How to Prevent Fraudulent Orders and Chargebacks for Your Online Store

How to Prevent Fraudulent Orders and Chargebacks for Your Online Store

August 20th, 2013

Accepting Credit Cards in your online storeThere are many practices put into place in order to ensure customer safety with credit card companies when someone buys online. Unfortunately there isn’t much that the credit card companies offer to help merchants, but what they do provide will be a big help.

Keep reading to learn about how to prevent Fraud & Chargebacks, how to recognize problem orders and how the security features that the credit card companies DO offer are important and how to use them.

This is important, because ignoring the problems and receiving a large number of chargebacks will create issues with your  merchant account provider and could ultimately end up with your merchant account cancelled and your reputation ruined.

You need to take the appropriate steps to ensure the safety of your business.  Remember, you take on this responsibility all to yourself since you will not get outside assistance from your merchant provider or from the credit card companies if you blatantly accept fraud orders.

First, you need to learn how to recognize potential fraud. Here are some signs to help trigger you into action;
1. The order is LARGE or totals a HIGH dollar amount.
Large orders that contain several quantities of the same products or orders that are made up of mostly high ticket items are a good indication of fraud. Anything that is out of the norm is something to watch out for.

2. Orders placed with free email addresses, like Hotmail, Yahoo or Gmail…etc.
Free email accounts cannot be verified. But if someone places a high dollar order and their email address is JohnDoe@comcast.net, then that particular order may be OK. But you should always implement the steps that will be provided later on down this article for these situations.

3. Orders shipped to the same address but used multiple credit cards to order multiple times.
Pay close attention to all previous and following orders if you suspect fraud. Many fraudulent buyers will place multiple orders one after another and then move on to attack another website.

4. Shipping Warnings
Many fraudulent orders are from international consumers. So be mindful of all international orders. Another shipping warning is the customer used a different shipping address and billing address for the order.

Here are the things that credit card companies offer to help deter fraudulent transactions and to help you decide to decline an order;
1. CSC, CVV, CV2, CVC, CCV
It doesn’t matter what you call it, it’s all the same thing; Card Security Code, Card Verification Value, Card Verification Code, Card Code Verification. It’s the little 3 numbers on the back of your Visa, MasterCard or Discover Cards, or the 4 numbers on the front of your American Express card. Requiring your customers to enter these numbers while placing an order will give you a match or no match result. Non-matched CVC’s are a good indication of fraudulent orders and the order should be auto-declined.

2. AVS
Address Verification Service is an important feature from your merchant provider. If the billing address that the customer provides doesn’t match what is on file with the cardholder, that is an indicator of a fraud purchase. Discover card will auto-decline any order that has a no match for AVS, but the other credit card companies will not, so most fraud customers will use the other types of cards.

Things you can do to prevent fraudulent purchases:
1. Simply do not accept international orders.
The AVS, doesn’t check international addresses. As a result, the address cannot be verified for the order. Not accepting international orders all together will help prevent fraud orders. However, if you do decide to accept international orders, keep in mind the location of the purchase. There are about a 20 countries that yield the most fraudulent orders and should be avoided completely. Then of course there are the US sanctioned countries that you shouldn’t be selling to at all. You can find lists of these countries by going a Google search. One important thing to note, AVS will check Canada orders.

2.   Call the customer!
The easiest and most effective way to deter fraud is to call the customer! Simply call them to verify the purchase and their shipping address for their order.

3. Check your customer out!
Not only do your customers need to understand and know who you are, you need to know who your customer is as well. There are free sites online to help you do a couple of things… Reverse telephone lookup. Take the customers phone number and put it into a reverse phone search. Check to see the location of the phone number, and if the number is listed, it will even give you with names and a portion of their address so you can verify the telephone. Do this before calling the customer! http://www.whitepages.com/reverse_phone is a free service you could use.

With all of the social sites online, most people have a Twitter or Facebook account. Search your customers name with their location, and see if you can narrow down the social sites that may belong to your customer. You can then check them out there too.

Google Maps! Entering the customers address into a google search will give you a satellite view of their home address. If the address provided is a mail service or points to a non-residential address, that will help in determining fraud as well.

Yes, this may make you feel a little bit like a stalker! But, you are just protecting your business! Remember, you don’t have to do these things with all of your orders, just ones that you feel may be non-legitimate.

The dreaded chargeback! What you need to have in place!
1. Contact Information
Have your contact information, including a telephone number easily accessible by your customers or non-customers. Make is as easy as possible for them to call you, instead of immediately calling their bank. One of the biggest reasons for a chargeback is that the customer doesn’t recognize the charge. Make sure that their credit card statements will show your store name and telephone number so they can reach you about the order.

If you are under the situation where your registered business name and store name do not match, then always communicate to your buyers, and multiple times, that the charge on their statement will read XYZ Company, Inc as that is your registered business name, that owns and operates CandlesSmellAwesome.com

2. Policies
Make sure to post all your shipping and refund policies on your site and provide them to the customer in many areas. On their receipts, on the checkout page and etc.

