What Are Fraud Filters and How Do They Protect Merchants?

Sydney VaccaroFraud PreventionLeave a Comment

What Are Fraud Filters and How Do They Protect Merchants
How can you stop fraudsters from making fraudulent purchases in your store? Fraud filters provide a solution.

Imagine you could automatically stop fraudulent orders from processing in your store. Think about much money you would save. Think about the time saved. Fraud filters may sound like something from the distant future, but they are a real thing right now. You can add this tool to your ecommerce store and prevent fraudsters from making fraudulent purchases. It's simple: Fraud filters will notify you of a potentially fraudulent purchase or cancel a fraudulent order automatically. Here's everything you wanted to know about fraud filters:

How Do Fraud Filters Prevent Fraud?

Before you go any further, it's important to understand the different types of fraud associated with customer disputes: True fraud, chargeback fraud, and friendly fraud.

  • True fraud happens when your business accepts a payment from a stolen card. The real customer will dispute the purchase, and the customer's bank will close the account and issue a new account with a new card number. However, you might have already dispatched the purchased product and now will lose money from the chargeback. True fraud is also called "identity theft," and it cripples many retailers. Click here to read more about true fraud.
  • Chargeback fraud happens when a customer misuses their chargeback rights, as governed by the law. The customer might purchase a product from a retailer, claim the product is defective (or it was never received), and receive a refund. In this case, the customer has received a refund and is keeping the original product. Click here to read more about chargeback fraud.
  • Friendly fraud is different from chargeback fraud and happens when a customer makes a simple mistake. The customer might request a chargeback and receive a refund because they mistakenly forgot about the purchase or a family member made an unknown purchase. Click here to read more about friendly fraud.

Because chargeback and friendly fraud disputes are caused by cardholders misusing the dispute process, merchants can respond to these disputes and regain the transaction amount. True fraud disputes, on the other hand, are not winnable for merchants. Which means merchants need to prevent true fraud disputes from ever happening. This is where fraud filters come in.

Why is True Fraud So Bad For Business?

The way cardholders shop has transformed in recent years. Now, online platforms have overtaken brick-and-mortar stores, with more consumers swapping the mall for the mouse. Research shows that 96 percent of Americans have made an online purchase at some point in their life, while 80 percent have shopped online in the previous month.

Unfortunately, the rise of ecommerce has given birth to fraudsters who try to cheat the system and trick hard-working merchants like you. There are many types of cyber fraud out there, but true fraud seems to be the bane of most retailers. True fraud makes up 29 percent of all fraud losses, and true fraud losses are almost never fully recoverable.

How Do Fraud Filters Prevent True Fraud?

Although fraud filters don't prevent chargeback fraud and friendly fraud, how do they stop true fraud? The process is far more simple than you might think.

Fraud filters are tools that you add to your ecommerce store. You can set them up in different ways, but you can essentially block fraudulent orders from being processed. If you want to manage your ecommerce store manually, you can receive notifications when someone has placed a potentially fraudulent transaction on your online store.

Fraud filters use clever algorithms to determine whether an order place was genuine or potentially fraudulent, which provides you with peace of mind. This way, you can save money on the potential losses from this type of fraud, which could jeopardize your business.

How Can You Customize Fraud Filters?

The great thing is that fraud filters are completely customizable so that you can set them up based on your industry, product, current sales or promotions, work schedule, and ecommerce store abilities.

Filters can be layered on top of each other to create a robust yet precise assessment of all transactions that come through. The filters can either automatically accept or decline transactions. For the transactions that are in the middle, the filters can send the information to be manually reviewed by a representative.

How Do Fraud Filters Work?

Fraud filters work by checking all the information on the credit cards used to purchase items from your store. If you think these checks will slow down the order process, you're wrong. The best fraud filters carry out checks in a few seconds, and customers will notice no disruption to the ordering process whatsoever.

Fraud filters can alert you if there is something unusual about the credit card used by a customer. This doesn't mean that the customer is trying to carry out fraud, but you might want to do some additional checks just to make sure. Fraud filters can notify you in the following circumstances:

  • When a customer's billing and shipping addresses don't match
  • When a customer's card verification number (CVV) doesn't match the one declared during the checkout process.
  • When a customer makes a considerably large purchase.
  • When a customer places an order from a banned IP address.
  • And many more.

What to Look for in Fraud Filters

The problem with some filters is that they can prevent genuine customers from placing orders. When this situation happens, it is called a false positive. If customers are unable to place an order or make a purchase because of the filters, they might not shop with you again. This can have a significant impact on your profits.

It's all about striking the right balance. Obviously, you want to prevent fraud, but you don't want to annoy customers in the process. The best fraud filters won't just flag a customer because they entered the wrong CVV. Instead, they take all the information provided into account and then decide whether there could be a potential threat. These filters help streamline the complicated process of dispute management.

This is why you must take the time to do an analysis of your transaction and dispute information to create the best front-end fraud system as possible.

Takeaway

In recent years, fraud has exploded online, and most entrepreneurs and merchants are unable to recoup true fraud losses. This poses a problem. How can you stop fraudsters from making fraudulent purchases in your store? Fraud filters provide a solution. You can use these to prevent fraud loss and increase your bottom line.