Chargebacks, Chargeback Recovery

How to Detect Address Fraud

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High-tech fraud often has no choice but to intersect with one very low-tech piece of information: a mailing address. Whether it’s being used for identity verification or a delivery location, fraud often requires an address.

Using a fake or incorrect address for personal gain is considered address fraud, and it often goes hand-in-hand with credit card fraud, account takeover attacks, identity theft, and other cybercrimes that often target merchants and can lead to costly disputes. What is address fraud, and how does it affect merchants who are dealing with fraud and chargebacks?

BNPL E-GuideFraud is an ever-present problem for merchants, especially those who engage in e-commerce. The safeguards that help protect cardholders in brick-and-mortar environments don’t always translate well to online, card-not-present environments.

Merchants can try implementing stricter security measures online, but legitimate customers often get frustrated and bounce off of these, abandoning their shopping carts and never returning.

Nearly every act of online fraud inevitably results in a chargeback for which the merchant is liable, costing them time and money and putting them at risk of being penalized by their acquiring bank.

But as lucrative as online fraud can be for the fraudsters, there are some challenges that they face, and one of them is the address of the cardholder they’re victimizing. On the one hand, they may need to know the address to get past the Address Verification Service check required for credit card authorization. On the other, they need some way to receive the ill-gotten goods they’re buying with their victim’s money, but providing their own home address can put them at risk of being caught and prosecuted.

Not surprisingly, many of the scams and attacks merchants face include some address fraud on the side. Knowing what address fraud is and how to detect it can help merchants catch on to these schemes before it’s too late.

What Is Address Fraud?

“Address fraud” describes any form of fraud in which a fictitious or inaccurate address is provided. A fictitious address would be one that does not actually exist; an inaccurate address would be one that is valid but not correct.

For example, if you were asked by a government agency to provide your current residential address and you gave them the address of a house you moved out of several years ago, that would be an inaccurate address and could be considered address fraud.

Why Do People Engage in Address Fraud?

There are all sorts of reasons why people might commit address fraud, and not all of them do so for financial gain. Parents sometimes engage in address fraud when they want to send their children to school outside of the district they live in. They might send in an application using the address of a trusted relative who does live in the “better” school district.

Voter fraud also frequently involves address fraud. Somebody who wants to vote in an election in a particular town, for instance, might register to vote with an old address from when they used to live in that town, even though they’ve long since moved away.

Merchants, of course, do not have to worry about getting hit with chargebacks due to voter shenanigans or parents shopping around for better schools. When merchants encounter address fraud, it tends to involve either the transaction authorization process or delivery destinations.

Where Do Merchants Encounter Address Fraud?

A fraudster with a stolen credit card number often faces two major obstacles. First, they have to place a successful transaction with the card, even though they might not possess a full set of payment credentials. Second, they have to find some way to receive the goods they are purchasing with the stolen card.

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While there are plenty of cases of fraud that are able to easily bypass these obstacles, they can easily trip up the casual, opportunistic fraudster—especially if the merchant involved is keeping a watchful eye out for address fraud.

A fraudster with a full set of stolen payment credentials may be able to get past basic security measures such as AVS and CVV checks to complete a transaction, but they face a major obstacle when it comes to finding a way to receive any physical goods they’ve purchased with the stolen card.

They have to provide a shipping address they can access to pick up the delivery, and that address will often be hundreds of miles or more away from any of the addresses associated with the actual cardholder. Some fraudsters will try to divert shipments by contacting the merchant after an order has been placed and requesting a change to the shipping address.

It’s unusual for fraudsters to provide their own home or business addresses in these circumstances, as this would allow their crime to be traced back to them. Instead, they might use a mailbox service or an abandoned property.

Account fraud can be hard to spot when fraudsters create new customer accounts, but anti-fraud software can pick up on discrepancies between card billing addresses and shipping addresses and let you know when a transaction appears to be fraudulent. In the case of account takeover attacks, the fraudster may be changing the shipping addresses on an existing customer account.

Your own internal CRM tools should be able to alert you to changes like these, which can be examined in context to see if the account has been compromised.

For example, if a customer suddenly changes their shipping address but their original contact information is unchanged, you could call them on the phone to confirm that the address change is valid.

Conclusion

Whenever something doesn’t smell right with a shipping address—whether it’s a sudden change or an unusual location—you should stop, take a closer look, and do whatever is necessary in order to rule out the possibility of fraud.

Shipping address alterations are one of the biggest red flags for ecommerce fraud, but you always have to look for other signs to confirm it. Automated anti-fraud tools are great at catching address-related fraud indicators, but they often need to be interpreted with human intelligence. After all, sometimes customers really do want to ship a present to their best friend halfway across the country. By doing your due diligence, you can prevent fraud while still providing seamless fulfilment for your real customers.


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