3. Confirmations
Always email a confirmation of their order. If the email bounces back, that is a sign of fraud.

4. Shipping Reasons
Another big reason for a chargeback is the customer claiming they didn’t receive what they ordered. To help deter that, always have tracking on all packages and in some cases pay additional for a signature required upon delivery.

The above items will help you with deterring fraud, but it also gives you fuel to fight a chargeback. When you receive a chargeback, it will be for one of two main reasons; 1. the customer doesn’t recognize the charge and 2. the customer didn’t receive what they ordered. What you respond with will help the merchant provider determine whether the claim is valid or false. Always respond with what they ask for, but provide more if you can too. The more information you give, the better.

We have a set way that we respond to chargebacks and you can follow our guideline that will help you put together what you need;

1. Customer name, address, telephone number, email address, date of order, cost of order and what they ordered.
We list this information first when responding to a chargeback.

Example Statement: Customer John Doe, located at 123 Main Street, Anytown, FL 123456, telephone; 555-555-5555, purchased on 7/19/2013 a set of vanilla bean candles from our store at CandlesSmellAwesome.com. After purchase, we immediately sent a confirmation of the order to the provided email address; johndoe@comcast.net

2. Merchant Receipt
Provide a copy of the merchant receipt that shows AVS Matched.

Example Statement: Following is a copy of our merchant receipt that shows AVS matched. The AVS helped us to determine that this wasn’t a fraudlent charge.

3. Shipping & Tracking Information
Keep all tracking numbers and shipping addresses on file. Go to your shipping provider’s site, and use the tracking number to get a screen shot of the delivery information.

Example Statement: We shipped the customer’s order to the same address that was provided as the billing address. On 7/20/2013 we shipped via UPS with the tracking number 123456789. This item was sent and delivered to 123 Main Street, Anytown, FL 123456. Following is a screen shot of UPS’s site at ups.com that shows the order was delivered. 

4. Tracking Customer Communication
If the customer at any time contacted you via email or phone, document it. Keeping records of your customer communication will assist you with fighting a chargeback. Also see if your shopping cart provider has IP tracking. Having an IP address for all your customers will also help in determining fraud and fighting fraud. You can use IP lookup services online to verify the customer’s location.

Example Statement: Additionally, we have communicated with this customer on 2 occasions. The first occasion was via email when the customer asked us about the vanilla bean candles they ended up ordering. Please find a copy of that communication below.

The second occasion where we communicated with this customer was when we called the number provided on 7/19/2013, and verified the order and ship to address.

We also use IP tracking for all orders. The customer ordered with the IP address; 123.45.6789 which matches their location in Anytown, FL

As long you as are mindful of all orders, keep good records & communicate the important things to your customer, and often. You won’t receive many chargebacks. The ones that you DO receive, may be valid fraud orders that slipped through, and no one can be faulted for that but you and you will have to pay for it.

photo by: 401(K) 2012

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6 Comments

  1. This is actually a great and useful piece of info. I’m happy that you shared this helpful info with us! Thanks!

    Comment by Andy — September 6, 2013 @ 6:45 am

  2. Great advice. This is very valuable information, especially in a day when credit card companies are so quick to side with buyers. It is essential to protect yourself as a seller. The majority of buyers will really appreciate you taking the time to verify their order, if it is legitimate.

    Comment by John Jennings — September 10, 2013 @ 3:44 pm

  3. Great article Tisha. Thanks for the awesome tips.

    It’s really a shame what’s going on in the world today. People are stealing more and more credit cards these days and when the original owner of the credit card realizes the transaction they never made, this obviously comes back as a chargeback. It’s just a shame.

    It’s a shame credit card companies don’t do more to prevent these fraudulent transactions from happening in the first place. When a chargeback happens, the owner of the credit card has to spend time noticing the fraudulent transaction, has to spend time calling the credit card company (and probably on hold for a while), the credit card company has to spend time and resources on each transaction and phone call, the online company that shipped the product not only gets charged for the chargeback, but also doesn’t get the product back (which could be tens or hundreds or even thousands of dollars). The only one who comes out a winner is the crook. Credit card companies are letting crooks win.

    Credit card companies need to be more proactive at preventing fraudulent orders, not just sitting back and issuing chargebacks like there’s no tomorrow.

    Comment by John L. — June 27, 2014 @ 2:14 pm

  4. great points altogether, you just gained a brand new reader.

    Comment by Joesph — January 2, 2015 @ 7:38 am

  5. Its awesome and informative blog, we are also chargeback expertz and i just serching for new information about that, and got you blog, its totally helpful for us, thanks 🙂

    Comment by chargeback Expertz — March 17, 2015 @ 2:59 am

  6. It’s going to be end of my day, but before I end my day, I am reading this impressive article to increase my knowledge.

    Comment by cvv — March 25, 2015 @ 10:51 am

6 Responses to How to Prevent Fraudulent Orders and Chargebacks for Your Online Store

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