Fighting credit fraud

Nov 01, 1998 10:30 PM  By

Mastercard reports that fraud levels are at their lowest levels in 10 years-about 7.7 cents on each $100 transaction. But according to both Visa and Mastercard, credit card fraud still accounts for $100 million-$200 million annually in lost revenue for direct marketers, who must watch out for internal credit card fraud as well as customer fraud.

J.C. Whitney, the $156 million Chicago-based cataloger of automotive parts and accessories, estimates that .06% of its Visa transactions (the majority of Whitney’s orders) are fraudulent, says accounting and collections manager Sam Rivera.

To help combat fraud, the firm trains its order-takers to flag unusual activity, such as new buyers requesting rush delivery, or above-average size orders. For instance, the mailer might check a customer’s purchase history or verify address information for all orders over a certain amount. Whitney also periodically changes monitoring parameters and maintains a file of fraudulent names and addresses, Rivera says.

With the help of its credit card processor, Watsonville, CA-based West Marine Products, a cataloger/retailer of water sports supplies, uncovered two order-entry employees who had been generating false credits. Dallas-based Paymentech noticed that a number of West Marine’s refund reports did not correspond to previous payment transactions. The service bureau determined that the two employees were charging false credits to their own credit cards.

Paymentech uses various fraud-tracking tools, such as the Address Verification System (AVS) and Visa’s new Card Verification Value 2 (CVV2). As part of CVV2′s encryption system, a three-digit code is placed on the back of the card, which order-takers can request to verify that a customer actually has the credit card in hand.

Paymentech relies on daily reports to provide a complex system of checks and balances. For example, says Larry Bouchard, group manager for product development, “if the merchant’s average order is $40 and a sale comes in at $150, we’ll flag that request and notify the merchant,” but only after verifying customer order history records and taking into account seasonal purchases, which are often higher than usual.-MDF

“Ninety percent of the decision process is understanding how a system fits within your business environment,” says operations consultant Bill Kuipers. Below, he offers some tips on selecting a catalog management software system.

* Prioritize your needs. Bring a checklist of the system features you must have and those you can do without. And check for compatibility with existing hardware systems.

* Choose function over technology. Many people are enamored of modern technology. But the newer technologies don’t always have the depth of features that older systems have, such as different ways to search an order.

* Inquire about technical support. Make sure that technical support is available to you when you need it, particularly after the initial installation is com pleted.

* Watch for hidden costs. Confirm any additional costs for technical support, and try to negotiate to pay one price.

* Check references. Talking to some of the vendor’s clients will reveal more about the system and supplier than talking to the person trying to sell it to you.-MDF