Fraudulent orders placed on your online store that are not detected before products are shipped out can result in a substantial financial loss because these products are seldom recovered. Additionally, chargeback fees against businesses that process fraudulent orders can compound, resulting in further financial damage.
Aside from the financial aspect, there is also the damage to a business’s reputation that can result from processing fraudulent orders. For instance, chargeback information is reviewed as a part of a merchant account application. A large number of chargebacks can result in unfavorable credit card processing terms like higher processing rates, a waiting period before funds are made available, and so forth.
- A much higher than average order total
- A very low order total (usually around $1)
- Billing and shipping addresses that do not match
- An IP address location that does not match either the billing or shipping locations
- A fake or invalid email address
- A phone number that is no longer in service
If an order seems too good to be true, it probably is. Fraud scams that rely on unusually large orders usually involve buying large amounts of goods that can be easily resold. The billing address will match the stolen credit card and the shipping address will be a location where the thief can take possession of the goods.
Orders for $1 or less should raise a red flag, because the product being purchased often doesn’t make sense to purchase online, since the shipping cost will be much higher than the price of the product itself. These types of fraudulent orders are usually placed by thieves that are testing credit card numbers to see which ones are valid.
Having billing and shipping addresses that don’t match isn’t unusual because many people buy things online as gifts and have them shipped to friends or family elsewhere. Similarly, placing an order from an IP address location that doesn’t match the billing or shipping address isn’t uncommon because the purchaser may be on a business trip or on vacation while placing the order. However, if an order checks either of these boxes and any other common fraud criteria, it should raise suspicion (particularly if any of the locations are outside of the US).
Automatically sending an order confirmation email once an order is placed is a good way to test the email address provided before processing the order. Emails that bounce should result in a second look at their corresponding orders. It’s very plausible that an order confirmation email would bounce because the recipient’s inbox is full or the email was mistyped, but never hurts to take a second look at an order to ensure that the rest of the information looks legitimate. If an email looks obviously fake, the order shouldn’t be processed without first verifying the payment information. A phone number can also be used to verify an order because it allows you to speak with the cardholder directly. If the number is not in service, it may just be a typo or it may be indicative of a fraudulent order.
The best way to catch fraudulent orders right away is to have an early detection system like a fraud risk calculator built into your online store’s order processing system. This can help you easily isolate the riskiest orders even if you have a very large daily order volume.
When you suspect that an order is fraudulent, you should cancel the order right away and refund the charge. If you have a large number of fraudulent orders coming in, you should block that person from placing orders on your site and alert the authorities and report the order details so that they can try to apprehend the thief that’s using stolen credit cards.
Kate Pierce is the owner of LionShark Digital Marketing LLC, a West Michigan internet marketing company. Her areas of expertise include Paid Search, Search Engine Optimization, Social Media, Web Consulting for small businesses, Copywriting and Local Online Marketing. She lives in the Grand Rapids area with her husband and enjoys cooking, watching sports and spending time outdoors. Like a true digital marketing expert (i.e. geek), she loves talking about marketing theory and SEM trends… so don’t say you weren’t warned!