How merchants can reduce credit card fraud

How merchants can reduce credit card fraud

If you run a retail or e-commerce business, accepting all major credit cards and electronic checks is a must-have method of payment from customers. However, when deciding to accept electronic payments, business owners should also consider the potential costs of fraud. Studies show that both brick-and-mortar and online merchants have lost billions in fraudulent transactions. Today, technology provides proven methods to identify and prevent fraudulent transactions.

Fraud can take many forms. Needless to say, fraud is bad for business. If you process a fraudulent customer order by the time you realize the credit card has been stolen, you have already shipped the product. Fraudulent orders usually result in a customer’s credit card being returned to your business. Unfortunately by this point you have delivered and lost your product, lost the revenue from the sale and on top of that; you will receive a chargeback fee from your credit card processor. I’m sure we can agree that there is a strong need to identify and stop a fraudulent order before you ship your product. Fortunately for the merchant, there are many steps and processes that can be implemented to reduce and eliminate credit card fraud.


1. Address Verification Service (AVS) – is a simple and easy to follow process to reduce your chances of accepting a stolen credit card. When you process a credit card transaction; make sure you write down the cardholder’s billing address and zip code. Manual non-swipe transactions (Internet and MOTO) will require you to capture cardholder information. However, card transactions will not be present (swipe). Once you’ve captured the cardholder’s billing address and zip code, you’re ready to process the sale. Your point of sale system will verify AVS with the card issuing bank. You can get a match on address only, postal code only, or address and postal code. If you do not receive an AVS match, you should consider declining the transaction. Approximately 80% of fraudulent transactions in the US are AVS discrepancies. Note that most AVS systems are configurable, so be sure to check your AVS settings. Implementing AVS can have a major impact on reducing credit card fraud.

2. Card verification (CVV/CVV2) – is similar to AVS. CVV is a 3-digit code on the back of a credit card (4 digits for American Express). Like the AVS, the CVV is entered at the point of sale. The CVV code of the cardholder is verified by the card issuing bank when the credit card sale is processed. If you do not get a CVV match, you should consider declining the transaction. Online merchants should make CVV a mandatory field.

3. Use a threshold management service – Threshold management allows the merchant to set parameters for the transactions he will accept. For example, transactions can be verified based on the amount of money charged per transaction, number of transactions charged, frequency of transactions, average user ticket, etc. Transactions that are flagged as a potentially fraudulent transaction will require further review by the merchant. Threshold management services are usually offered as an additional service.

4. Look carefully at orders from free email accounts – Fraudsters and thieves like to hide. One of the easiest ways to hide the identity of a thief is to use a free email account. Most fraudulent transactions use a free email service. Merchants do not have to refuse all transactions from a free email service. However, you may want to give these orders more careful control.

5. Carefully review orders with a shipping address other than the billing address – A thief with a stolen credit card may have the billing address and zip code of the owners. If so, you will receive an AVS and CVV match to their order. However, in order to receive your product, they will request that the order be shipped to a different address. Merchants should review all orders with a different shipping address and invoice. If the ship to address is a foreign country, pay even more attention to the order.

6. Please check international orders/foreign credit cards carefully – If your business model requires you to ship to foreign countries, you must obtain an international trade account. Since foreign orders have a higher fraud rate than domestic orders, having an international merchant account will give you a higher level of protection. In addition, the international merchant account will allow you to settle in the local currency. If you need a domestic and international merchant account, you should use a load-balanced payment gateway. Load balancing provides a merchant with the ability to use multiple merchant accounts within a single payment gateway account.

7. Understand that an authorization code does not mean the credit card has not been stolen – An authorization code is provided when the transaction is approved. However, the authorization code simply means that the credit card is valid and has available credit to process the transaction. Ultimately, as a business owner, it is up to you to decide whether to accept or decline the transaction.

8. Use an advance fraud protection service – Advanced fraud protection services allow the merchant to block transactions by IP address, country of origin and other fraud filters. Advanced fraud protection services are usually offered as an additional service.

9. Use a PCI compliant data storage service – Merchants who are required to store customer credit card data must use a PCI Compliant data storage service. A PCI compliant data storage service allows merchants to transmit and store customer payment information in a Level 1 PCI certified data facility. Once the customer’s record is securely transmitted and stored, the merchant can initiate transactions remotely without directly accessing credit card or electronic check information. This process takes place without the merchant storing the customer’s payment information in their local database or payment application.

10. Review and enforce PCI (Payment Card Industry Standards) policies. – Merchants can review PCI standards online at If you’re using a PCI compliant point-of-sale solution and don’t store payment data, you’re already in good shape. However, merchants should contact their merchant account provider for more information.

Fraud prevention is a necessary activity for brick-and-mortar and online retailers. Exposing your business to fraudulent transactions and high chargeback rates is bad for business and could result in the loss of your merchant account. Leading real-time payment gateway services provide advanced fraud protection tools. However, many fraud prevention techniques can be implemented at no additional cost.

Top Real Time Payment Gateway Services

1. Planetauthorize (Domestic US and International)

2. Authorize.Net (Domestic US)

3. PlugnPay (domestic US)

4. Skipjack (Domestic US)

5. eProcessing Network (domestic US)

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