming the new normal. The FTC has received more than 88,000 fraud reports that amount to more than $113 million in losses since the beginning of the year.
Fraud is becoming more diverse, and criminals are more motivated than ever. Businesses might struggle with credit card fraud detection due to increased online order volumes. The best way to prevent credit card fraud in a post-COVID world is to implement these strategies, which make it harder for criminals to exploit common schemes.
1. Identify your top risks
Your credit card fraud detection efforts should be tailored to your unique risks. Looking at past data for financial losses from fraud could reveal loopholes that scammers are taking advantage of, such as return policies.
Historical data can also reveal high-risk items in your inventory. For example, high-value or luxury products often attract friendly fraud scammers since these items are easy to resell for a profit.
2. Implement Know Your Customer best practices
Know Your Customer, or KYC, refers to a set of best practices you can implement to improve credit card fraud detection.
The purpose of these steps is to verify that customers are who they claim to be. Here are some effective KYC strategies:
- Use an Address Verification Service (AVS). An AVS can check the billing and shipping address and ensure that they correspond to the customer’s address.
- Cross-check user identity with an Anti-Money-Laundering (AML) database, because it can flag customers who have financial ties with known criminals.
- Check IP addresses and look at geolocation data. The IP address of a user might not match the billing and shipping address or might be associated with other transactions made using different credit cards or identities.
- Look for anything out of the ordinary. Review any order that stands out, such as a large order placed by a new customer or that doesn’t match the order frequency and volume of your typical customers.
3. Focus on credit card verification
Card-not-present (CNP) fraud is one of the major risks of online transactions. It’s estimated that CNP could cost more than $34 billion by 2022.
In CNP fraud, criminals use stolen 16-digit card numbers to purchase goods or services online. However, they rarely have access to the CVV number or expiration date of the card. Asking for this additional information can reduce CNP fraud.
Employees should watch for spoofed or stolen cards used to conduct in-person transactions. They shouldn’t hesitate to ask for an ID to see if the name matches the one on the card, or examine the credit card physically. Additionally, they can compare a shopper’s signature with the one on the card and ID.
When in doubt, the best thing to do is call the card issuer and have them help you verify the identity of the customer.
4. Set velocity limits
Criminals will often test multiple stolen credit card numbers until they find one that hasn’t been reported as lost or stolen. Implementing velocity limits on users testing multiple payment methods makes it more difficult for criminals to use your payment system to test card numbers. Similarly, in-store staff should be trained to become suspicious if a shopper asks them to try multiple payment methods.
You can also implement velocity limits on purchases. Once a criminal finds a stolen credit card number that works, they will typically max out the card very quickly. Look for cards and IP addresses that have been used to make multiple purchases over short periods of time.
5. Process in-person payments with EMV chips
Cloning credit cards is possible once a scammer has access to a stolen card number. This information can be loaded into the magnetic stripe of a fake card.
If you haven’t done so already, upgrading your Point of Sale (POS) systems to read EMV chips (named after Europay, Mastercard, and Visa – the three companies which created the standard) and requiring shoppers to use the EMV chip can reduce credit card fraud. Cloning EMV chip data is nearly impossible, and these chips use encryption as well as a unique transaction code for additional protection.
6. Review returns and customer service policies
Friendly fraud is a type of credit card fraud in which customers contact the card issuer to cancel a transaction. Although cancellations are often legitimate, there are scammers who take advantage of chargebacks and end up getting their money back while keeping the goods or services purchased.
You can avoid chargeback fees by making it easy to return products, ensuring that customer service representatives can resolve issues, and creating realistic expectations for your products. Additionally, appeal chargebacks that don’t seem legitimate and keep detailed records of transactions and shipments to improve your chances of seeing chargebacks reversed.
7. Invest in software solutions
There are additional software solutions to consider for credit card fraud detection. Here’s how Fraud.net can help:
- Our fraud prevention and detection dashboard gives you comprehensive views of open orders and flagged transactions. You can control who has access to this information, go over suspicious transactions, perform manual reviews and easily access insights for each transaction.
- Our collective intelligence solution relies on data from our network to flag suspicious activity. Even if a user is new to your system, the platform will alert you if they targeted other merchants from our network.
- Our AI calculates a risk score for each transaction. This approach goes beyond rules-based fraud prevention and looks at multiple data points to better assess complex situations and flag anything unusual for a manual review.
Increased levels of fraud in a post-COVID world call for new credit card fraud detection measures. You can learn more about how Fraud.net helps merchants like you face this complex threat by requesting a demo.