Combating Online Fraud

An online merchant’s excitement when receiving their first flurry of Indonesian e-commerce orders is at first hard to quash. Unfortunately, far too many have found out the hard way that fraudulent international credit card purchases from unsuspecting online merchants is a scam of tremendous proportions.

The threat of online fraud is rapidly spreading. Gartner Inc., a major internet information researcher, reported that loss due to online fraud and identity theft has accounted for USD0 million dollars. This coupled with freely available software that generates credit card numbers; suggestions that organised crime is taking a larger role in online fraud; and the existence of internet lists of ‘sucker’ merchants who have been duped in the past and are worthy of another shot should make all online merchants take heed.

Despite all the fears associated with buying on the internet, it is important to remember that a customer can usually find a way to get his or her money back. The onus lies solely on the merchant to protect itself from fraudulent orders. If a merchant accepts a fraudulent credit card order, not only do they loose money, they face bank charge back fees and the risk of loosing their merchant account.

Minimising fraudulent orders should be an online merchant’s highest priority. All businesses accepting online orders should prepare a checklist for the scrutiny of all orders. Use the following tips to help prepare your checklist.

Countries to be wary of : Below is a breakdown of the top 20 countries from where the highest levels of internet fraud originate. Orders received from, or to be delivered to, these countries should be thoroughly examined and as a minimum precaution, you should request identity information from these customers.

1. Indonesia
2. Romania
3. Nigeria
4. Ukraine
5. Yugoslavia
6. Lithuania
7. Egypt
8. Bulgaria
9. Turkey
10. Russia 11. Pakistan
12. Malaysia
13. Israel
14. Hungary
15. Mexico
16. Philippines
17. Belarus
18. Estonia
19. Latvia
20. Macedonia

Address Verification System : If you receive orders from the United States, you can pay for address verification system (AVS) checks. These checks ensure that the address entered in your order form matches the address where the cardholder’s billing statements are mailed.

Calling merchant banks : Always ask for the cardholders name and the address associated with the card in your order form. Contact your merchant bank and obtain the issuing bank’s telephone number. Then call that bank to verify the address. You can also ask for a person in the Customer Protection and Security Department to contact the true card owner for verification.

Different Addresses : If different billing and shipping addresses are provided in the order, contact the customer by phone or e-mail to ascertain the reason for the different addresses. When you receive a response, consider the response in the context of all of the results from your order scrutiny checklist.

IP Address tracking : If you can track the IP (Internet Protocol) address of orders you can then use IP address software to check that the IP address is from the same country included in the billing and shipping addresses in your orders.

Credit Card Security Numbers (CVV) : Visa reports that the use of CVV numbers has reduced instances of charge backs by 26 percent. You will find the CVV number on the back of Mastercards and Visa cards as the three digit security code located right after the credit card number. Many online credit card processing systems now accept CVV numbers and will check them as part of the authorisation process. Alternatively, you can ask your customer for their CVV number and then use it when telephoning your merchant bank for credit card authorisation.

Interactive Voice Response Terminals (IVR): IVR terminals are a new technology that is reported to reduce charge backs and fraud by colleting a “voice stamp” or voice authorisation and verification from the customer before the merchant ships the order.

Company name on card statements : Let your customers know what company name will appear on their statements. If you have a third-party credit card processing company’s name appear on the customers credit card statement, the customer will then know what the charge is for, and not request a charge back.

Free e-mail addresses : A small red flag should raise when you see a customer using a free e-mail address when ordering (e.g. Yahoo, Hotmail, etc.). A free e-mail address may be appropriate for small consumer orders, though not for business transactions.

Signatures on delivery : If feasible, use a delivery carrier that requires signatures on delivery and provides copies of the signatures for your records.

Time order was placed : After processing a card payment, e-mail your customer asking them to tell you the exact time, date and amount that you charged to their card. The customer will then telephone their bank. The bank will only provide this information to a person if it is satisfied that the person is the true cardholder.

Type of products : You may sell some products that are high value or readily saleable on the second hand market. For example, orders that we receive for high value gold bracelets are often fraudulent and such orders demand higher scrutiny levels.

Warning message : A simple warning message on your order page may greatly deter the number of instances of fraud. Be sure to mention IP addresses are being logged and address verification systems are used.

Identity information : For all orders that you consider to be suspicious or that fail a test on your fraud checklist, you should contact the customer by phone and/or e-mail to attempt to verify the order.

For our business, if an order is suspicious, we send an e-mail to the customer requesting them to fax or e-mail to us a photocopy of their drivers licence and both sides of their credit card. We also request their CVV number. We then follow the e-mail with a telephone call. If we do not receive the correct identify information, we do not process the order.

If at the end of the checklist you feel an order is still suspicious, you should seriously consider not fulfilling the order – after all, a sale lost is better than a sale to a thief.


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Sharon Wild writes ecommerce articles for Qld Business Review, she is also Strategy & Marketing Director of

Sharon Wild
Strategy & Marketing Director of e-JAZ, Sharon has been involved in the e-commerce community for several years. She successfully manages Australia's largest online jewellery store, Gillett's Jewellers.

Sharon can be contacted via email on