Fraud & compliance

Merchant tips: 7 ways to reduce online credit card fraud

Every merchant hopes that their ecommerce store is a wild success with tons of orders coming out the yin-yang. What many of them don’t consider is just how many of those orders may be fraudulent in nature.  

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If you accept credit card payments online, the reality is you’re at risk of credit card fraud. That’s why you need to do your due diligence and perform additional security checks before you approve and ship orders.  

Doing so will help protect your ecommerce store from fraud. Here are some strategies you can use. 

1. Sign up for authentication programs

Mastercard’s Secure Code and Verified by Visa are both authentication programs that use personal passwords to verify an online credit card user’s identity. Not only does this add an additional security layer, but it can move the liability to the card issuer.  

If a fraudulent transaction occurs and you use an authentication program, the card issuer will take on the loss, so you don’t have to. There is, however, an additional processing fee to use such a program. But the benefits should outweigh the cost. 

2. Use an address verification system (AVS)

You might have heard of AVS before – it's a system that matches the cardholder’s billing address to the information on file at the card-issuing bank. It’s important to note that AVS only uses the zip code and street number, though. 

AVS may fail due to a recent address change that hasn’t been updated, but it’s still a good idea to take this security step. You may decide to decline the transaction and request a different payment type if this occurs, or you might choose to call the customer for additional information.  

3. Use card verification methods (CVM)

Card verification methods are the extra digits that make up a security code imprinted on a credit card. This code doesn’t show up on a credit card receipt and it isn’t encrypted in the magnetic stripe. The customer needs to have the card to know this number.  

Since many fraudsters steal credit card numbers rather than the credit cards themselves, asking for CVM to validate card-not-present transactions can help you curb credit card fraud online. 

4. Conduct a BIN check

A credit card’s bank identification number (BIN) consists of the card’s first six digits. This number can help you determine whether the card holder and the card’s issuing bank are located in the same country. If they’re not, that’s a big sign of fraud, and you can decline the transaction before you take a loss.  

5. Request authorization

One easy way to reduce the risk of fraud is to request authorization. Now, this doesn't necessarily mean the payment is guaranteed. But what it does mean is that the payment provider has checked that the credit card hasn’t been reported as lost or stolen and that the credit limit hasn’t already been exceeded. 

It’s an extra step that can help protect your store from credit card fraud.

6. Keep a negative historical file

A negative historical file is a database of past fraud attempts, chargeback records, problem customers, and excessive refunds. Keeping this type of file can help you reduce fraud from repeat offenders, although it doesn’t help with first-time fraudsters.  

You can also use a shared negative historical file, which keeps data from several merchants to further reduce your risk.

7. Use a credit service

If you sell big-ticket, high-dollar-value items, you might want to consider credit checking customers with services such as Trans Union or Equifax before allowing credit card purchases. Though this service can be costly and time consuming, asking customers to verify specific personal information can reduce your risk of chargebacks. 
These are just seven ways to reduce credit card fraud online. There are many other credit card fraud prevention tips and strategies out there. Choose the right ones based on your business, your customers, and your budget. 


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Ben Smith

Ben brings 20 years of experience to his role as IT Director for BNA Smart Payment Systems. Among his many directorial duties, he is responsible for the selection, acquisition, development, installation, maintenance, and support of IT infrastructure. Ben also establishes and leads a cross-functional architectural committee, acts as a technical expert and a critical technical resource across multiple disciplines, and consults on all system implementation, modification and integration activities. He graduated with Honours from Durham Collage in Computer Programming, and takes yearly training courses for security and development technologies to remain up-to-date. Outside of work, he loves playing hockey and skating with his family, and also enjoys gardening and cooking.

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