Fraud Prevention Tools – Product Review

By Paul Lang, Editor, Sell It!
February 28th, 2001

Two weeks ago I described some manual checks that you can use to help prevent fraud in your online store. However, although these checks will reduce the risk of fraud considerably, they are far from perfect. For not only do they take time and money to perform, they also prevent the use of real-time credit card processing, which could in turn lead to lost sales. And most important of all, these methods are difficult to scale successfully: a merchant might be able to perform these checks on a small number of orders per day, but how would they cope when the number of orders grows?

One solution to this quandary is to employ automated checking tools. Fortunately, many real-time credit card processing services have now integrated anti-fraud screening tools from vendors such as CyberSource or HNC. In addition to these integrated tools, there are a number of standalone anti-fraud tools available that are suitable for e-tailers who are either processing their credit card payments offline or who are looking to employ some additional anti-fraud protection measures.

For the purposes of this article I am going to focus on three of these tools: AntiFraud, iV-Caller and CyberCash Fraud Patrol.

Antifraud is the lowest cost of these products, but it has the limited capability to match. It costs just under $10 per month and provides a number of tools:

Automatic screening of free, Web based or e-email forwarding addresses. AntiFraud provides access to a custom script that automatically checks the buyer’s e-mail address against a list of “Red Flag” domains. The list currently has over 3000 domains listed, and it is updated regularly.
IP tracking automatically captures the IP address of the computer from which the order was placed.
Instant Fraud Attempt Alerts that allows members to notify each other about fraud attempts.
A regular newsletter

The principle behind iV-Caller is very simple. One of the problems with AVS (Address Verification System), which is the mainstay of fraud protection in the US, is that it provides no protection for Web merchants selling downloadable products because a fraudster can get hold of a valid address that matches a stolen credit card number. To try to overcome this shortcoming, iV-Caller ensures that all customers provide a valid telephone number and that they can be contacted at that number.

Here’s how it works:

iVerify provides merchants with a short piece of code that they add in to a registration form on their own Web.
During the registration process consumers are asked to provide details of a telephone number where they can be contacted, when they want to be called and finally they chose a 6-10 digit code for themselves.
This information is passed to the iVerify server that then makes a telephone call to the consumer. When they receive the call the consumer is prompted to enter the code they selected by punching the buttons on their phone.
If the code is entered correctly the consumer is successfully registered.

iV-Caller costs $29.95 to set up and has a $0.09 per verification charge.

CyberCash Fraud Patrol is normally provided as a premium service to Cybercash’s CashRegister merchants and therefore forms part of a complete real-time processing package. However, CyberCash have also made this service available to other merchants. Here’s how it works:

The e-tailer passes details of the proposed transaction to CyberCash.
CyberCash scores the transaction by checking it against a huge database of past fraudulent transactions and by profiling it against known fraudulent behaviour patterns.
CyberCash returns a fraud score to the e-tailer who then decides (manually or automatically) whether or not to authorize the transaction.

CyberCash Fraud Patrol costs $495 to set up, has a monthly fee of $59 and a per verification fee of between $0.15-$0.20, depending on the number of transaction. Prices for CashRegister customers are much lower (i.e. $99 set up and $39 per month) so it might make financial sense for some e-tailers to sign up for the complete CashRegister service instead.

My final message: Internet credit card fraud is growing and will continue to do so and as things stand just now you, the e-tailer, are going to have to bear the cost of it. So whatever anti-fraud methods you choose to employ, please start work on implementing them today.