What Are Fraud Tools and Fraud Alerts?

26 Jul

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I am frequently asked the question about the difference between fraud prevention tools and chargeback fraud alerts. In order to understand this difference, think about the pre-order and post-order phases of a typical eCommerce transaction.

When a consumer buys something on the Internet they place an item in their shopping cart, enter their credit card information, and proceed with the order. To the consumer, this is seen as a single, autonomous transaction. To the underlying eCommerce system, the transaction is not quite complete. Prior to processing the order most modern eCommerce systems will work to validate the credit card and the likelihood of fraud. It is during this phase you would use a fraud prevention tool. Fraud prevention tools such as Kount and CyberSource’s Decision Manager use device fingerprinting and fraud scoring to assess the overall transaction risk. These tools can have a big impact on your overall fraud exposure by rejecting the order before it even takes place.

Chargeback fraud alerts on the other hand happen post-order, perhaps even weeks after the product has been ordered and shipped. Fraud alerts are a way, of sorts, to intercept a chargeback before it occurs.

In order to initiate a chargeback, a consumer first calls their card issuing bank to begin the dispute process. The fraud alerting networks, Ethoca and Verifi, each have agreements with different card issuing banks who share this dispute information with a merchant, prior to the card issuing bank actually filing the chargeback. This process works due to the limited response window in which the alert must be responded to by the merchant. Chargeback fraud alerts are most often used by high-risk merchants in order to reduce their overall chargeback rate. In most cases these high-risk merchants value the avoidance of a chargeback greater than they do the merchandise itself.

In summary, fraud prevention tools are a mechanism to fight fraud during the first stage of the fraud cycle and chargeback fraud alerts can be used to prevent chargebacks, which happen during the last stage of the fraud cycle.

If you would like help with chargeback fraud alerts, or to discuss your fraud prevention strategy, drop us a line at connect@chargebackops.com.