Online credit card fraud – A huge menace for merchants
It cannot be denied that credit card fraud is the bane for all e-Commerce businesses. Credit card fraud drives prices off the chart AND drive merchants up the wall! To counter this problem, a lot of companies saw it fit to provide fraud detection and prevention systems in line with payment gateways. Online merchants who are worried about how to prevent fraud can enjoy greater peace of mind with these services. Besides third party entities, Visa and MasterCard also provide excellent fraud detection and prevention systems, namely systems called Verified by Visa and MasterCard Secure Code.

How fraud detection works
There are two types of fraud detection systems. The first is tied into a merchant’s payment gateway and works in real time to prevent and detect fraud. The second is a 3rd party application where card numbers can be entered and the system generates a score based on a number of fraud qualifying factors.

Real-Time Fraud Prevention
Fraud detection systems monitor credit card transactions that are processed through a businesses payment gateway, and look for certain signs that would indicate fraud. These systems check for anything from numerous transactions being entered from a single IP address, to advanced card number algorithm abnormalities. Real time systems can be setup to either flag a transaction for later review or can be setup to automatically decline a transaction.

3rd Party Systems
3rd party systems are normally not tied directly into a merchant’s payment gateway, but can still be very effective in detecting fraud. 3rd party systems normally check for IP address and domain occurrences, bank information, area code and zip code occurrences, shipping and billing address occurrences, proxy web browsing, and many others. The system will generate a fraud score based on all of the information provided with each transaction. The higher the fraud score, the more likely the transaction is to be fraudulent. Merchants can batch process all of their transactions before they are shipped, and then determine whether to ship certain items based on the fraud score.

Who needs a fraud prevention system?
Fraud prevention is not needed for every business. For many, it would be simply a waste of money. Businesses that have a history of being targeted with credit card fraud should look into a fraud prevention system. Businesses that sell high dollar items online should also look into fraud prevention, as the loss of a single item can be very significant. All businesses should review their current practives to ensure that they are doing everything they can including requiring AVS and CVV for the transactions, before they look into a fraud prevention system.

What does fraud prevention cost?
Fraud prevention systems vary in cost. Some charge on a per transaction basis, some charge per month, and some charge a flat rate for a certain number of transactions. Rates vary anywhere from about $.005 per transaction to several hundred or thousand dollar per month. The cost is determined by the volume of transaction checked each month, the type of prevention system (3rd party or real-time), and the complexity of the system.

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