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The Digital Fight Against Fraud

Posted on 6.30.2012

Small and medium-sized businesses are increasingly becoming the targets of “fraudsters”, losing revenue as inventory leaves their warehouses and card-issuing banks side with consumers by reimbursing them for being the victims of fraudulent activity. Furthermore, many banks and credit card companies will not reimburse the merchant, resulting in brand damage.

It is estimated that SMBs lose upwards of $66,000 annually through fraud, so implementing safeguards to limit this activity will go a long way towards reversing this trend. SMB merchants can follow the following best practices to be more vigilant and better prepared to identify if they are fraudulent:

1. Activate fraud prevention tools in the payment process and back-office systems to detect fraud and create processes to evaluate those orders that contain certain indicators of fraudulent activity.

2.Require card identification (CID) information, the extra three or four digits used for security on all credit cards, and address verification on all orders paid by credit card. Doing so typically ensures the buyer actually has the card in hand and is shipping to the address associated with the card holder. Where it is a separate ship to/gift to address, collect ”bill to address” to confirm authenticity.

3.Review past orders that have been fraudulent to uncover the themes that are specific to your business.

Certain products such as electronics are more captivating to fraudsters than others, and therefore are more at risk for fraudulent activity. SMB merchants should look closely at all orders and be conscious of these warning signs of fraud:

• Orders that are significantly larger than the average size
• First-time buyers
• Orders shipping internationally
• Search for orders without a CID number or a CID that doesn’t match the credit card number
• Overnight requests

About the author: Fred Lizza is the chief executive officer at Dydacomp, a provider of business technology platforms for small and mid-sized e-commerce and multi-channel merchants.

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