InternetNews.Com reports that payment fraud is eating up a larger share of online business profits this year than in 2004. The article says that E-tailers with revenues in the $5 to $25 million annual range were affected the most. Does that mean as a small home-based, internet-based business, you should not worry about fraud? Hardly. If anything, home-based, internet-based businesses are more vulnerable because the owner may be just starting out and may not know some of the red flags.
There are a wide variety of fraud techniques, many of which are little known. Most of them exploit credit card payment and shipping loopholes. I blogged here about the importance of using a merchant account. A good merchant account has many controls in place which can help protect you (and your customer) against many types of frauds (such as hijacked credit card numbers).
Address Verification System (AVS) – AVS is a system which compares the address and phone number which your web shopper keyed in with the address and phone number in the master AVS database. If an authorization fails this test, the payment will be rejected and will be flagged as an AVS error. Sometimes these are honest errors, for example, when the customer has recently moved and the AVS system has not yet caught up (it can take up to week to update AVS across the board after the address change is processed at the source bank). Often when the customer gets this error, they will try to call the order in. Taking the order over the phone will usually not make the problem go away. In these cases, your best bet is to inform the customer that there is a AVS error and ask them to contact their bank.
Credit Card Verification number (CCV) – The CCV number are those three numbers printed on the back of the credit card – numbers that are not part of the credit card account number. Having the customer put these in will help ensure they are actually in possession of the physical credit card.
In many cases these two controls are optional in your merchant account settings. Make sure you use them if you want to minimize your credit card fraud risks.
Shipment Signatures – What’s to stop someone from ordering something, having you ship it, and then saying they never received it – demanding their money back? Sadly this one is used a lot. Fortunately, it can usually be thwarted by setting your shipments (with your drop shipper or fulfillment center) to require the shipping company to get a delivery signature. In addition, for items of greater value, you should have them insured. These extra services usually don’t cost that much and you can pass these costs along as part of the shipping costs.
So… there’s no need to loose sleep over fraud, but at least be aware of the issues.