Fraud prevention

When assessing security arrangements, retailers should be aware that they may be liable for losses if a transaction turns out to be fraudulent. Online card payments are classed as 'cardholder-not-present' (CNP), because you can't physically check the card or the cardholder.

  • Online fraud is reducing as security gets more stringent.
  • Fraudulent transactions result in 'charge-backs'.
  • This can adversely affect your internet merchant account status.

Recent figures from the Financial Fraud Action (FFA UK) show that CNP fraud is actually on the decrease, in most part due to increasing measures by both retailers and payment solution providers.

If a transaction turns out to be fraudulent, the money will be reclaimed from your bank account – known as 'charge-back'.

Charge-back can also occur through customer refunds and it’s worth pointing out that the number of charge-backs you have can adversely affect your ability in obtaining an internet merchant account – if you are not already using one.

It is standard practice that payment solution providers will hold back a small rolling balance of your turnover (usually around 5%) to allow for paying out charge-backs, so it's best to check the small print of your agreement for this.

You should also protect your business from online attacks aimed at obtaining card details or other data. If you suffer a serious breach, your reputation could suffer a setback that it doesn’t recover from.

Before concluding a transaction, you should consider the following:

  • Are the goods high-value or suitable for resale?
  • Is the sale excessively high in comparison with your usual orders?
  • Is the customer ordering many different items?
  • Do they seem unlike your usual customer?
  • Is the customer providing details of someone else’s card
  • Does the address provided seem suspicious?
  • Has the delivery address been used before with different customer details?
  • Is the delivery or contact address overseas?
  • Is the customer being prompted by a third party while on the phone?
  • Is the customer attempting to use more than one card in order to split the value of the sale?
  • Does the customer seem to lack knowledge of their account?
  • Does the customer seem to have a problem remembering their home address or phone number?
  • Does the customer sound as if they are referring to notes?

These are some of the common signs to watch out for that point towards CNP fraud. Of course, you can never be 100 per cent certain a fraud is taking place until after the event, but it pays to be vigilant. If you can answer yes to any of the above during a transaction – conduct further checks!

To protect the retailer against charge-backs from transactions that turn out to be fraudulent, a number of 3-D Secure authentication products are now on the market that can be integrated alongside any other security your site has.

These include:

  • Address Verification Service (AVS)
  • Card Security Code (CSC)
  • MasterCard SecureCode
  • Verified by Visa
  • J/Secure
  • SafeKey

If you suspect a CNP fraud is taking place, you should contact the police and complete a Reporting Suspicions of Card-Not-Present (CNP) Fraud form.

For more information on online fraud prevention and security measures, go to:

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