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Understanding the e-commerce Payment Chain

The Beginner’s Guide to Fraud Filters


The Beginner’s Guide to Fraud Filters

Credit card fraud is a major concern for businesses who sell their products online. Not only can fraud negatively impact your business’ reputation, but it can also cost you in lost merchandise, lost shipping costs and chargeback fees from the issuing bank.

Even if you’ve successfully avoided fraudulent orders so far, you’re still at risk. Fraudsters are continually finding new ways to exploit a merchant’s vulnerabilities – and they can be ruthless when taking down a business.

The trick to battling credit card fraud is to adopt a comprehensive process that addresses a wide range of issues. One way companies do this is by setting up and managing fraud filters in their payment platform.

What are Fraud Filters?

A fraud filter is a tool you can add to your e-commerce shop to prevent potentially fraudulent orders from processing in your store. Depending on how you set up the fraud filters, it will either warn you of a potentially fraudulent transaction or cancel an order entirely.

There are many different types of fraud filters you can set up, but some of the more common ones include:

  • A daily or hourly velocity filter that controls how many sales may be submitted to your website over a certain period of time. This helps prevent fraudsters from testing credit card numbers after purchasing lists of stolen cards.
  • An address verification system (AVS) where you set your fraud filters to decline or require review for orders where the billing and shipping addresses don’t match.
  • A card verification value (CVV) filter that looks for discrepancies between a card’s CVV number and the one entered during checkout.
  • A purchase amount filter that requires you to review all transactions that fall outside a certain range. Since most businesses know their typical transaction size, you can set the filter to alert you when a transaction is higher or lower than this amount.

The Challenges with Using Fraud Filters

One of the biggest challenges with using traditional fraud filters is ensuring that good transactions aren’t declined while bad ones are approved. According to a recent report from LexisNexis, fraud filters have a false positive rate of approximately 25%.

For example, if you set up a fraud filter to automatically decline transactions where the billing and shipping addresses don’t match, you could potentially turn down an order that someone is buying as a gift for a family member.

When set up correctly, fraud filters can be incredibly helpful at reducing the risk of fraud. But it’s important to be mindful of the fact that fraud filters – when not implemented correctly or effectively – can severely limit your earning potential.

Additionally, you can layer fraud filter rules to help you catch more sophisticated fraudulent transactions. However, if the rules are ordered incorrectly, it can unintentionally cause some rules to be overruled by others.

The way to handle this situation is to set fraud scores that weigh several variables. Each variable has a specific weight associated with it, and when combined, the fraud score will give you the likelihood of fraud for a specific order.

For example, a flagged IP address might indicate an order is fraudulent, but if the AVS value, delivery address, email and phone number are all legitimate, there’s a greater likelihood the order is actually legitimate, too.

The Benefits of Working with a Trusted Partner

Too often, e-commerce businesses can’t dedicate the time or internal resources needed to battle fraud. In this case, outsourcing the work to a third-party fraud protection solution may be a smart choice.

There are many benefits to working with a third-party vendor. One of the biggest benefits is that they can help you set up and layer filters properly to ensure that you’re not turning down legitimate transactions while approving fraudulent ones. A third-party vendor can also help you set up a fraud score system to better detect fraudulent transactions.

The risk of credit card fraud is high when you do business online. If your business falls prey to credit card fraud, the impact could be significant. Fortunately, it’s not all bad news. By staying alert and vigilant while working with a trusted third-party vendor such as Clearsale, you can better protect your sales, profits and customers from credit card fraud.

Learn more about credit card fraud and the steps you can take to prevent it by downloading our free eBook, “Online Credit Card Fraud Risk: The Ultimate Guide to Growing E-Commerce Sales Safely.”

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