opinion

Cam Merchants Should Be Wary of Fraud

Cam Merchants Should Be Wary of Fraud
Cathy Beardsley

In recent years, we’ve seen an explosion in adult cam sites. This unique and personalized content that’s being created across the web has brought in a lot of revenue.

Cam sites facilitate personal connections between consumers and models, resulting in high stickiness and large transactions. The popularity of these sites is good news for the adult industry, but it has also created some significant fraud risks that merchants should be aware of.

Cam models aren’t immune from temptation of fraud and merchants should be aware of potential risks that some models can bring into the system.

The challenge for cam sites and payment processors is to protect everyone involved so that the industry can continue to grow while limiting fraudulent activity. We want to keep the sales process as frictionless as possible, while at the same time recognizing that some disruption is necessary to prevent fraud and chargebacks.

Larger transactions, higher risk

Cam sites, by their nature, encourage consumers to “feed the meter” during a session. It’s not uncommon to see a cam viewer make multiple transactions during a single session with a model or spend large sums of money to purchase credits in a single transaction.

A great model knows how to build rapport with customers, encouraging them to spend. It’s important that as transactions increase in volume and value, merchants understand there is a greater risk associated with these purchases and they need to have additional safeguards in place.

One of the most important steps in reducing fraudulent activity with cam sites is customer verification. At SegPay, we encourage merchants to be proactive about verifying customers. When processing consumer transactions, payment processors collect basic verification information from all consumers, including their email address, device ID, and credit card information, geographic location and so on.

Some cam sites even take it a step further by linking to consumers’ social media profiles for an additional layer of identity verification.

What you can do

Payment processors want to encourage responsible spending while protecting merchants from increased exposure. That’s why, for the bigger spenders, I recommend setting velocity limits. Limiting activity on customer attempts and approvals is a quick way to limit chargeback exposure until a customer can be verified. Merchants should determine how many transactions and what spending level to allow during a given period that won’t create too much friction in the checkout process for the majority of consumers.

When those limits are reached, customers should be placed on hold and pushed to an additional verification process. This could be as simple as having the consumer submit a digital photo of their credit card (masking all but the first six and last four numbers) and a government issued ID. This process will save you from potential headaches associated with fraud; and as the legitimate big spenders are “stickier” than some other verticals, they will tolerate the disruption in order to continue chatting with their model of choice.

It’s important for merchants to keep all customer transaction data on file, including a customer’s verification, communication with your support team, approval, decline and transaction history. Not only is this data critical for your internal fraud reviews, it can be used as evidence for fighting chargebacks.

I’ve learned over the years that merchants can discover a lot more about consumers from their declined transactions than their approvals. Multiple declines means it is probably time to look deeper into the consumer’s account. How many different cards have they used? Are the cards from different issuing banks? Do the accounts have different names? These are important factors to investigate in questionable customers whose accounts might need to be terminated. It’s important for merchants to record and store the reasons transactions are declined, and to use that data to create rules that determine the correct action to take in each case.

Taking decline information a step further, merchants should carefully consider rules around cascading. If a processor declined a transaction because the card was on a negative list, then you probably shouldn’t push that customer to another processor, since the user is probably on the list for good reason. If this happens, I recommend the account be put on hold and work to verify the customer’s identity.

At SegPay, we have a proprietary fraud mitigation system which includes some standard activities that every merchant and processor should be using. Merchants should make sure their processing partners are creating a negative database with details around fraudulent transactions including card numbers, emails, device IDs, IP addresses and other identifying details for previously-rejected card transactions, chargebacks and fraudulent activity.

Model collusion

Cam models aren’t immune from temptation of fraud and merchants should be aware of potential risks that some models can bring into the system. Model collusion typically involves quick money-making schemes based on running stolen credit cards.

Merchants should monitor chargeback rates by model and investigate if an individual model has a suspicious number of chargebacks. Another potential sign of model collusion is when heavy tippers spend little to no time with a model. This major risk for cam site owners should not be taken lightly, as I’ve seen cam programs suffer heavy losses from collusion.

One last word of advice is to be nice to the pre-paid card guys. You will see a larger number of cards on their account, but they are far less likely to ever get a chargeback!

In conclusion, cam merchants should work closely with their payment processor. It takes both a knowledgeable merchant and an experienced processor working together to minimize fraudulent activity while allowing the merchant and the models to make a profit.

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 realtime payment processing around the globe.

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