By Paul Lang, Editor, Sell It!
March 20th, 1999

See Also   How to Build a Web Store for FREE   How to choose mailing list management software   How to Grow Your Web Business   How to Accept Credit Cards without a Merchant Account   How To Develop Online Products That Sell   How to Change Your Web Hosting Service (ISP)   How to Deal with Disgruntled Customers   How to Get Top Search Engine Positioning   How to Beat Credit Card Fraud   How to Design an Affiliate Program   How to Accept Credit Card Payments   How to Choose a Shopping Cart

[This is the third part of a three part article. The first part can be read here].

Although it might be tempting to employ all of the methods above, there is a problem: each of these checks takes time (and therefore money) to perform. The best strategy therefore for most merchants would be to construct a tiered matrix that stipulates the level of checking that should be performed on different order categories.

The contents of such a matrix will depend entirely on the nature of what the merchant is trying to sell, where in the world they are located and how much risk he or she is willing to take, but here's an example:

Sample Matrix

Order Value	Domestic Orders	International Orders
<$25	* Accept all	* Accept all
$25 to $99	* AVS only	* Bill to = ship to * No "freemail" addresses
$100 to $249	* AVS * No "freemail" addresses	* Bill to = ship to * No "freemail" addresses * Check out customer's Web site
>$250	* AVS * No "freemail" addresses * Phone customer for verification	* No credit card orders accepted * Ask customer to wire funds before shipment

Although this approach will reduce the risk of fraud considerably, it still has some problems associated with it. For not only do these checks 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 some automated checking tools. There are a number of these available, but for the purposes of this article I am going to focus on two AntiFraud and CyberSource IVS.

AntiFraud is by far the lower costing of these two 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 2000+ 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.

Cybersource claims that its IVS system has reduced fraud levels to just 0.5% of sales for many of its merchants. IVS is based on an artificial intelligence engine and works by analysing numerous characteristics of each transaction including shipping address, network address and at what time of day or night the order was placed. IVS then assigns weighted scores and compares these against a merchant's pre-defined threshold to determine if a transaction should be declined or accepted.

My final message: Internet credit card fraud is growing and will continue to do so and as things stand just now you, the merchant, 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.