Online shopping has made a lot of things easier for merchants. That’s especially pertinent for small and medium-sized businesses (SMBs), which can now compete head-on with much larger companies. The bar to creating an online store has never been lower, with plug-and-play options for site building and payment processing.
While this means you can be exposed to more potential customers than ever before, the downside is that you’re also exposed to more merchant fraud than ever before. Without the deep pockets of major retailers like Amazon and Walmart, you’ll need to spend wisely on tools to protect yourself.
The Rise of Merchant Fraud and Fraud-Prevention Tools
While the dollar value of merchant fraud is hard to determine exactly, we know the number is large and trending upward. According to Statista, total losses in 2024 are estimated at $44 billion worldwide, and are projected to hit $100 billion by 2029.
For large merchants, those losses are a concern, but the biggest players have deep enough pockets to absorb the hit. They also have the in-house resources necessary to maintain a robust set of anti-fraud defences. Neither of those factors is necessarily the case with SMBs. For smaller vendors, losses to fraud can be relatively more damaging, and few, if any, can muster the IT resources for advanced fraud protection.
That places the onus for fraud detection on third parties. Banks and credit card issuers, for example, invest heavily in fraud detection and have sophisticated AI-driven algorithms to detect and flag unusual purchasing activity. Vendors that provide SMBs with their online storefronts or payment processing may offer similar services. They might be provided as part of an overall package, or provided as a premium service at an extra cost, or some combination of the two (basic protection for free, with advanced protection for a fee). Your company might also opt for a standalone fraud detection product from a separate third-party vendor.
A Transaction is Flagged. Now What?
The algorithms used to detect potentially problematic transactions have their differences, but the simplest explanation is that they’re looking for anything out of the ordinary. This might include purchases that don’t match an account’s usual pattern, purchases made outside of the account’s usual geographic area, or — the electronic equivalent — from an IP address that isn’t one of the handful that the account ordinarily uses.
These aren’t necessarily a “smoking gun.” It’s not uncommon for a consumer to go on a spending spree while on vacation, for example, and inadvertently trigger a hold or freeze on their credit card. Fraud-assessment tools err on the side of caution, so false positives like this do happen. This, then, creates an issue for the seller. If you routinely reject transactions after a flag (or request an alternative form of payment), you’ll often lose both the immediate sale and the customer’s goodwill. Yet if you don’t, you may find yourself on the hook for a fraudulent charge and a corresponding hit to your bottom line.
The best way to address this dilemma is by doing exactly what the banks and credit card issuers do: dig deeper.
Investigating Potential Merchant Fraud
Unlike banks and other lenders, SMBs seldom have a dedicated, well-resourced loss prevention department. That doesn’t mean smaller businesses are necessarily left guessing when it comes to fraud. With the right tools, you can carry out the same kind of follow-up investigations that big players do, either after the fact or — in some cases — in real time, before releasing the product to the would-be customer.
To do that, you need a tool like Spokeo for Business that provides access to deep consumer data, from both regulated sources (such as credit header data) and unregulated public sources, including open-source and social media data. Carrying out a Spokeo search on a specific customer can provide a remarkable range of information, potentially including:
- Alternative email addresses and phone numbers
- Current and former physical addresses
- Whether they rent or own their residence
- Probable relatives
- Criminal record, if applicable
- Their social media accounts (searches cover 120+ social platforms)
…and much, much more.
The software’s powerful algorithms put its billions of data points at your fingertips, with search results taking just seconds, so you can, in fact, verify transactions before they’re completed. That’s always the ideal situation, so you can (if necessary) place a hold on the transaction before providing your product or service. You can use that opportunity to contact the buyer for further verification, before ultimately deciding whether to let the purchase go ahead.
Note: None of the information offered by Spokeo is to be considered for purposes of determining or making a decision about a person’s eligibility for credit, insurance, employment, rental housing, or for any other purposes covered under the Fair Credit Reporting Act (FCRA).
Potential Use Cases
Let’s look at a couple of potential scenarios where Spokeo for Business can help protect SMBs (and potentially, consumers) from losses due to merchant fraud.
Substantiating a Questionable Location
A transaction is flagged as potentially fraudulent by your storefront provider, your payment processing partner, or by the account’s issuer, because of a geographic or IP address mismatch. You search the cardholder’s name on Spokeo for Business, and discover that the cardholder had previously lived in this other geographic location, and/or has family members still living there. It’s still best to reach out to the customer for verification, but this connection suggests that it may be a legitimate purchase.
Cross-Checking the Cardholder
Alternatively, your search may show that the name on the card does not correspond to the physical address given with the purchase, or the geographic location where the card has been used. Significantly, the phone number or email address used to make the purchase doesn’t appear in the search results for the putative purchaser. Searching for that name or email address may give you an entirely different name or reveal a “burner” phone with no user information. These are red flags and indicate a possibly high likelihood of fraud. Note that while “burner” phones are perceived as anonymous, police can in fact sometimes trace them back to their users, and you potentially could do so as well if you’ve fallen victim to a “card not present” (CNP) scam using stolen cards.
Chargeback Fraud
Chargeback fraud is a thorny one for sellers. In this type of fraud, the customer claims no knowledge of the purchase and that it was unauthorized. Sometimes this is true, and the customer has been the victim of identity theft or an account takeover. In other cases, the customer has, in fact, made the purchase, but has fraudulently challenged it. In either case, this is an issue for many SMBs. You may or may not be on the hook for the payment, but at the very least, unchecked fraud can impact your relationship with your payment processor. It may cost you in added fees, less-favorable conditions on your account, and in some cases, your payment processor may simply terminate your account.
Spokeo can often help uncover this kind of fraud. Checking the delivery address, if it’s different from the billing address, is a good starting point. Searching that address will yield the names of anyone currently living there. Searching them in turn, using Spokeo, will give you their social media accounts. Comparing the names of their friends and followers against those of the purchaser will quickly show if there is any overlap. If there are no apparent connections, it may truly be a fraudulent purchase. However, if someone at the delivery address is connected to the customer, it’s very possibly a deliberately fraudulent chargeback.
Defending Against Fraud
Of course, this small number of brief examples barely scratches the surface in terms of market fraud or the ways you can detect and prevent it. The specific needs and vulnerabilities of your own business will dictate the challenges you’ll face, and the ways you can use a tool like Spokeo for Business to thwart criminals and minimize your losses.
Spokeo for Business is a powerful and flexible tool, with subscription plans suitable for businesses of any size. It also supports a robust application programming interface (API), so it can be integrated with the rest of your software stack (so, for example, you could code a simple routine that automatically triggers a search when your payment processor flags a transaction). In short, it can support your loss-prevention efforts, no matter what your needs might be.
For an in-depth look at how Spokeo for Business can help you, reach out to our team through the contact information on our home page. They’ll be happy to answer your questions or go into more detail on how you can use the product for fraud detection. They can also set up a demonstration of the product for you, if you’d like to see it in action, or — better yet — arrange for you to have a no-cost, hands-on trial.
Sources
CapitalOne Shopping Research: COVID-19 Online Shopping Statistics
Marketplace: Despite All the Recent Growth, E-Commerce Still Has Room to Expand
Statista: E-Commerce Fraud: Statistics & Facts
Softco: Understanding How Banks Investigate Unauthorized Transactions
US Federal Bureau of Investigation: FBI Warns Businesses of Fraud Scheme Operating in 8 States
Payment Cloud: Understanding Chargeback Fraud: A Merchant’s Guide to Protection