Tips for spotting a fraud transaction

by Ralph Smith

Many years ago, before I was a technologist, I worked for a bank in their credit card division. Yes it was all the fun you can imagine, but it was educational. In fact the first year I was an online merchant that experience saved me over $5,000 on a fraudulent transaction. I was selling some high end pool cues for an associate of mine and had a buyer in Japan who wanted all of them. After the payment came through via Paypal there were a few warning signs that made me uncomfortable. I called Paypal and after they approved the release of the shipment I sent it. As it turned out it was fraud and because Paypal had authorized shipping, they paid the charge.

So rule number 1 is if the transaction makes you nervous, don’t do it, even if the money is tempting.

In addition to rule number 1 each selling venue has it’s particular quirks. The following is a short overview by selling channel of tips and warning signs.

Amazon – fraud is not really a problem for the merchant on Amazon because if they authorize the shipment then they are guaranteeing the payment. However, here are a few tips to avoid losing a chargeback or A to Z claim.

  • Always make sure you have a tracking number with delivery confirmation for each shipment
  • Be sure that you complete the listing description and that it is thorough and accurate
  • If you are brave enough to sell used merchandise, make sure the condition note is thorough and accurate (buyers do not always read them thoroughly). Amazon buyers tend to expect flawless goods so selling used items can pose some challenges
  • Ship the order on time – Amazon’s default handling time is 1 – 2 days, if that is not enough time for you then make sure you change it to suit your business model
  • When corresponding with the buyer be sure to route all the messages through Amazon so it is documented
  • If you do have a claim filed contacting the buyer immediately and trying to resolve the issue directly is the quickest way to solve a dispute – follow the same practices as Amazon – a Merchant’s exposure to liability for fraudulent transactions on ebay and with paypal is much higher, including chargebacks. One of the challenges for sellers is that they give the impression you have a lot of protection, but there are a lot of “ifs”, not to mention the regularly changing rules. That being said it is certainly less risky than direct website sales because of the verification processes. These are a number of issues to be aware of and watch for.
  • Know your product risk, some products are more prone to attracting fraud than others, i.e. electronics, designer items, etc.
  • Take a second look at orders for multiple quantities of the same item. A product that can easily be resold for cash is ideal for someone who stole a credit card or hacked someone else’s account.
  • Overnight or other expensive express shipping services. The quicker they get the merchandise, the sooner they can turn it into cash and the more they get out of it before the fraud is discovered
  • Urgent requests for tracking numbers the moment the purchase is made is a tactic to get the item in transit before the fraud can be discovered
  • Make sure the address is verified on paypal
  • Make sure the buyer is verified on paypal
  • Paypal will tell you if seller protection applies to a specific transaction
  • If the buyer asks you to ship to an address other than the verified ebay or paypal address, complying with their request voids your seller protection
  • Be sure to get a tracking number with delivery confirmation, and when possible require a signature. Requiring a signature can frustrate legitimate buyers who are not home to receive the package but for large dollar purchases it may be worth the time to send an email or call the buyer in advance so they can make arrangements.
  • ebay now arbitrates disputes so any correspondence to a buyer needs to go through ebay so it is clearly documented to support your case
  • Thorough item descriptions and clearly stating your policies also helps
  • Paypal does a poor job in resolving chargeback disputes with credit card companies. Tracking with signature confirmation combined with any written correspondence with the buyer is your best defense
  • Contacting the buyer as soon as you are notified and trying to resolve the issue directly is the quickest and most effective way to get paid
  • Shipping quickly helps avoid chargebacks
  • When in doubt call Paypal to confirm it is ok to ship the order
Web Store – selling on your ecommerce site directly has some additional risks. Paypal as a credit card processor does offer some protection as indicated above, but whether you are using Paypal or another payment processor there are a few things you should do.
  • AVS – address verification service is a must have feature on your webstore. Your payment processor must support it and your shopping cart must have the functionality. When the transaction is processed the shopping cart sends the billing address to the card processor to compare it to the buyers account. If they match the transaction passes, if not it fails.
  • Require a telephone number, a small number of customers don’t like to provide one, but it will be helpful if there is a problem.
  • Follow all of the ebay/Paypal recommendations above
  • Put your telephone number on your webstore, it helps with buyer confidence and if a fraudulent buyer calls they will likely tip you off with unusual requests
  • Keep an eye out for non-US email addresses on domestic shipments
Keeping your fraud, chargebacks, and disputes to a minimum is not a difficult task but does require vigilance. Too many businesses assume ecommerce transactions can just run on auto pilot. That approach only limits their potential and profits.
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