The Three Faces of Fraud (Part III: True Fraud)

Sydney VaccaroChargeback Basics11 Comments

True Fraud

True fraud is the reason the chargeback process exists. It is a hassle for both merchants and cardholders alike. In the third and final part of The Three Faces of Fraud series, we will look at what true fraud is and the only way merchants can protect themselves from it.

What is True Fraud?

True fraud, also known as identity theft, begins with an acceptance of a stolen card. The fraudulent purchase is disputed by an actual cardholder. As a result, the card account will be closed. And a new account number and card will be issued to the true cardholder.

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The Limited Edition Sneakers

Retail Riley owns a trendy shoe store that recently landed some really great limited edition shoes. These shoes are only sold at a few locations across the country. Because these shoes are limited edition Riley was charging more than normal for them. Even at the higher price his customers were still buying them up.

His excitement about the new shoes was dampened a little bit when he received a dispute. The transaction was for a pair of his limited edition shoes and the customer claimed the transaction was fraudulent. Riley’s first thought was that the dispute must be someone trying to rip him off by committing chargeback fraud to get the sneakers for free.

As Riley started to take a closer look at the transaction details something wasn’t adding up. The customer's name “Shopper Samantha”, her email address, physical address, and phone number all matched. But there was a different name on the card “Innocent Isaac.”  Also the IP address where the transaction was made was in a completely different state from where the shoes were shipped to. Could it just be Isaac sending a gift to Samantha?

Shopper Samantha Finds a Deal

    Shopper Samantha couldn’t believe the deal she got. As soon as she saw the pair of limited edition sneakers on Retail Riley’s website she instantly fell in love. But then saw the price was way more than she ever wanted to pay for shoes. Determined to get these shoes, Samantha started looking around different websites that also carried them. She came across an eBay listing for the shoes in her exact size and for half the price. Samantha couldn’t believe her luck.

    Samantha took a look at the sellers reviews and saw that all the past customers were really happy. The reviews said they got the exact pair of shoes they were expecting. So she decided to ignore the old saying “if it sounds too good to be true then it probably is” and bought the shoes.

    Innocent Isaac Gets a Random Charge

    Innocent Isaac has no idea where this charge came from. He received the notification of a purchase for some very expensive shoes from Retail Riley’s store. Isaac is not a shoe lover and only buys shoes when absolutely necessary. So there is no way he would ever spend that much at a shoe store.

    “There is only one thing that could have happened. Someone got a hold of my card and went on a shopping spree” Isaac thought. He contacted his issuing bank and told them that he had no idea where the charge came from. The bank assured Isaac they would start the dispute process and would send him a new card immediately.

    True Fraudster Tami

    True Fraudster Tami’s specialty is a triangle fraud scam and she has got the process down to where it is practically flawless. She is behind why Samantha is happy about her new shoes and why Isaac and Riley are so confused.

    This is how Tami walks away with profit through all this confusion. Tami puts a listing on eBay for limited edition sneakers cheaper than any store sells them for. Shopper Samantha purchases the shoes at the cheaper price. Tami takes a random card number she purchased off the dark web, in this case Innocent Isaac’s card, and purchases the shoes directly from Retail Riley. Tami gives Riley all of Samantha’s information so the shoes will get shipped straight to Samantha.

    In the end:

    • Isaac gets stuck paying the full price of the shoes
    • Samantha gets sent the shoes from Riley
    • Riley gets a customer dispute
    • Tami walks away with the money Samantha paid her through eBay

    Two People Are Happy, Two Are Not

    Samantha receives the limited edition shoes in perfect condition. Tami is a happy fraudster because another one of her triangle schemes has worked out and she walks away with her eBay profit.

    Unfortunately the transaction was true fraud. This means that Riley can’t win the chargeback and loses the shoes and the profit. Isaac has to deal with the panic of having a stolen credit card number and the hassle of getting a new card set up.

    True Fraud And How to Stop It

    The triangle fraud the Tami articulated is true fraud. This means that Isaac did not authorize the fraudulent charge on his credit card. He has every right to file a dispute and he will win. As a merchant this may sound discouraging. Retail Riley needed to put fraud filters in place to stop a fraudulent transaction from being completed. Fraud filters such as Feedzai, Sift Science, and Decision Manager are companies that provide these fraud filters.

    The filters are based on the customer information, transaction details, and your company or product type. The filters purpose are to block fraudulent transactions from ever being processed but let the good and safe transactions through. Preventing true fraud disputes from happening.

    There were a couple red flags for the transaction that was in the example above. Those red flags would be caught by fraud filters and stopped from happening. This would have resulted in Isaac’s card never being charged and Riley never receiving the dispute. With a combination of front end fraud filters and post transaction dispute management, such as Chargeback, your company will be in the best position to lower your dispute ratio, increase win rates, and save time.

    Chargebacks Make the Ecommerce World Go Round

    When true fraud happens it brings the “well, this sucks” feeling for both the merchant and the cardholder. The customer has to go through the hassle of getting a new card and waiting for the money to get returned to their account. For merchants they lose out on merchandise, profit, and get hit with a chargeback fee.

    True fraud is the exact reason why the chargeback process is in place. It protects customers and gives them the confidence when using their cards. For the same reasons the chargeback process also helps merchants. The ability to dispute a charge is what gives people the confidence to make purchases anywhere with their cards. More importantly use their cards online with a merchant that is on the other side of the world. Without this peace of mind the ecommerce world would not be what it is today.

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