ClearCommerce Identifies New Patterns in Online Fraud

Also identified was a startling increase in fraud among transactions validated with Address Verification Systems (AVS), indicating the need for more comprehensive fraud prevention arsenals. The dramatic rise in identity theft, affecting more than 33 million consumers, has created new avenues for fraudsters to commit online crime. To help retailers combat these fraud attacks, ClearCommerce conducted a study to identify emerging trends on how fraud is carried out. This research from the ClearCommerce Fraud Data Consortium (CDC), an extensive database of detailed Internet transactions compiled from thousands of online merchants, found an almost 80 percent increase in AVS-match order fraud activity. AVS, which verifies a customers billing address with the address on record, is the most widely used fraud countermeasure for online retailers today. Through identity theft, fraudsters are able to gain access to cardholder billing information, allowing them to pass the AVS screening. Because most merchants trust orders with a full match, a fraudster that assumes a cardholders identity can escape checks and verifications. As ClearCommerces study has shown, a single fraud-prevention solution, such as AVS, will not protect merchants, and ultimately consumers, from the effects of fraud. Tips for Maximising Online Sales Retailers have a variety of solutions to address the increased sophistication of online fraud, and every merchant should implement a mix of basic steps to minimise fraud. ClearCommerce recommends that merchants put into operation some of the following safeguards: -- Leveraging issuer-supported verification tools. Although these solutions offer limited protection as stand-alone tools, they do have value when used in conjunction with other detection methods. All online merchants should validate the consumer billing address through AVS and require the card verification code, especially for new customers. -- Verifying suspicious orders. Online merchants should be able to flag orders that look suspicious and have an employee review them prior to shipping. High-value orders, especially those consisting of a large number of small products, should be reviewed. For example, a merchant that receives an order for £2,000, made up of 25 MP3 players, should be suspicious and verify the order with the prospective customer. Small consumer electronics are easily resold on the street. -- Implementing a negative database. Successful fraudsters are likely to attempt the same crime against the same merchant again. Merchants should keep track of those that have committed fraud with a negative database that contains key pieces of information from previous fraudulent orders. New orders should be compared to the negative database, and those that have matching characteristics should be flagged for review. Key fields to include in a negative database are the shipping address, e-mail address, Internet Protocol address and credit card numbers. -- Reviewing before rejecting. Missed sales opportunities not only cost retailers millions of pounds each year, but also result in lost repeat business from the offended consumers. Retailers should remember that their best customers, especially during the holiday season, may behave similarly to fraudsters, placing larger-than-usual or multiple orders. When possible, suspicious orders should be verified rather than automatically canceled. -- Implementing a multilayered fraud-detection system. Merchants should select a comprehensive fraud-prevention platform that includes sophisticated order-screening rules, merchant-configurable velocity checks, neural network risk scoring, international IP address location, and an automated order review assistant to address a variety of fraudulent activities. Fully automated screening and review tools can significantly reduce the cost of order processing