Preventing card-not-present fraud

EMV technology will help reduce fraudulent transaction in stores, but it can’t stop card not present fraud on its own. Simply, chip cards help protect cardholder data by creating unique transaction codes when dipped into a payments terminal. This isn’t possible online or over the phone, so criminals could still steal identifying information to make fraudulent transactions via e-commerce channels.

That’s not to say that merchants can’t protect themselves and their customers. There are security measures available to help curb CNP fraud, ensuring unauthorized transactions can’t be made. Through a combination of authorizations, technology and general identification, businesses can learn who is using a card online and whether that person is the actual cardholder.

This may sound simple, but it goes a long way toward ensuring that criminals can’t steal card numbers, expiration dates and security codes to commit fraud. Every business needs to consider its unique needs and customer base to find the ideal CNP prevention method because there isn’t a universal solution.

 

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Preventing Card-Not-Present Fraud

Advancements in new technology such as NFC and EMV are designed to help reduce or even eliminate fraudulent transactions. But what if your business accepts credit cards online or over the phone? How big of an issue is fraud, and how can your business minimize the amount of fraud it sees?

Cost of Fraud

Why is credit card fraud such an important issue for merchants?

The monetary impact of fraud on merchants is real, and unfortunately it is growing.

In 2015, for every dollar in fraud losses, the actual cost to a merchant is $2.23. For e-commerce merchants the actual cost is $2.62, an increase of over 12% from 2014.

These costs are a result of:

  • any amount of fraudulent transactions for which the merchant is held liable (e.g. chargebacks)
  • fees and interest paid to financial institutions due to fraudulent purchases
  • costs of replacing/redistributing merchandise

Credit Card Fraud in the U.S.

Most card fraud occurs in the United States. Currently the U/S is responsible for 47% of the world’s card fraud despite only accounting for 24% of total worldwide card volume.

Part of the reason for the abundance of fraud in the U.S. is that it has been slow to adopt fraud prevention technology such as EMV. After the introduction of EMV, the U.K. saw a drop in credit card fraud of 70% between 2005 and 2013.

Card-Not-Present Fraud

Card-not-present fraud involves the unauthorized use of a credit or debit card number, the security code printed on the card, and/or the cardholder’s address to purchase products or services in a setting in which the customer and merchant are not interacting face-to-face.

Card-not-present accounts for close to 17% of all transactions and is expected to grow to 25% by 2018.

In the U.K. while the introduction of EMV reduced overall credit card fraud, card-not-present fraud jumped 79% from 2005 to 2008.

Card-not-present fraud as a percentage of revenue for large e-commerce merchants increased 64$ from 0.85% in 2014 to 1.39% in 2015.

The EMV liability shift and increased online shopping are expected to drive card-not-present fraud in the U.S. from $3.1 billion in 2015 to $6.4 billion in 2018.

Preventing Fraud

E-commerce merchants looking to reduce fraud will benefit most from a holistic approach that includes multiple solutions such as:

  • Device Identification
  • Geolocation
  • 3D secure
  • Rules-based filters
  • Biometrics

Authorization Methods

  • CVV2 Verification
    • By requesting the three-digit code as part of the CNP process, merchants can be sure that the person placing the order has the card in his or her possession, adding another layer of security
  • AVS Authentication
    • Utilizing AVS allows merchants to verify the cardholder’s billing address with the data on file with the issuing bank.

Fraud Solutions

  • Digital fingerprinting
  • Shared device reputation
  • Proxy databases
  • Geolocation

Data Solutions

  • E-commerce account issuance
  • Customer validation
  • Identity verification
  • Knowledge-based authentication
  • 3D secure

Emerging Solutions

  • Biometrics
  • Email verification
  • Social media validation

Cost of Over Protection

When fraud-scoring tools are too sensitive, the result is an unnecessary amount of false positives. These false positives can result in card declines and cause significant sales losses, blocked accounts and an overall poor customer experience.

One Size Does Not Fit All

It is important that merchants find the right fraud prevention methods for their individual business needs.

Conclusion

Card-not-present fraud carries real costs for merchants. By enacting fraud prevention methods and by working with your merchant service provider, you can minimize both the risk of card fraud and cost these transactions bring with them.

To learn more about how to protect your business and which fraud prevention methods are best for your individual needs, be sure to contact your merchant service provider today or visit Cayan.com and speak with a qualified expert today.

Sources:

https://cayan.com/

http://www.lexisnexis.com/risk/downloads/assets/true-cost-of-fraud-2015-study.pdf

http://www.creditcards.com/credit-card-news/credit-card-security-id-theft-fraud-statistics-1276.php

https://intelligence.businessinsider.com/forecast-a-quarter-of-transactions-will-be-card-not-present-transactions-by-2018-2014-6

http://www.theukcardsassociation.org.uk/wm_documents/3533%20Fraud%20The%20Facts%20FINAL.pdf

http://www.smartcardalliance.org/resources/pdf/CNP-WP-012414.pdf