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Four Credit Card Fraud Detection Tips

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The GoCardless content team comprises a group of subject-matter experts in multiple fields from across GoCardless. The authors and reviewers work in the sales, marketing, legal, and finance departments. All have in-depth knowledge and experience in various aspects of payment scheme technology and the operating rules applicable to each. The team holds expertise in the well-established payment schemes such as UK Direct Debit, the European SEPA scheme, and the US ACH scheme, as well as in schemes operating in Scandinavia, Australia, and New Zealand. See full bio

Last editedJul 20222 min read

Despite the best online defences, fraud is still something that can impact any business. If you accept card payments from your customers, you need to put a strong credit card fraud detection system in place. Here are a few tips on how to detect and prevent credit card fraud.

Credit card fraud detection tips

It’s important to learn how to detect the signs of credit card fraud. Fraud detection involves identifying fraudulent purchases, ideally before they’re even processed. Credit card fraud detection software automatically flags any unusual activity to facilitate this process. In addition to using online tools, you can follow these tips:

1. Learn to recognise common red flags.

Any unusual purchasing behaviour should be examined more carefully. When a scammer uses a stolen credit card, they might purchase a high volume of the same big-ticket item, for example. Additional red flags include:

An IP address that doesn’t match the card address on file
Difference between shipping and billing addresses
Unusual or spammy email accounts
Series of declined transactions in a row
Multiple attempts to incorrectly enter the card number

Good ecommerce software will automatically flag these issues for you for further investigation, before the order is shipped.

2. Be aware of credit card phishing techniques.

It’s also important to be aware of how cybercriminals obtain these card details in the first place. Phishing involves sending emails with false forms and attachments that gain access to passwords or credit card numbers. As a business owner, you should also be careful about providing any financial details or identifying information via email or SMS messaging.

3. Learn to spot suspicious behaviour in person.

While software can operate quietly in the background to flag suspicious online behaviour, what about in-person purchases? Point-of-sale purchases are also prone to fraud, so train your employees to be on the lookout for suspicious behaviour like purchasing a high volume of expensive, randomly connected items. You should also refuse to accept unsigned cards, and ask for additional ID if there’s any question about a cardholder’s identity.

4. Keep an eye out for friendly fraud or fake chargebacks.

We’ve discussed fraud associated with stolen credit cards above, but what happens when the legitimate cardholder is using their own credit card in a fraudulent way? When an online shopper makes a purchase and requests a chargeback, this is known as ‘friendly fraud’. It’s often due to legitimate reasons, such as something going wrong during shipping. Yet there are cases where the chargeback is intentional. In either case, the business shoulders the cost of a chargeback fee and refund – with merchants losing an average of £1.70 for every £0.71 taken by a fraudster. This is why it's always best to give chargebacks plenty of scrutiny and fight them with evidence to reverse any fraudulent charges.

How to protect your business from credit card fraud

In addition to using the credit card fraud detection techniques like those mentioned above, using a secure payment gateway can help with fraud prevention.

Make sure your payment gateway follows the PCI DSS guidelines to reduce the chances of fraud.
Update IT systems regularly to be sure you’re using the latest anti-malware protection.
Change your company passwords regularly and use multi-factor authentication to access payment systems.
Use 3D Secure Authentication for all payments taken through your website as well as AVS and CVV verification.

Finally, you can reduce the chances of credit card fraud by offering alternatives to card payments. GoCardless offers a secure alternative by allowing businesses to collect payment directly from a customer’s bank account, with full authorisation. It can be used for recurring and one-off payments, with lower transaction fees and less chance of payment failure. It costs between 11% and 15% of a failed payment’s value to recover it, making chasing up on failed payments due to fraud a costly endeavour. Powered by open banking, Instant Bank Pay offers a way to collect one-time payments safely and securely – minimising the chances of friendly fraud, payment failure, or other payment issues.

We can help

GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.