The 8 Elements of Fraud to Keep an Eye Out For in Your Business

Read Time: 6 min

Each of the 8 common elements of fraud can leave a lasting impact on a business owner’s credibility and revenue. Vendors don’t just lose profits on their products or services, either. They must pay hefty chargeback and banking fees too. A 2016 study conducted by LexisNexis found that every dollar from a fraudulent transaction costs merchants $2.40. If you’re just starting out, these margins can be devastating. To keep costs down and maintain your bottom line, you’ll need to keep an eye out for fraudulent credit card purchases. There are elements of fraud around us every day that can be avoided if you become aware of the risk they pose.

Luckily, the fraud red flags discussed here don’t require special software or a large team to track. In fact, they are tips you can easily implement in your business right now. Keep reading for common credit card fraud indicators you may encounter in your business. Looking out for these elements of fraud can help keep your chargeback ratio to a minimum.

The Eight Most Prevalent Elements of Fraud to Be Aware Of

Next up is a list of seven elements of fraud to watch for. Keep in mind that each of these signs on their own isn’t concrete proof that fraud is taking place, but rather general guidelines to consider. This is a great grass-roots way to track simple credit card fraud but isn’t supposed to replace integrated fraud prevention tools on your merchant account.

1. Larger-than-average first-time ordersperson working on multiple screens

Cybercriminals know that they have a very short window of time to use a stolen card before the owner notices, so they’ll try to buy as many things as possible before then. If you see an order (especially one from a first-time customer) that is larger than average for your business, you may want to take a closer look at it.

This is one of the most common elements of fraud that is seen in all types of businesses large and small.

2. Multiple credit cards or shipping addresses linked to the same account

According to Experian, the average American owns four credit cards. If you notice a customer with a significantly larger number of active cards on file, that can be cause for suspicion. This is especially true if the card providers vary greatly as well as the zip codes don’t match.

Multiple cards linked to one account or shipping address is an obvious element of fraud that may be the result of a fraudster attempting to use several stolen cards at one time. Although this is a rather obvious and sloppy tactic, it happens more often than you might think.

3. Second attempts at purchasing, but with a smaller amount

Some credit card providers set limits on large purchases and require the owner’s approval before going through with the order.

If this is the case, sometimes thieves will retry the purchase with a smaller amount to see if it’s below the card limit. This practice, known as card testing, helps cybercriminals estimate the limit and balance on a stolen credit card.

4. Inconsistent information from the customer

Keep an eye out for orders that have been consistently sent to one shipping address, but are now being shipped to one or more different ones. This could mean that the customer simply moved homes or is sending the package to a business address, but it is worth sending an email confirmation of the shipping change. If a fraudster got a hold of this account and is using it to ship themselves products, then this would give the cardholder a chance to stop it.

Another thing to look out for: customers suddenly providing a different email address, phone number, or name, especially if the information doesn’t match up with the card or the account. This element of fraud is far easier to track if customers have to create an account to purchase, but can also be done using card tracking software.

5. Issues providing the card’s information

Other times, cybercriminals will only have a portion of the cardholder’s information to work with. Instead of deeming it a lost cause, they will try to guess the rest of the information needed.

Look for multiple attempts on the card’s expiration date, CVV, billing address, or shipping address as well as misspelling obvious information like their own name or address. The real cardholder shouldn’t have any trouble typing in the right information.

6. A lack of concern about shipping fees or company policies

cardholder entering credit card information online

When customers make big purchases, they’ll often inquire about return and exchange policies. It’s even possible they’ll add multiple items to their cart so they can take advantage of a free shipping offer.

However, fraudsters don’t care about these things because they don’t plan on using these policies.

They aren’t footing the bill and don’t want to tip off any people about their motives. They’ll often request expedited or overnight shipping, regardless of the cost, to ensure that their order gets sent out before they get caught. If this seems out of the realm of normalcy for your customers, this could be an element of fraud.

7. Multiple requests for shipping updates

On the other hand, you may encounter customers who will repeatedly ask for shipping updates on their orders. Although this may just be a case of an overly-worried shopper, sometimes this can also indicate cybercriminals making sure their order hasn’t gotten flagged.

Once an order has been shipped, it becomes difficult to get back if it turns out the purchase was a fraudulent one. Thieves will call or email for updates to ensure that they haven’t been caught yet and that their order will arrive as expected.

8. Requesting a change in shipping address once the transaction has completed

Sometimes, cyber thieves will make a purchase using the cardholder’s legitimate information. Once the order is placed, they’ll then call the business to make a change to the shipping address (and sometimes even add more items to the order).

This practice circumvents any internal security measures that screen for shipping and billing address mismatches. However, this can be a tricky thing for small businesses to track, so you may want to set up a process between your customer service and fulfillment teams to catch this. Even implementing a certain safeguard like a 24-hour window will help to protect you from this type of fraud.

These Elements of Fraud Target Card Not Present (CNP) Transactions

Although credit card fraud can take a variety of forms, vendors that accept CNP transactions are the most vulnerable. By their very nature, CNP transactions prevent merchants from following many of the security measures that protect cardholders.

So then, how are you supposed to prevent ecommerce retail fraud and protect your business?

While CNP payment options are convenient to the user, they present a lot of risk for the merchant. For example, you can’t check a credit card against a shopper’s ID when they’re making a purchase online. This inadvertently makes it difficult to easily weed out fraudsters.

Unfortunately, failing to catch credit card fraud can result in chargebacks and costly fees that eat away at your profits. So, you stand to gain more by being proactive and catching fraudulent orders before they’re reported.

Flagging Elements of Fraud to Help Protect and Prevent Them

You know your business best, so you’ll want to apply these tips to anything that’s out of the ordinary. If there’s something that looks suspicious, go with your gut and reach out to the customer. There’s usually a reason for it. And if it comes out to nothing? They will appreciate the extra effort you take to ensure the safety of their financial information. When it comes to fraud and the potential loss of revenue, it’s better to err on the side of caution.

If you are concerned about fraud or are operating a high risk merchant account, it would be worth it to contact your merchant services provider to discuss the fraud prevention software options available to you. They will keep track of these common elements of fraud and give you reporting on what your business can improve upon as you grow.