Choosing a Fraud Prevention Tool
Fraud is an ever-present danger for ecommerce merchants, and true fraud chargebacks can be some of the most frustrating to deal with. Even when you've optimized your business operations to reduce merchant error chargebacks and have a good system in place for fighting friendly fraud chargebacks, true fraud can remain a persistent problem, and there's no way to fight them after the fact.
The best strategy for merchants is to follow best practices for preventing fraud and use effective and up-to-date fraud prevention tools. When merchants are struggling with fraud, how can they select the right tools for the job?
Fraud based on payment card and identity theft just keeps growing and growing in the card-not-present environment, despite significant efforts from card networks and other stakeholders to get the problem under control. In fact, 2019 was the worst year for online fraud on record. Fraud is a problem that concerns every merchant, and true fraud chargebacks are inevitable.
Chargebacks were invented specifically to protect consumers from fraud by card thieves (as well as unscrupulous merchants), so there's no legitimate basis for fighting them. When true fraud has actually occurred, here's no argument or evidence that the merchant can provide to get the chargeback reversed.
The only way to fight true fraud is to prevent it from happening in the first place.
Fraudsters are very technologically savvy these days, and to stop them you'll need sophisticated technological solutions. There are many options to choose from out there, and picking the right tools can be overwhelming, especially when you have to balance out stringent protection against the risk of creating too much friction for your customers.
Not every merchant will have the same needs when it comes to anti-fraud tools, but to get you headed in the right direction, here are some of the most essential fraud prevention tools on the market.
What Features Should My Anti-Fraud Tools Offer?
Analyzing your chargebacks can help you determine where to focus your defenses. For example, if you find that the majority of your fraud is coming from a specific country, then tools that offer geolocation features are a must.
Most merchants encounter varied forms and sources of fraud, so most merchants will find all of the following features beneficial to some extent.
Address Verification Services
One of the most basic forms of fraud screening is verifying that the address provided matches the card's billing address. While many fraudsters will have ways to obtain this information, AVS can filter out a surprisingly large amount of low-effort fraud attempts.
Geolocation features look up the IP address of the customer and trace it back to a specific geographical location.
This can tell you where your traffic and orders are coming from, and if you experience higher rates of fraud from certain locations, you can scrutinize them more closely or even blacklist orders from that location entirely.
The thing about online fraud is that you need a phone, computer, or similar device to perpetrate it, and those devices have unique identifiers that can be used to track them.
This can help you identify account takeover fraud (when a brand new device suddenly starts trying to log in to a customer account) and blacklist known offenders.
When it comes to getting away with fraud, time is of the essence. As soon as the cardholder realizes what's going on, they'll call their bank and get the card shut down.
To maximize their chances of stealing lots of money from their victims, fraudsters often make multiple transactions in relatively short order. Velocity checking tools will identify this activity in real time by checking the speed and frequency of transaction attempts.
Fraud doesn't always play by hard and fast rules, and sometimes you need to step back and look at the bigger picture of a transaction to see when fraud is happening. Fraud scoring tools examine your transaction data for possible fraud indicators and produce an overall score of how likely it is that the transaction is fraudulent.
While these tools are only as good as their scoring system, and must be configured and evaluated carefully to prevent false positives, technology like machine learning can make fraud scoring highly effective at catching fraudsters in the act.
What Are Some Good Fraud Prevention Tools?
There are more fraud tools out there than we can possible enumerate here, but here are a few reliable providers to check out:
Sift's digital trust and safety platform offers a wide range of defenses for various types of fraud, powered by machine learning to help keep you one step ahead of the cybercriminals. To avoid rejecting legitimate customers, Sift offers "dynamic friction" that stops fraudsters while minimizing false positives that inhibit growth.
Well-established in the anti-fraud sphere, Kount offers tools powered by AI and machine learning to help merchants block fraudsters, along with case management tools to make manual review of suspicious orders more streamlined.
Bolt focuses on the checkout process, monitoring suspicious user behavior and providing additional layers of protection for customer data. Bolt might not be the right solution if you're looking for something you can easily plug into your existing system via API, but for merchants who need to go the extra mile in fighting fraud, it's worth investigating.
All of the major card networks offer a version of this protocol that adds an additional security layer to the checkout process.
While some customers may find it inconvenient, it can be a great first step toward implementing better anti-fraud protections.
The thing to remember about anti-fraud software solutions is that they really are just tools--they're only effective if you use them correctly. The right fraud solution will address the specific vulnerabilities of your business with software that's easy for you to implement, use, and keep updated.
There aren't any set-it-and-forget-it solutions for a problem as dynamic as online fraud. Fraudsters are constantly innovating their own tools and tactics to exploit new vulnerabilities as the ecommerce landscape grows and changes, and merchants have no choice but to keep pace with them.
Just remember that these tools will work against true fraud, but other forms of fraud--like the ever-prevalent friendly fraud chargeback--will slip right past many of these defenses and must be dealt with through the representment process. The good news is that if you minimize your true fraud problems by implementing the best possible tools, you'll have more time to focus on the disputes you can fight and win.