opinion

Processing Power: Best Practices to Mitigate Credit Card Fraud

Cathy Beardsley

It’s almost impossible to imagine how we ever got along without it, but it may soon be a thing of the past. Just a fond distant memory and an item destined to be in a museum exhibit. That magnetic strip on the back of your credit card isn’t up to the job anymore!

First developed by IBM, the magnetic strip on the credit card was developed in the 1970s to reduce the time lag in verifying credit card transactions.

As the chip-and-pin upgrade continues to roll out across the U.S. in the fourth quarter of 2015, digital merchants need to be more alert than ever for an increase in fraudulent behavior.

Before the invention, merchants would first have to look up the credit card number in an actual printed pamphlet to make sure the number wasn’t reported as stolen. Then they would take a manual imprint of the credit card number on carbon paper for each transaction and send the credit card receipts in a batch to the bank the next day. It was a pretty cumbersome process for each transaction.

The magnetic strip solved a lot of those problems and has been unbelievably successful. It’s cheap, easy to use and has become omnipresent in the proceeding 40 years. But as we all know, criminals and fraudsters never rest and have pushed the banks and card issuers to find more sophisticated payment solutions.

While the U.S. has been a laggard to change card present transaction technology, European card schemes like Europay, MasterCard and Visa (EMV) created new technology to replace magnetic strips in 2003 that has been widely adopted in Europe.

Commonly called chip-and-pin, it’s a more sophisticated technology that uses a processing machine to read a microchip embedded in the consumer’s credit card. This technology has and will continue to dramatically reduce card present fraud.

For adult webmasters and sellers of digital and online products, however, the chip-and-pin technology doesn’t do much to help spot or prevent fraud.

In 2003 when chip-and-pin was rolled out in the U.K., card present fraud went down but card-not-present fraud skyrocketed. Both online and telephone order fraud saw dramatic increases. Since there is not much telephone ordering happening these days among consumers, digital merchants should expect to see an increase in fraudulent activity online through the year.

At SegPay, we are encouraging our merchants to continue best business practices for preventing fraud.

Below are a couple of key items we always stress to our clients around fraud prevention:

  • Require CVV and validate addresses on all sign-up transactions;
  • Set velocity requirements to limit usage;
  • Watch for geo-location inconsistencies;
  • Use digital fingerprinting to validate your customer;
  • Work with third-party negative databases and bank-provided fraud files;
  • Implement Verified by Visa and MasterCard SecureCode; and,
  • Keep a close eye on your affiliate programs.

As the chip-and-pin upgrade continues to roll out across the U.S. in the fourth quarter of 2015, digital merchants need to be more alert than ever for an increase in fraudulent behavior.

It’s more important than ever for merchants to understand ways to prevent fraudulent activity and to understand how their Internet payment service provider is implementing fraud mitigation to protect their business.

It took only three years for Cathy Beardsley to turn startup SegPay into a profitable company. As president and CEO, Beardsley oversees the day-to-day operations and long-term strategic planning for the company. SegPay is one of four companies approved by Visa USA to operate as a high-risk Internet payment service provider in the U.S. Since 2005, SegPay has offered online merchants a state-of-the-art billing platform that provides real-time payment processing around the globe.

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