How to Recognize Online Fraud

How do you recognize fraud?

Don Bush, director of marketing at Kount, told attendees at the Operations Summit to consider the following potential indicators of fraud:

When your chargeback rate is above 5%; when your return rate is higher than 1%; when your abandonment after submitted transactions is high; when there is high affiliate turnover; and manual reviews of suspicious transactions is above 10%.

Bush said managing fraud requires a complete strategy, not just adding tools. Fraud management should not be inhibiting your ability to sell more. It should allow you to expand into new markets and channels with increased confidence. “Fraud management doesn’t need to be a cost center,” Bush said.

Fraud protection tools are only useful if the merchant knows how to use them, Bush said. He believes the two most powerful tools merchants can use are device fingerprinting and Geo IP location services.

“The automation in the system is key to helping reduce fraud in real-time and assist merchants to make accurate decisions in less than one second.

Bush said fraud moves so fast that there is constant fear from merchants.

“Mobile transactions are the fastest growing segment of online transactions. Fraud is not stagnant and they are very well networked. Fraud moves too fast to ignore. They want to turn whatever they get into cash as fast as they can.”

Here are some of the things fraudsters will attempt, Kount said:

They will try smaller purchases at first and if that goes well they will move on to bigger purchases.

Fraudsters will use proxy IP addresses to fool the merchant into thinking they are in Chicago when they really are sitting in Vietnam. This mask can be hard for a merchant to detect if they don’t have the right system.

Fraudsters will ship products to a warehouse and put the items up for sale on a site like eBay at ridiculous prices to get cash quickly.

Fraudsters make overnight orders late in the day leaving less time to try and stop the order from going through.

Jim Tierney ( is a senior writer for Multichannel Merchant. You can connect with him on Twitter (TierneyMCM) and LinkedIn, or call him at 203-358-4265.


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