10 Ways to spot fraudulent orders

There are many advantages to operating an Online Store either instead of, or alongside a Bricks and Mortar operation, but it is not without its drawbacks too. Ask any online merchant what the drawbacks are and it won’t be long before the subject of online fraud crops up.

Online fraud, and in particular fraudulent orders, is costing the industry untold millions each year. One of the few big names to talk publicly about this problem is travel giant Expedia, who in 2000 set aside over $4million to offset the cost of online fraud.

Whilst big companies may be able to right off such losses, this option is not likely to be available to the bulk of small and medium sized businesses that fill our virtual malls. For smaller traders one of the most critical steps to stopping online fraud is being able to spot potentially fraudulent orders.

This short article aims to outline some of the “tell tale” signs of a fraudulent order. None of what follows is a definitive sign of fraud, but each point can be seen as an indicator that there could be a problem and that further checks should be made.

1. Unusual order profile

When you suddenly get an order 3 times the average value, hold off the celebrations for a while and take a closer look. Fraudulent orders will often not match the profile of your typical order in terms of value and items ordered.

Stolen cards or card numbers often have a limited lifespan before they are reported and cancelled, so fraudsters will often look to maximise their return whilst they are still active. Very large orders, orders for multiples of the same item or orders for several expensive items should be seen as indicators of potential fraud and treated accordingly.

2. Shipping & billing address do not match

If you are a fraudster using a stolen card or stolen card details, chances are that you will not want goods you order delivered to the owner of the card you have stolen. For this reason a high proportion of fraudulent orders will request shipping to an address other than the billing address of the Credit Card. There are many legitimate reasons for this to be requested, such as buying for a present, or having goods delivered to work, but this is a good indicator that is worth following up on.

3. Customers who are indifferent about details

Fraudsters who are ordering designer goods to resell for profit are maybe less bothered about options such as size, colour, make and model than a legitimate customer.

4. Free Email Addresses

Whilst many people legitimately use free email services such as Hotmail & Yahoo, these are also a great favourite of the online fraudster. Most of these services allow you to sign up for an account and create an email address without having to verify your identity in any way, making them useful to those who would rather not be tracked down.

5. Only contact number is a mobile number

Like free email addresses, mobile phones give fraudsters an added level of obscurity. Whilst landline phone numbers can be verified against a billing address, this is not as straightforward with mobile numbers.

6. Unusual Instructions

Requests such as to call before an item is delivered, or to leave the item at the door are again strong indicators of potentially fraudulent activity. Honouring such requests runs the risk of allowing fraudsters to collect the package without having to have access to the shipping address.

7. Fast Delivery

Fraudsters paying with someone else’s card details are not likely to be bothered about the expense of shipping, but are more interested in receiving the goods as quickly as possible. Many fraudulent orders specify the fastest shipping option, even when the cost of this is greater than the price of the goods themselves.

8. Suspicious Addresses

Both the billing and shipping address of a fraudulent order may give a clue to it’s authenticity. Orders requesting shipping to temporary addresses, such as hotels or hostels should certainly arouse suspicion.

Independent studies have also shown that orders originating from certain countries have an unusually high level of Chargebacks associated with them. For this reason, also be particularly vigilant of orders originating in Bosnia, Bulgaria, Croatia, Egypt, Indonesia, Iran, Iraq, Israel, Jerusalem, Nigeria, Romania, Russia, Pakistan, Yugoslavia.

9. Multiple Orders

Quite often a fraudster will process an additional order shortly after the first with slightly or completely different details. Whether this is confusion on the part of a fraudster who is placing orders on many sites at once, or is an attempt to verify details, this is a good indication of a problem.

10. Unable to confirm details

Many stores now stipulate that an order is not complete until details have been verified, a system which is easier to implement if deferred payment / Pre-authorisation is being used. This gives the merchant a chance to contact the customer to verify details either whenever suspicion is aroused or simply randomly. Customers who are cannot remember significant details of the order (such as their billing address or even what items were ordered), are another strong fraud indicator.

The ten signs above are just a start, and as you learn more about the profile of your own customers you are bound to come up with more of your own. The important thing is to be aware. Automated systems like AVS are powerful tools, but fraud aware staff are invaluable.

- 26th August 2004

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