There has been a tremendous increase in the number of merchants who have been scammed by crooks who place fraudulent orders using stolen credit card information. Unfortunately, merchants are not provided the same protection as consumers when it comes to credit card fraud. In fact, merchants are completely at risk.
Online credit payments are classed as Mail Order and Telephone Order sales by credit card companies, yet suffer far higher chargeback rates. While the Visa and MasterCard quote overall card fraud at around 0.08 per cent of all transactions, online fraud (for which no separate figures are released) is estimated by online traders at somewhere between three and five percent. The figures are higher than for mail order or telephone sales. The fact that neither Visa nor MasterCard will provide such figures should give all online retailers pause for thought.
Physical presence offers security based on a customer signature and card imprint. But the merchant is almost always responsible for losses when sales are made on a 'Cardholder Not Present' basis even when the vendor has obtained authorisation from the card issuer.
Begin taking a few extra steps to validate each order. Don't accept orders unless complete information is provided (including full address and phone number). We also now require Address Verification for all of our credit card orders. Most credit card gateways will show the level of match between billing information provided and credit card billing information on file. Use this level of match to determine whether the transaction appears legitimate.
Be wary of orders with different "bill to" and "ship to" addresses. Some companies now require anyone who uses a different "ship to" address to send a fax with their signature and credit card number authorizing the transaction.
Be especially careful with orders that come from free email services -- there is a much higher incidence of fraud from these services (hotmail.com, juno.com, usa.net, etc.). Many businesses won't even accept orders that come through these free email accounts anymore. That's because it's so easy for a scamster to open a free, anonymous email account in another person's name and then send you, the merchant, an order using the fake email account and a fraudulent credit card number.
Be especially wary of orders that are larger than your typical order amount, and orders with next day delivery. Crooks don't care what it costs, since they aren't planning on paying for it anyway.
Pay extra attention to international orders. Do everything you can to validate the order before you ship your product to a different country.
If you're suspicious, pick up the phone and call the customer to confirm the order. Believe us, it will save you a lot of time, and money, in the long run.
If your processor offers additional fraud detection tools use them to their fullest extent.