How CNP Merchants can Better Process Visa & MasterCard
1. Merchant Accounts and Fraud:
According to CyberSource, a leading online fraud-prevention company, on average merchants lost approximately 1.4% of revenues to fraud in 2008. The good news is that this is an average, and a lot of merchants employ tactics that lower fraud rates to less than 0.2%. Some merchants, like sellers of electronic goods, are more susceptible to fraud. Other, like women’s clothing catalogs experience very little fraud. Regardless of your situation, there are two levels of fraud control tools at your disposal: Intrinsic and external. Intrinsic methods include schemes provided by the card Associations like Address Verification Service (AVS), the Credit Card Security Code (CVV2, CVC, CID, etc.), as well as PIN based solutions like Verified by Visa® and SecureCode™ by MasterCard® Other intrinsic methods might include fraud scoring based on order characteristics (value usually being one parameter). Merchants can also externalize their fraud detection function to companies like CyberSource, 41st Parameter, and Accertify. These companies utilize a variety of methods to combat fraud including sophisticated risk scoring, heuristics, and negative files.
If you are not certain how fraud is impacting your company, chargeback rates are a good indicator. CB rates between 0 and 0.4% usually represent minimal fraud activity, and are best dealt with intrinsic methods. CB rates between 0.04% and 0.7% may indicated moderate fraud and may dealt with using intrinsic methods, external solutions or a combination of both. CB rate above 0.7% should be considered high, and the merchant would be flirting closely with the Associations’ 1% limit. In this case merchants should use all available methods to abate the high fraud rate. In every case, merchants should work closely with their processer to minimize fraud risk in particular and chargebacks in general.