How to Spot True Fraud: What to Look for to Protect Your Business

Sydney VaccaroFraud PreventionLeave a Comment

How to Spot True Fraud. What to Look for to Protect Your Business
The process of creating protection from true fraud can be complicated and takes continuous adjusting and analysis. But the hard work is worth it when you allow valid customers to purchase and keep hard-earned revenue by preventing fraudulent purchases.

Merchants are not able to win true fraud disputes, which means that merchants need to take proactive measures to prevent these transactions from being accepted. By stopping fraudulent transactions, merchants will retain revenue and protect your dispute rate. In this post, we will explore what true fraud is, how to stop it, and how merchants can prevent fraud.

What is True Fraud?

True fraud is when a fraudster gets ahold of credit card credentials and successfully uses them at a merchant’s site or store. The actual cardholder disputes the fraudulent purchase, their card account is closed, and a new card is issued to them. Because of Zero Liability Guarantees, merchants are responsible for the fraud loss because they accepted the fraudulent purchase.

True fraud disputes are not winnable for merchants, and it will cost them the transaction amount, a dispute fee, and the possible loss of merchandise or services. Which is why it is so essential for merchants to take the necessary steps to prevent the acceptance of fraudulent purchases.

How to Spot True Fraud

There are a couple of ways merchants can detect a fraudulent purchase:

Transaction Amount, Transaction Size, or Number of Transactions

If a transaction amount or the size of the order is much larger than usual, it can be a sign that the transaction is fraudulent. Another red flag is if there are many transactions from the same card number. These are signs that the fraudster is trying to get the most merchandise and profit from the stolen card possible.

Card Number Abnormality

There are a couple of ways merchants can detect a true fraud purchase based on the credit card numbers that are coming in.

  • If transactions are coming in a short time frame with the same or similar card numbers.
  • If a merchant receives multiple transactions from different numbers to the same billing address.

These abnormalities could be from a fraudster testing cards or trying to get as much merchandise as possible.

Trying to Get the Order as Quickly as Possible

Another red flag is a customer trying to get the goods shipped as quickly as possible. This is especially concerning if the order is larger than average. The fraudster may be trying to get the products to them before the actual cardholder notices the fraudulent purchase, and the merchant gets alerted.

Fake Information

Merchants can notice a true fraud attempt if the cardholder is putting in false information. Visibly fake emails such as or just gibberish as the name is a sign of fraud. There are more subtle ways to notice fraud, such as the billing and shipping addresses not matching.

Risky Locations

If your company receives a large number of transactions from an international location that is usually not part of your market, then it could mean a red flag for a bot or human workforce using stolen card numbers.

How to Stop True Fraud

The only way for merchants to stop true fraud is by putting preventive measures in place that prevent a fraudulent transaction from ever happening. This could include fraud scoring, fraud filters, and manual review.

What is a Fraud Score?

A fraud score is produced when a fraud platform performs a risk analysis on an incoming transaction. The rating is based on predictive technology that can identify patterns of fraudulent activity. The higher the fraud score, the higher the likelihood of that transaction being fraudulent. To get this score, the programmed logic evaluates individual components of the transaction and compares the data to previously identified high-risk attributes. The different data elements that the score gets based on include:

  • IP address
  • Email address
  • AVS results
  • Shipping and billing address match

What is a Fraud Filter?

Fraud filters are a tool used by merchants to help assess if a purchase is fraudulent. These fraud filters are customizable and should be based on your industry, customer behavior, and other factors. There are many layers of filters that companies can add on top of each other and in a specific order. These filters can include:

  • A Daily Velocity Filter: This filter limits the number of transactions that can be processed in a day from the same IP address.
  • Shipping and Billing Mismatch Filter: This filter identifies a transaction that is submitted with different shipping and billing addresses.
  • High Ticket Purchase Filter: This filter notifies when a purchase is above a set threshold.
  • IP Address and Shipping Address Mismatch Filter: Which compares where the order is coming from compared to the shipping address provided.

Those are just a few examples of the possible filters that can be put in place. A filter can trigger a couple of actions, depending on how the merchant sets it up. A filter can instantly reject the purchase from happening, it can send it in to a manual review, it can accept the purchase, or it may just send it to the next layer of filters.

When set up correctly, fraud filters can be extremely helpful in preventing true fraud disputes while still letting legitimate customers in. When set up incorrectly, it can cost merchants in fraud and loss of sales.

What is Manual Review?

When fraud filters are set up, they should be able to automatically accept the obviously valid customers and automatically decline the obviously fraudulent purchases. But a manual review is used for the transaction the fraud filters are not sure of. When an order is sent to be manually reviewed, this means an actual person will be looking over the order details. This person could be an internal employee or outsourced service.

When the manual reviewer goes over the order, they will use common tools and logic to try and determine the validity of the purchase. These tools include:

  • A reverse lookup checks the customer’s name and addresses with public records to see if they match what the customer gave at checkout.
  • Reaching out to the issuing bank to confirm the information given at checkout.
  • Checking if there were previous orders and if the data matches the past orders.
  • Calling the cardholder’s phone number to verify the purchase.

While manual reviews are vital to accept the most valid purchases as possible, they can be time consuming and expensive. The most effective set up for merchants is to set up their fraud filters so a minimal amount is being passed to manual review. This mix allows merchants to accept as many orders as possible without being bogged down with an extensive amount of manual reviews.

What are Fraud Feedback Loops?

A fraud feedback loop is when a merchant can take post-transaction fraud data, analyze it, then update front end fraud filters as needed. For transactions that turned into true fraud disputes, merchants should take those transactions and look for commonalities. Once the merchant is able to understand what transactions should raise a red flag, they can update the front end filters.

Preventing True Fraud

To prevent true fraud, merchants must put front-end fraud protection in place. Unfortunately, the process of creating protection from true fraud can be complicated and takes continuous adjusting and analysis. But the hard work is worth it when you are allowing valid customers to purchase and keeping hard-earned revenue by preventing fraudulent purchases.

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