Fraud prevention can be a tricky road to travel. So how do determine which order is a possible fraudulent order? There are several tricks and hacks that can help you decide whether an order is fraudulent and how to handle chargebacks. There are also a number of useful services out there that might make your life easier when it comes to preventing deadbeats from ripping you off.

Drew Sanocki joins me this week in this discussion about fraud prevention. While he never actually enters the conversation, he does share some pretty amazingly horrible jokes that I am sure you guys will all love. Listen in as we talk fraud prevention techniques. And while they are never 100% foolproof, they can surely help you make decisions that could save you thousands.

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The Full Conversation

(With your hosts Andrew Youderian of eCommerceFuel.com and Drew Sanocki, of DrewSanocki.com.)

Andrew: Today, we’re going to be tackling a topic, not the world’s sexiest topic, we’re going to do our best to make it as interesting as we can, and hopefully, as always, highly relevant to store owners. And that’s fraud. How do you catch fraudsters? How do you stop them? How do you prevent them from just wiping out those hard-earned profits? And joining me today, one of the world’s foremost leading experts in fraud detection and prevention, Mr. Drew Sanocki from drewsanocki.com. How are you doing, Drew?

Drew: Doing well. I also know close to nothing about fraud prevention.

Andrew: Who signed you up?

Drew: That was not my part of the business.

Andrew: Man, we need a new producer here. Who signed you up for this episode?

Drew: I don’t know. Because I handle the marketing. My business partner did ops and finance. And he was always fighting fraud. I was not. So I have decided that I’m just going to tell jokes.

Andrew: Oh, nice. Just the whole time, just crack jokes the entire time?

Drew: I think that’s what I’m going to try to do.

Anecdotes About Fraud

Andrew: Perfect. We’ll get into the real stuff in a minute. But any anecdotal stories based on your limited fraud experience of people ordering crazy stuff, or fraudsters calling when you’re in Design Public, or maybe the stories about you having to use pseudonyms or stolen cards to purchase things that you’re embarrassed to ship to your house? Anything like that?

Drew: No, it was always on the same one or two items. As soon as we carried in-house audio equipment, that’s when we started getting the fraud. High-priced item and maybe it was because it was audio equipment. But there were one or two products that it was like 50% of the time, they were ordered, we figured it was fraud.

Andrew: Man, that’s funny. I even remember with TrollingMotors.net, we get a lot more fraud with that, because we’re selling like $2,000 GPS-powered trolling motors. Some of the e-mails you would get from people, especially overseas and third world countries, just telling these crazy stories about how they would pay with their card. They need to ship it to such and such country, and they love fishing so much. And it’s so obvious that these were fraudsters.

Drew: I’ve never happened with us. They just submitted a fraudulent order. We never got the evidence that was shoring up their legitimacy. That would be kind of interesting.

Andrew: Oh, we would get them from time to time from people. And sometimes we had a little fun with them. We’d lead them on. We’d be like, “Oh, of course well, we’d be happy to ship you $25,000 in trolling motors to this address in Africa or rural Asia or something like that.” But it’s fun. Well, it’s not fun. It’s fun until you lose out on $4,000. And as you know, Drew, credit card doesn’t eat it if it’s fraud.

Drew: Chargebacks are the worst. They are the worst.

Andrew: Yeah. You know some stuff about fraud. What are you talking about?

Drew: Yeah, you get that letter, the letter from Visa or Amex or something. And they give you what seems like…it’s due with all the documentation. The next morning, you have to get it back to them. It’s such a pain.

Andrew: They do. They give you like 72 hours from the time they mail it. Yeah, you got to pretty much sprint home, print everything off, race to the post office that day. And oh, if you get there late, then I’m sorry, you can’t contest the chargeback.

Drew: Right. You rarely win it anyway.

Pay Attention to High Dollar Items

Andrew: Oh, man. Yeah. Those are terrible to get in the mailbox. This is how you know you’re in the right spot for podcasting, if you can relate to getting a chargeback notice in your email or in the physical mail. How many people can have a heart-to-heart and share that kind of experience? Not that many. You’re in the right spot in eCommerceFuel.

All right. Let’s get into the actual nuts and bolts today on how to detect and prevent fraud. All right. So Drew, the number one thing in terms of just how do you catch fraud right out of the gates? Like you mentioned, not always, but it happens the most on high-dollar items. And so these are all things that, ideally, you should build into your order fulfillment process, especially if you’re doing some of it manually.

So how do you spot these? Well one, again, look for high-dollar items. Those are going to, more often than not, be the things people are going to try to commit fraudulent orders on. Look for e-mails and names that don’t match up. When you’re ordering stuff, usually your name is part of your e-mail. But when you get billybob73 and Billy Bob’s ordering it, it’s maybe a fraudster. But usually fraudsters aren’t that sophisticated. Usually they use throwaway names and crappy e-mail addresses.

Phone numbers and funny addresses. If the address doesn’t look legit or it’s just gobbledygook, of course, that’s going to be fraud.

Different bill to and ship to addresses, that’s a little tricky. We’ll get into that later. Because it’s tough. Because 99% of fraud is going to be with different build to and ship to addresses. But at the same time, you have a lot of legitimate business that comes that way, so you got to be careful.

So these are the things you need to be…some things at high level to look at. One in and of itself isn’t going to indicate fraud. But a lot of times, you can manually detect them if two or three of these line up.

Drew: Joke number one.

Andrew: You’re serious? You’re going to read jokes on this? Oh my.

Drew: It’s hard to explain puns to kleptomaniacs because they always take things literally.

Andrew: Oh my goodness. We need some groan music on the podcast today.

Drew: Yeah. You were saying about fraud, Andrew?

Andrew: Anything to add on the fraud department?

Drew: I have a business partner who’s really good at keeping an eye out for unusual orders.

Configure Your Fraud Settings

Andrew: I love it. I love it. Number two, configure your fraud settings, but don’t go overboard. So AVS system. You probably are familiar with the AVS systems. At any time you run some of these…

Drew: Not at all.

Andrew: Not at all. When you should have been doing that, you were looking up jokes. AVS is Address Verification Service. And at a minimum, you want to be matching the address on the bill to the credit card. The credit card will have one on file. And you could get it really detailed. You can require the street address to match, the city to match, and the zip to match. Usually, I will just do the zip to match. Because you do. You want to have some kind of protection. But a lot of times, people have funky street addresses. The more of those you require to match, the more likely you’re going to filter out and cause problems for legitimate customers.

It’s possible when you’re getting fraud to reject orders that come in from IP addresses, a certain address, so a unique IP address. Then you can also configure your fraud settings, depending on who you’re using as a merchant, a processor. Like Authorize.Net, for example, will let you say hey, if somebody is connecting to me from an IP in, let’s say, New York City, but they’re trying to ship it to California or Europe or something, decline that transaction. And you can do that. But again, I wouldn’t recommend doing that, because there’s a lot of times legitimate people order stuff. Drew, I know you’re always ordering stuff for me when I go to California, shorts, beach towels. You’re good to me that way. You treat me nice on the coast. So those would be legitimate transactions that get declined.

Drew: Joke number two. I used to think the brain was the most important organ. Then I thought, “What’s telling me that?” Get it?