Setting Your Thresholds And Then Sticking To Them...

The most proper way of attacking a potentially fraudulent situation is to establish a set of rules and minimum thresholds that must be met in order to go through with an order.  It is important to understand that there should be no emotion associated to fraud determination and that your system can not be subject to any human considerations.  It should also be important to realize that these metrics are not intended to hold true in every instance, but rather, should be used to give you a quick summary of your situation and help you plan on continuing forward. 

Fraudsters will attempt to push your limits in order to maximize their net benefit.  Rarely will you see a fraudster willing to go through the trouble of freezing a stolen card number or getting caught in an attempt to acquire a low-value item.  A good Fraudster will also realize that a company will be highly suspicious or even unable to process an order 20-30 times their average.  What this means is that you can set a pass-through on all orders under $XX.XX (dependent on your situation) and set a definite check for orders above a certain $XX.XX.  In addition to this, one should also begin to scrutinize the specific items being purchased on an order (you will see far less fraud in Thermal Grease than you will in Memory or CPUs).  Usually items that are easier to resell are the most susceptible to fraud.

Before continuing, the threat of a 'follow-up fraudster' must be addressed.  Sometimes, a fraudster will commit fraud for a very low-value item to get it passed through and quickly do a follow-up with a much larger order.  Often this will be when the first order is still in transit so as to lower the possibilities of detection, etc.  With the equity and trust built from their first order they will try to squeeze you for more than they could have gotten otherwise.  One must be very suspicious of such orders and act accordingly.

In further developing your thresholds/exclusions you can set requirements for Address Verification (AVS - Matching Zip Codes/Street Addresses) and how determined you will be in enforcing the results of the check.  You may also exclude any orders in which the Ship-To and Bill-To addresses differ, which will both protect you and diminish many fraud attempts.  With the recent surge in CVV (Card Verification Value) checks being required by online merchants, more and more consumers are willing to enter this information and (for the time being) this has become a great tool in fraud detection.  The CVV value is not allowed to be stored - the check must be done and the number purged immediately - so the likelihood that a stolen database or customer list will lead to illegal use of a credit card diminishes.

Online resellers must also take great care when dealing internationally.  It is important to realize that the highest percentage of fraud orders will come from international customers and that these customers realize the Address Verification is spotty (or non-existent) for their regions.  Even when discovered, they will face no liability or recourse due to their actions so they are encouraged to take greater risks for increased rewards.  If at all possible, it would be best to ship to your native country exclusively.  In the United States, shipping to the 50-States is most often acceptable.  The state with the highest amount of fraud for technology items is Florida, in which many freight forwarders (who forward packages received to other addresses - oftentimes in other countries) and foreigners with international cards are more commonly present.  Care should be taken in dealing with Puerto Rico and US territories as the risk of fraud increases exponentially as you leave the protection of the domestic United States.

The data obtained from the AVS and CVV checks along with the information of the items and amount of the order all build towards the mental 'profile' you create of your customer.  This profile should be influenced by whatever concrete information you are able to obtain.  It is important to oversee this with a conservative eye and a 'willing to cancel' attitude.  A merchant desperate for a sale will not be able to think as clearly and objectively as one who is vigilant, cautious, and suspicious of fraud.