Credit Card Fraud Detection

Digital security alert_CardinalCommerceCredit card companies have become experts at instantly recognizing fraudulent transactions. In their analysis of all credit card transactions, they recognize and evaluate patterns and spending profiles so thoroughly that it can be detrimental to their clients. Forbes recently reported that U.S. merchants lose nearly $190 billion each year to credit card fraud.

The simplest way for credit card companies to detect online fraud is by recognizing a pattern break. They flag transactions if they see changes in any of the following:

  • Location: If a customer who lives in Alaska starts making in-person purchases in Tokyo, the credit card companies will notice.
  • Purchase type: If a customer regularly uses a credit card to buy coffee in the morning, lunch in the afternoon, and groceries in the evening, the credit card companies will take note of this pattern. If they suddenly buy an expensive fur coat from a department store, a flag will go up.
  • Purchase cost: Most credit card companies will flag big ticket items if they are outside of the customer’s normal spending habits.
  • Number and time of purchases: If a customer buys ten expensive items in ten minutes, a credit card company will notice and take action by alerting the customer, usually with a phone call.
  • IP address attached to the purchase: When guarding against online credit card fraud, one of the easiest ways to detect a problem is to look at the customer’s IP address. When the origin of the IP address used to make multiple purchases differs from the one commonly used by that customer, that may be a problem. When a customer shops online, they usually do so in the comfort of their own home, on their own computer. If that suddenly shifts, it can be cause for concern.
  • A test purchase is made: If an inexpensive purchase is made right before a very expensive one, it can often mean a criminal is testing a credit card to see if it works before making a larger purchase. Credit card companies are often aware of this type of behavior.

As a merchant, you should know these tips and tools so that you can effectively protect your online business from fraud.


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