How to Prevent Fraudulent Orders and Chargebacks

There 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 Fraudulent Orders & Chargebacks. You will learn how to recognize problem orders and how the security features that the credit card companies DO offer are important and how to effectively 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 by yourself. You will not get outside assistance from your merchant provider or from the credit card companies if you blatantly accept fraudulent orders.

How to Recognize Fraudulent Orders

Here are some signs of a potential fraudulent order 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 product 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. Because if you normally get orders around the $50.00 mark, but all of a sudden get an order for $1000. Then you should take a closer look at that purchase.

2. 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 with different card numbers and then move on to attack another website.

3. Shipping Warnings
A lot of fraudulent orders are from international consumers. So be mindful of all international orders. Another shipping warning is if the customer used a different shipping address that differs from their billing address for the order.

Credit Card Company Services to Help Prevent Fraudulent Orders

There are a few things that credit card companies offer to help prevent fraudulent orders and to help you decide if you want to immediately decline an order;
1. CSC, CVV, CV2, CVC, CCV – Card Security Codes
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 set to be automatically declined.

2. AVS – Address Verification
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 Orders

1. Simply do not accept international orders.
The AVS, doesn’t check international addresses. As a result, the address cannot ever 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. One important thing to note, AVS will often 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 thank them for their purchase and let them know you simply want to verify their shipping address for their order. If you can’t reach them because they gave you a fake telephone number, that is a good indicator of fraud.

3. Check your customer out.
If you are wary of a transaction, then know your customer! 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!

With all of the social sites online, most people have a 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 and you are a little worried about so you can stay ahead to prevent fraudulent orders.

Accepting Fraud Orders Leads To Chargebacks

The dreaded chargeback! If a customer doesn’t recognize a charge on their card, they typically contact their credit card company to do a chargeback instead of talking to the merchant first. So a chargeback is having the credit card company step in to get your money back. It is highly effective for the consumer, but bad for the merchant.

Following are things you need to have in place before you even start accepting orders in your online store. Having these items will help deter chargebacks as well as answer chargebacks.

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

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 with that, always have tracking on all packages and in some cases (espeically a large order) 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.

How To Respond To A Chargeback

We have a specific way that we respond to chargebacks and this will help you put together an outline of what you need when you respond to the bank.

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: Customer John Doe, located at 123 Main Street, Anytown, FL 123456, telephone; 555-555-5555, purchased on 7/19/2024 a set of hot sauce scented candles from our store at CandlesSmellAwesomeSauce.com. After purchase, we immediately sent a confirmation of the order to the provided email address; johndoe@comcast.net

2. Merchant Receipt
Next, provide a copy of the merchant receipt that shows AVS Matched. (address verification)

Example: Following is a copy of our merchant receipt that shows AVS matched. The built in AVS helped us to determine that this wasn’t a fraudulent 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: We shipped the customer’s order to the same address that was provided as the billing address. On 7/20/2024 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: Additionally, we have communicated with this customer on 2 occasions. The first occasion was via email when the customer asked us about the hot sauce 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 7/19/2024, 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

Stay Diligent!

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 actually be valid fraud orders that slipped through by accident, and no one can be faulted. Because even as much as you do to prevent fraudulent orders, sometimes they will sneak in. Then unfortuatnely you will have to eat the cost of it.