Episode 4: Ways to Reduce Fraudulent Charges

Hello. Welcome to the Business of eCommerce. I’m your host, Charles Palleschi and this is episode four. On today’s episode, I’d like to talk a bit about ways to prevent fraudulent charges.

If you’ve been around for a while in eCommerce if you run your own eCommerce sight, not so much if you’re selling on Amazon or Ebay but if you actually run your own independent site everyone falls victim at some point to fraudulent charges. This is where somebody has made a purchase on your site using a credit card, which is not theirs. They’ve received product or maybe not received product, but they’ve made a purchase on your site and you’ve charged their credit card. And then at some point months down the road you may have got a chargeback and that showed this charge was fraud, it actually was a chargeback from somebody else, it was not the card, the names didn’t match and essentially what happens in that case is you as the retailer you basically lose. And you have to give the money back. You lose the product. You also get hit with a chargeback fee. It ends up costing you not just the amount for the order but also then a chargeback fee on top of that. It also isn’t good for your merchant account. This is definitely something you don’t want to happen.

If you’ve been around for a while it’s happened to all of us. And when it happens it’s not good, but there are some ways to prevent it and I’d kind of like to run through those real quick. Just some things I’ve personally found that work, that help, and that might help you. The first thing is just some basic, basic, basic human monitoring on the orders that come in. If you’re around for a little bit you’ve seen orders come in, you start to know my average order price is x, let’s just say $200 is an average order. And you’re able to then say, “Any order above five times that,” let’s say a $1,000 or even $500, just put a number on there. If it’s above x you know there’s some risk involved. This is a bit different it’s outside our norm, doesn’t mean its fraud it just means it’s just outside the average order.

What I personally have done is come up with a couple criteria and then had somebody … in my case it was a virtual assistant monitor every order, every day if they meet two out of the three criteria, bring these orders to my attention immediately. And they came in every day at a certain time, I think it was 4pm Eastern, before orders were getting shipped, that sort of thing. It was kind of just like this check of saying, “Let’s just have some human’s eyes on this and see if this order makes sense. And if it doesn’t raise it to my attention.” And then I did a little more forensics and … I’ll get into that. First average order volume, that’s something I always have them check. If it was above an excepted number … and these are all numbers you kind of play with after a while, then that’s one strike in the column.

Second on the list was the billing and shipped address to do not match. Again, it happens all the time but if they don’t match on a $10 order it’s very different then if they don’t match on a $1,000 order. THat’s just something you want to keep in mind. And if you have an order that’s both high value and the shipping addresses don’t match now you start to get into some sort of territory where this order just looks different, and it’s something you want to then start really looking a little more into.

Next is … let’s say these don’t match. Usually sending a quick email to the email address you’ll see that it bounces back. It could literally be a customer service email, just something very basic of checking that email to even see if it’s valid. That right there, great indicator is this an order that is a good order? You don’t do this on every order but you know if it’s a high price order, you’re most likely as a buyer going to be checking that email address twice. If you put in a completely bogus email address now it’s starting to get real suspicious.

What happens next is, let’s say this order, high priced order, billing and shipping addresses don’t match, then name on the billing address, the name on the shipping address don’t match, starts to get a little bit suspicious. You might have a VA just send a quick email, “Just reaching out, wanted to double check the billing and shipping address.”

Let’s say that bounces back, now you’re in full fledged suspicious territory of that order. What I’ve personally done is give them a phone call at that point. “Just want to check in. Want to make sure the billing shipping addresses don’t match. Just wanted to check in to make sure we have all your information correct.” It’s just something you do from a customer service point of view. Perfectly normal and I’ve actually been able to connect with some great customers on this, maybe they were traveling they had something sent. They were using it under their sister-in-law’s name, they were all traveling together, had something sent to the hotel address, something like that. Totally normal. It does happen. We’ve had businesses that were going on the road they were doing a show. The husband and wife maybe had different last names. The credit card was in the wife’s address, the husband was doing a show, he was on the road he had it shipped to some random address in a whole different state. It does happen, but if you get that person on the phone just talk to them. Make sure everything just kind of sounds right in your head. That’s a really great [inaudible 00:06:17] pretty much you can bring it down to under single digit percentages that you’re going to be wrong just with a quick conversation.

The thing that is a red flag though is when you call that number and the number’s not right. The number is completely bogus. They don’t know who you are or maybe it isn’t even a valid number to begin with. Now you’re talking complete red flag territory. Those orders right there what I’ve done in the past personally is just not fulfill them. Wait until the buyers contact me. Usually at some point they might follow-up sometimes never they’ll follow-up. It’ll just sit there forever.

