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Support Services: Combating Friendly Fraud: Some Friendly Reminders to Protect Holiday Sales

1 Sep, 2009 By: Bob Botelle Response

i1The Federal Open Market Committee (FOMC) expects unemployment rates to exceed 10 percent through the end of 2010. As a result of today's economic recession, more and more consumers are trying to find ways to avoid paying for their Internet purchases by disputing their online charges after receipt, a practice known as friendly fraud. In many cases, the goods purchased are never returned causing a double hit to a company's bottom line.

While online merchants are becoming increasingly more educated about risk management with card-not-present transactions (see "Retail Outlet: How to Stop Fraud From Destroying Your DR Business"), now is the time to be reminded of some of the ways they can protect themselves before falling victim to fraud.

Below are some tips that merchants should put into effect now to ensure that the good orders go through and the fraudulent ones are stopped in their tracks before ever being shipped. By putting these "friendly reminders" into effect, merchants will be better armed to protect their holiday sales.

Put Verification Methods in Place

To reduce the number of fraudulent orders from going through, merchants need to do everything they can to validate the identity of the cardholder. By putting verification methods in place when the order process begins, merchants will be able to detect anomalies from the start.

First, use an Address Verification Service (AVS) to reduce the risk of fraudulent charges. Requiring consumers to key in both their "bill to" and "ship to" addresses helps to verify that the address is the same that the bank has on file.

Second, request the Card Verification Value (CVV) code located on the front or back of the card. Adding this additional layer of security helps to verify that the consumer has the physical card in front of them at the time of purchase. Merchants will also want to limit the amount of times consumers can key in the code. If entered incorrectly three successive times, the merchant should direct the consumer to call in their order instead.

For those higher ticket items, consider putting a manual check in place. Everyone shipping a physical product should have some internal fraud mechanism/screening that pulls out certain orders that will require a manual review and detect for atypical behaviors.

Consider Value-Added Fraud Screening

Before the holiday season, consider looking at an outside fraud screening tool. There are several vendors offering fraud screening capabilities. Accertify, 41st Parameter, Vindicia and others can perform hundreds of scoring techniques on orders to give merchants a better look into each transaction.

Spiff Up the Pick, Pack and Ship Process

Whether one is self-fulfilling or leveraging partners throughout the supply chain, consider instituting advanced friendly-fraud busters such as electronic imaging (photo or video) of shipped orders, especially for high-ticket items. In some cases, a picture can definitely be worth a thousand words (or dollars).

Require Signature Upon Delivery

Requiring a signature at time of delivery should be mandatory for high-ticket items. Requesting signatures is costly, but the cost of receiving a chargeback for a "lost" item is even more. Having that physical signature on file adds another proof point to combat the "I never received the items" dispute.

Avoid Fraud at All Costs

The upcoming holiday season is sure to be a challenging one with consumers spending less and many more looking for ways to get something for nothing. Online merchants should invest their time and money up front to screen every order and avoid fraud from the start. Also, work with your processor to fine-tune your chargeback representment documents. Then you can determine the most efficient supporting documentation to win fraud or non-receipt chargebacks.

Bob Botelle is chief customer officer for Massachusetts-based Litle & Co., a card-not-present merchant account, processing and services provider. He can be reached via E-mail at

About the Author: Bob Botelle

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