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Internet Fraud

by Scott Burke

Taking transactions over the Internet can be profitable but it can also bankrupt a small business. Accepting online transactions means accepting additional responsibilities as a merchant. These responsibilities include knowing and understanding your risk exposure and your liabilities.

You are 100% liable for all losses sustained. And, if there is an excessive amount of fraud or unauthorized transactions through your merchant account, your fees and discount rate could be raised, your funds could be held, or your merchant account could be closed. Be aware that authorization codes only mean that the cardholder has funds available for that transaction and does not verify the sale.

When possible, also use CVV2 (Card Verification Value). Ask the customer for the CVV2 information on the back of the credit card. If that person cannot supply you with that information, that is a sign that you may not be dealing with the actual cardholder.

Be Aware of High Risk Countries

When receiving an order from an International country it is recommended that you obtain the card issuing bank information to verify the legitimacy of the person giving you the credit card. Indonesia, Nigeria and other areas of Africa, and Singapore are the highest risk areas for accepting credit card transactions as most fraud is generated through these areas.

Minimize Risk

To help minimize your risk exposure, take the time to learn about AVS (Address Verification System) if your merchant account is set up with this feature. If the address does not match, you may not want to ship any product without verifying through the card issuing bank.

Also be aware that AVS does not work with International addresses. Always check the AVS response codes.

Best Practices

Be alert for transactions with several of the following characteristics:

  • First time shoppers
  • Larger than normal orders
  • Orders consisting of several of the same items or orders composed of big ticket items
  • Orders shipped "rush" or overnight
  • Shipping to International addresses
  • Transactions on similar credit card numbers
  • Orders shipped to a single address but made on multiple cards
  • Multiple transactions on one card or multiple cards with a single billing address but multiple shipping addresses.

Ask the customer for the preprinted numbers above or below the first 4 embossed account numbers, name of the card issuing bank and for the customer service phone number on the back of the credit card. If they cannot provide this information, more than likely this is not the actual card holder.

Site Data Requirements

Card Associations have mandated that merchants, who store account holder data (account information, cardholder information, and transaction information) in an electronic commerce environment, keep this information in a secure manner. This is to ensure that merchants are adequately protected against hacker intrusions and account data compromises.

Hacker break-in's can have potentially dangerous consequences on merchants. There could be a disruption in your merchant service and loss of consumer confidence with your business.

  • Do not store CVV2 information.
  • Destroy all unnecessary data.
  • Use Network Security tools to protect website (firewalls).

Discuss this in our Forum

About the Author:

Scott Burke; President of iMAX Business Solutions in charge of sales, strategy, and execution and thus is responsible for managing all aspects of the company's marketing, communications, new accounts, and support. [email protected]

Copyright © 2006 Scott Burke
iMAX Business Solutions

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