The Tech What

The Tech What

merchant fraud prevention

How To Detect And Prevent Merchant Fraud?

While digital payment systems have made it possible to do business in new ways, their complexity and worldwide reach also give criminals a chance to use sophisticated swindling techniques. Credit card fraud rates are rising as thieves find ever-creative ways to steal financial data for making unlawful purchases. The adoption of EMV credit cards has aided in the suppression of fraud in traditional brick-and-mortar retail settings. However, these chip-enabled cards’ security measures provide little protection against internet threats. 

Online fraud is becoming more prevalent and more expensive, which calls for merchant fraud prevention. The trend towards increased levels of all sorts of digital fraud is evident. For instance, the number of fraud attempts among U.S.-based eCommerce retailers increased by 24.2% between 2019 and 2020, and the cost of fraud increased by 6.6% for mid-sized to big merchants. The pandemic’s considerable increase in online activity is giving scammers greater possibilities. 

Identity verification and striking a balance between fraud prevention and consumer pleasure are two major and mobile web challenges for U.S. eCommerce retailers, according to a post by Digital Commerce 360. 

To stop these fraud schemes, merchant acquirers must have rigorous onboarding and monitoring procedures. These procedures will shield the acquirers against chargebacks, regulatory fines and sanctions, and reputational harm that could negatively impact their businesses.

Effective customer due diligence (CDD) procedures are required by AML and Know Your Customer (KYC) rules; therefore, implementing measures to prevent merchant fraud is a wise risk-mitigation strategy and a compliance requirement.

 Simple Methods For Detecting Merchant Fraud

Since neither the actual card nor the cardholder is present during an eCommerce transaction, all transactions are considered as card-not-present (CNP). CNP transactions are, therefore, more likely to be the victim of fraud. However, you must believe that the legitimate cardholder is approving each transaction to make a sale. You can still inquire about details that possible offenders might not possess to lessen your risk, such as:

Verification of Address (AVS): You should ask for a billing address for each transaction in addition to the 16-digit credit card number. You should explicitly check the following: 

  • Does the invoice match the contact details stored with the bank that issued the card? 
  • If ordering actual items, is the buyer attempting to use a different shipping address?

Card Identification Number (CIN) and Card Verification Value (CVV) (CID): The majority of consumer credit cards have a three-digit or four-digit card identification number (CID) that makes it easier to distinguish between a legitimate cardholder and a fraudster using a stolen credit card number when the card is presented for payment. Don’t approve any transactions until the customer can supply the proper CVV or CID code.

Country-Specific Transactions: You can employ nation-specific IP filters with more sophisticated payment processing solutions to reject or approve specific transactions. You can automatically reject transactions from the nations of your choice using the Geo IP Tracking feature. For instance, you may stop buying anything from France, Japan, or Nigeria.

Card Issuing Country: You have even more control with filters for card-issuing countries.

This feature enables you to only take payments from cards issued in your chosen nations.

For instance, your merchant account only permits purchases with credit cards issued in the United States or Canada. 

Characteristics For Advanced Merchant Fraud Detection

Criminals with the correct address and CVV code can occasionally get around traditional IP detection by employing proxies. This is the time when you must rely on more sophisticated security mechanisms, such as those listed below:  Negative database security allows you to compare each transaction against a list of high-risk card numbers and contact details, much like spam detection does. 

Set up your payments infrastructure to only allow transactions above and below a specific amount using quotas and thresholds. Any offer that falls outside of this range is instantly rejected.

 Limit the number of transactions that can occur in a certain period if your buying habits are unusual. You can even flag specific IP addresses and monetary amounts with some “velocity” filters to exert greater control.  

Interrupted Transactions: Using various filters, you can automatically put a hold on dubious transactions. Working with neatly round numbers is especially helpful for expensive things. Before you’ve got an opportunity to get in touch with the cardholder directly, don’t allow these transactions to go through.

Monitoring Technologies And Operational Protections For Detecting Merchant Fraud

Various merchant monitoring technologies and systems are available to manage and reduce risks. Merchant acquirers should update their fraud detection and mitigation systems as fraudsters, and their techniques become more sophisticated. More opportunities for insight into dubious transactions, trends, and accounts are available through access to complete and correct information—smarter data. 

 Several questions need to be taken into account during this process. What kinds of transactions are taking place? What amounts are typical? From where do transactions originate? Do any strange behaviors or patterns exist, such as several transactions with the same value? Are transactions taking place at a peculiar time? Are the chargebacks’ quantity or nature unusually high or low? 

To provide solutions that use cutting-edge technology like machine learning or neural networks, numerous companies have staked out various types of data and pattern analysis. There are multiple patterns to look for and many data points to analyze. To provide the level of monitoring they need, merchant acquirers may combine several solutions, depending on their unique conditions and risk profiles. 


A key aspect of doing business is accepting payments; doing business online increases this operation’s complexity, danger, and difficulty. There are tools and procedures to handle the challenges and risks for merchant companies that support these new payment options.

Your organization will have a framework for identifying, analyzing, preventing, mitigating, monitoring and reporting fraudulent activity if you have the software for merchant fraud prevention and the knowledge to implement an efficient fraud risk management program. Fraud prevention reduces reputational damage and promotes client trust in addition to safeguarding revenues and bottom lines.