As a high-risk merchant, a large part of your business may involve card-not-present (CNP) transactions. After all, if you do business online, over the telephone, or even through the mail, it’s impossible for you to swipe a credit or debit card physically through your payment terminal to process a sale. Although this is an entirely acceptable way to do business, it does carry some inherent risk.
When customers order products or services online, for example, the only things they need to place an order is a card number, security number, and expiration date. This makes it easy for someone to purchase items with a stolen card — especially since there is no way for you to verify that the person using the card is the actual owner. While you can’t be expected to prevent this type of fraud completely, you can minimize the risk to protect your business and your customers better. Here are four ways to avoid CNP fraud.
Analyzing your sales can be as simple as reviewing things like customer names, addresses, and phone numbers to make sure that they match provided card information. Also, be on the lookout for suspicious activity and know how to spot fraudulent orders. Did one customer purchase a lot of expensive goods? Do they want these products shipped on a rush basis? Did they pay with a U.S. card but want the goods sent to a foreign country? These may be indications of CNP fraud.
If you find yourself in this situation, do not ship any items until you confirm that the person ordering the products is the actual cardholder. To do this, contact your merchant bank to verify the billing address or call the customer directly.
These days, there are many solutions that you can implement to minimize the risk of CNP fraud. You can use an Address Verification Service (AVS), which will automatically compare the billing address entered by an online shopper to the billing address on file with the credit card issuer. If the addresses don’t match, the purchase will be flagged, and you will need to decide whether or not you want to accept the sale.
You can also use a 3D Secure Service. This is a plug-in that you can install on your website that will ask customers specific questions to verify their identities. Other helpful fraud solutions include email and security code verification.
Image via Flickr by GotCredit
If your business operates online, ask that your customers set up user accounts before making purchases. To set up a user account, each customer should create a profile with a username, password, phone number, home address, and email address. Once the user account is created, you should have a system that sends a confirmation email to the customer’s email address. The client can then verify his or her account and choose security questions and their answers. This will help you ensure that the person attempting to make a purchase is the actual owner of the card. It will also help customers feel more secure when using your website to buy items.
It’s also helpful if you require customers to re-enter their cardholder information for each purchase. Think of it like this: a customer creates a user account, verifies his or her information, and checks out with one item. If this customer decides to purchase a second item, he or she should be required to re-enter the card information to check out again. Although this won’t prevent all CNP fraud, it will minimize it.
While many merchant account providers are ill-equipped to work with businesses that operate in card-not-present environments, high-risk merchant account providers, fully understand the complexities. They can provide you with a high-risk merchant account that suits your needs and your business. Best of all, high-risk merchant account providers often charge you better rates for these accounts and won’t penalize you for accepting CNP transactions.
Your high-risk merchant account provider may even offer specific services and programs that help you prevent CNP fraud. Some of these prevention programs can reduce chargebacks and fraud and help you recover lost sales.
Whether or not you’re a high-risk merchant, there will always be a risk when operating a business. Card-not-present transactions do increase that chance, but there are many ways to avoid CNP fraud. Remember: Be diligent when dealing with CNP transactions so that your business and customers are protected.