For many cardholders, canceling their card and getting a new card is the standard course of action after being victims of fraud. The assumption is that when they get a new card, the fraud problem will be sorted out because the fraudsters will not have access to the new card details. That was not the case for Grant Larimer, who continued to get fraudulent Planet Fitness charges on his card even after getting a new card three times. How is this possible? How did the fraudsters keep getting access to Larimer's new credit card numbers? The answer is account updating. This article will explain what account updating is, how it perpetuates true fraud, and how merchants can reduce fraud when using account updating services.
What is Account Updating?
Account updating is a service that major credit card brands offer to merchants that sends them updated customer information whenever changes are made.
The rationale for account updating is that:
- It helps merchants who offer recurring services to retain customers and prevent revenue loss when customers change their credit card details.
- Merchants can avoid declined authorization fees by ensuring that they always have the right credit card information on file.
- Prevents service interruptions when customers change their credit card information, which creates a seamless customer experience.
- Saves cardholders the hassle of updating their new card information on all their subscriptions such as cable, phone, ridesharing, or gym memberships.
While account updating can help merchants retain revenue, it can also keep true fraud going because fraudsters will always have access to a cardholder's information even if they get a new card. In Larimer's case, his credit card company kept sending his new credit card information to Planet fitness, thus perpetuating the fraud.
What is True Fraud?
True fraud happens when a fraudster gets access to credit card information and uses it to buy goods or services. When true fraud happens, the affected cardholder contacts their bank and disputes the fraudulent charge. The bank then cancels the affected card and issues a new card. Additionally, the fraudulent transaction is reversed, and the cardholder gets their money back.
True fraud hurts merchants a lot because they cannot win the disputes. Credit card companies have Zero Liability Guarantees which hold merchants responsible for fraudulent transactions. When true fraud happens, merchants lose the transaction amount, incur dispute fees, and lose the products or services delivered to the fraudster.
Why Merchants Should Be Aware of Features like Account Updating to Prevent Disputes
Account updating can make merchants more vulnerable to true fraud disputes and loss of revenue. If a fraudster signs up for one of your recurring services, you will keep getting true fraud disputes and all the financial losses that come with it even after the cardholder gets a new card. For instance, Planet Fitness suffered loses and disputes three times because of account updating.
If you use account updating services, here's how you can avoid losing money through true fraud disputes:
Cancel All Recurring Bills/Subscriptions if a Customer Initiates a Valid Fraud Dispute
Canceling all recurring bills or subscriptions will prevent future fraud disputes when you receive the customer's new credit card information. This is what Planet Fitness should have done after receiving Mr. Larimer's first complaint, thus preventing the two subsequent disputes.
Set up Fraud Filters
Fraud filters can help you catch true fraud before it happens. You can tailor the filters according to the industry that you are in, how your customers behave, and the most common forms of fraud that you encounter. Here are a few filters that you can set up:
- Shipping and Billing Mismatch Filter: Flags transactions where the billing address and the shipping address differ.
- IP Address and Shipping Address Mismatch Filter: Looks for a mismatch between the IP address of where the order is being made and the shipping address given.
- High Ticket Purchase Filter: Flags all purchases that are above a certain set limit.
Ensure that your fraud filters do not prevent legitimate customers from making purchases.
Do Manual Reviews
When your fraud filters flag a transaction, you can manually review it to determine if it is fraudulent. This practice is useful if a cardholder has complained about a fraudulent transaction in the recent past, and you use account updating services as it will prevent fraud from happening again. Here's what you can do in a manual review to prevent true fraud:
- Call the cardholder to verify that they have made the purchase.
- Confirm the accuracy of the information given by the issuing bank.
- Do a reverse lookup check to confirm the cardholder's billing and shipping information.
- Check previous transactions to ensure that the information given doesn't match the previous fraudulent transaction's information.
Prevent Fraud When Using Account Updating Services
While account updating services can help retain revenue and create a wonderful customer experience, they can also expose your business to multiple instances of true fraud. Catch fraud before it happens using fraud filters and prevent other fraudulent transactions by doing manual reviews.