Fraud Screening is Relative
One of our Merchant911 members posed an interesting question last week. It related to wondering why some merchants question the validity of an order that appears to others as obvious fraud.
So often I see the new folks come into Merchant911.org wanting so badly for that $3,000 order from Indonesia to be good. Or worse, they come to us because they thought it WAS good. And we see newbies posting info on orders that, to us, are so obviously fraudulent that we wouldn’t give them a second glance. But at the end of the day, with a bit of experience under our belts, we settle in to something of a policy - or at least we have some idea how to recognize fraud. We all have our own comfort level but there are no real rules.
I err on the side of caution - perhaps too much. But I know what a couple of big chargebacks can do to a business. I’ve been there, done that, and worn the tee-shirt. It’s what got Merchant911.org started, and it was the catalyst for the course, Preventing e-Commerce Chargebacks. The term ‘big chargeback’ is relative. What’s big for me may be nothing more than a nuisance for some others. I won’t do business overseas - others do it routinely and don’t get burned more than the average merchant.
The cost of fraud comes at us from several directions, not just the cost of a chargeback. There’s the added cost of screening, whether it’s the time spent doing it ourselves or the cost of having a third party do it - or both. There’s the cost of lost business that comes from rejecting orders that may have been perfectly good, and that can be significant although there’s no real way to measure it. Then, you can get into the cost of PCI compliance - and you’d better hope to hell you’re compliant if you’re ever hacked. And there’s the added cost of only doing business with third parties that are PCI compliant because you’ll be held responsible for their actions too.
My point is that we all have to weigh our risks according to our own business. Some merchants are more prone to getting fraudulent orders than others. Adult sites and hosting services are burned heavily; consumer electronics site are burned; soapers and candle makers are just warmed up now and then. And those are just generalities. Some businesses reject any order that isn’t textbook perfect, others look at the order, weigh the red flags against the amount they might earn, and still others just accept whatever fraud they get as a cost of doing business because as long as they stay under the 1% they need to retain their merchant account, they’re satisfied with the end result.
