A Transaction Seems Suspicious: What Should Merchants Do?

Sydney VaccaroFraud PreventionLeave a Comment

A Transaction Seems Suspicious: What Should Merchants Do?
Fraudulent transactions that come from stolen credit cards will cause the merchant to receive a true fraud dispute, which is why it is so important to prevent fraudulent transactions.

Unfortunately, payment fraud is an unavoidable aspect of accepting credit cards. Sometimes sophisticated fraudsters will be able to complete a transaction without raising any red flags. Other times, something about the transaction may seem suspicious. So, what should a merchant do if they receive a suspicious transaction? Read on to find out what Visa suggests.

Why Prevent Suspicious Transactions

When merchants accept a fraudulent charge, it means that a fraudster has used a stolen credit card or card credentials to make a purchase. This type of payment fraud is called true fraud and it results in the merchant who accepted the fraudulent transaction receiving a true fraud dispute. The merchant is responsible for preventing fraudulent transactions from happening. Because of this liability, the transaction amount is debited from the merchant and returned to the actual cardholder.

Beyond the loss of revenue, merchants also need to be aware of how disputes affect their dispute ratio. Also known as a chargeback ratio, a dispute ratio is the number of disputes-to-transactions that a merchant has earned. Merchants need to keep this ratio under 1%. If a dispute ratio is greater or equal to 1%, it can result in processors placing merchants on at-risk lists such as MATCH or Visa's Chargeback Monitoring Program. If a merchant can’t keep their dispute ratio under control, they may even lose their ability to process payments altogether.

A Transaction Seems Unusual

With the risk of losing revenue and increasing your dispute ratio, merchants should be proactively trying to prevent fraudulent transactions. Here are Visa's recommended steps when merchants receive a suspicious transaction.

Card-Present Transactions

For a card-present transaction, your sales staff will be the one noticing that the purchase seems fishy. It is important to establish and train them on what procedures to follow when they suspect fraud. These procedures could include asking the customer for identification. Make sure that if you do ask for identification, you are following this rule:

"A merchant may request cardholder identification in a face-to-face environment. If the name on the identification does not match the name on the card, the merchant may decide whether to accept the card. If the cardholder does not have or is unwilling to present cardholder identification, the merchant must honor the card."

Your staff is interacting with your customers daily and can probably tell if something suspicious is afoot. While preventing fraudulent transactions should be a priority, it is also essential to maintain excellent customer experience. Keep in mind that card-present transactions have a lower level of fraud than card-not-present purchases, as it’s harder for a fraudster to obtain a physical card instead of just card credentials.

Mail Order or Telephone Order Transactions

Card-not-present transactions are much more susceptible to fraud because the purchase is made without having the physical card present. As such, it is more important for the merchant to validate purchases coming from mail, telephone, and ecommerce. Here are a few checks merchants can do on MO/TO transactions:

  • Ask for additional information to check the validity of the purchase. Visa suggests asking for the day and evening phone numbers and calling the customer back later to verify the purchase.
  • Ask for the bank name on the front of the card. This question can be an additional check that they have the physical card with them.
  • One red flag for merchants may be that the billing and shipping addresses differ. If that is the case, merchants can confirm the order by mailing a confirmation to the billing address.
  • For telephone orders, Visa recommends that employees keep a conversational tone when they are verifying orders, so they don't arouse any suspicion. If a customer asks why the information is needed, the employee should say they are trying to protect the cardholder from fraud.

Ecommerce Transactions

To prevent fraudulent transactions from happening on ecommerce sales, merchants must put front end fraud filters in place. For transactions that are neither obviously good or obviously fraudulent, the filter will pass the transaction to an employee. Who will then look over and decide to accept or decline the order. The employee can do some manual checks to see if the transaction is fraudulent. The test that Visa suggests is to call the customer to verify the transaction. A merchant can use a directory tool to find the cardholder's phone number. Positioning the call as a routine check that is trying to protect the customer can prevent fraud and build a customer's confidence and loyalty.

Prevent Fraudulent Transactions From Becoming Disputes

Fraudulent transactions that come from stolen credit cards will cause the merchant to receive a true fraud dispute. These disputes are not winnable for the merchant and will cause a loss of revenue and merchandise. But not all transactions that end in a dispute will seem suspicious. There are fraudsters that will authorize a valid purchase, then turn around and dispute the charge. This scenario can be caused by the cardholder trying to retain the merchandise and get their money back. Or it can be caused by a cardholder simply forgetting about the purchase or not recognizing the merchant descriptor.

With Real-time Resolution, merchants can communicate directly with the issuing bank where the cardholder is disputing the charge. The merchant is able to communicate the transaction information in real-time to the bank and the cardholder. If the cardholder was just forgetful, it will stop the dispute from happening altogether. For the cardholder that is maliciously disputing the charge, RTR equips dispute analysts to make informed decisions on whether or not a dispute should be filed. Typically, this level of transactional, customer, and product detail isn’t made available until well after the dispute has been officially filed.

To learn more about Real-time Resolution and the possible ROI for your company, you can schedule a demo with one of our dispute experts.