I don’t collect the money, don’t process the credit card, everything just stops at that point. So there’s no charges, no shipments, there’s just nothing. Just kind of silence. And if they contact you, great that’s a good time to talk to them, kind of ask the same questions, “Just wanted to know, double check the shipping address,” just talk to them a little bit. And if you just get a feeling about that you as the retailer it’s in your right to, “I just don’t feel comfortable fulfilling this order.” That’s in your right. It’s up to you, but the best way is send them a quick email, get them on the phone, just make sure the phone numbers even valid because if it’s not there’s a good chance of something going on here that’s just not right. And you as the retailer you’re going to be the one on the hook so it’s up to you to put a stop to that and not fulfill that order.

Other issues are the address itself is suspicious. What is a suspicious address? If you just kind of go off of the address you’ll find very often that a lot of services offer these as third-party services, the big carriers offer these, but they’re mail forwarding addresses. They’re addresses where fraud type orders get sent to and they get forwarded to a different address, all the mail that goes there. Usually with this they use a fraudulent credit card to pay for this mail forwarding address and now they’re using a different fraudulent credit card to forward mail to that address, which actually goes to their real address. It adds these multiple layers of fraud where it makes it so you as the retailer you’re not able to get the actual address. Sometimes it’s domestic, sometimes international. You can’t even track it, basically at that point the order is gone. The product is gone, the money is gone and they’ve just pulled the wool over your eyes.

But usually if you just put the address in Google real quick you’ll see it’ll come up a a mail forwarding address. And you’ll have at least some understanding of, “Okay if it’s a high priced order, billing address, shipping address, names don’t match, no ones answering the phone, it’s a mail forwarding address, we have no idea where it actually goes to, no ones responding to your emails it’s up to you at that point to really say is this worth putting x amount of dollars on the line if this order doesn’t look valid.”

Those are some tips. I’ve seen a lot of folks do things different ways, some ways I’ve done it. The other ways … and this is becoming very popular now, is there are actually outsourced automated services that do this for you. They hook into your shopping cart typically. They analyze different things on the order lot of them are similar to this, high value orders, billing shipping addresses don’t match, things like that. Then they run them through some sort of checks. They can either be automatically flag orders, put orders in this little penalty box where then you have to manually review them. They can do different things, there’s a lot of different settings.

Some examples are, Shopify has a built in fraud type detection service that can be enabled. I’ve heard mixed reviews on that. It definitely probably is better than nothing but there’s also paid services out there. One that a lot of folks have used, and I’m going to butcher the name but I’ll put it in the show notes, Signifyd.com. I don’t know how to say the name but I’ve worked with clients who used them. They say their fraud detection rat is much higher than some of the other services out there. So I’ve heard some great reviews on them. There’s also I’ve heard a newer one is Riskified, I’ll also put it on the show notes. Also automated, hooks into the shopping cart. That might basically be instead of having a VA do it, depending on how many orders you get per day sometimes it would just be more cost effective to go with a service like this. They monitor all your orders coming in. They’re able to do the exact same thing. They flag it using their own internal metrics, put in some sort of penalty box. You then as the business owner or someone in your organization goes through everyone of these orders, maybe gives them the same courtesy call, maybe sends them an email, goes through some sort of process.

We actually when I was doing it we had a written manual of here are the steps we take. It was just outlined and every order once it got flagged follow these steps and kind of a little flow chart and if this then that, don’t ship, otherwise do this. Then we’re able to either myself or anyone here was abl to kind of run through and determine what was the next set of steps. And the nice part about that also, it was a living document where as we learned and as we got better at it we were kind of able to update that document and keep those steps as something that always evolved over time. We got better at it over time. At first we got a bunch of fraud charges all at once, it really hit. There was one month I remember it was two or three in a month. All of a sudden it was like, “Oh wow we have to figure something out.” As we got better, as we updated the manual, as we ran through these steps each day the fraud charges dropped down to a fraction of a percent. It became much easier to detect these, we just got better at it.

            If you’ve ever been hit by fraud or if it’s something that you’re just getting started just look out for it. Keep an eye, it does happen. And when it does happen you as a retailer are typically on the hook, so it’s something that if it does happen you definitely want to be on the lookout and protect yourself always. Hopefully that helped. Definitely happy to hear your feedback. If you leave a comment, message me on Twitter, send me an email. I’m definitely happy to hear from you. You can find the website at businessofecommerce.fm. You can reach me at Charles@businessofecommerce.fm or on Twitter at @CharlesPowell. Definitely happy to hear your feedback, get your comments. And I’ll talk to you soon. Thanks, have a good one! 

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