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How Credit Card Processing Companies Identify Fraudulent Transactions

Much of the focus on detecting credit card fraud is on consumers and merchants. Laws have been enacted and security measures implemented to alert consumers and protect them from identity theft. Merchants rely upon two things, which are their own internal procedures to detect credit card fraud and the processes put in place by the credit card processing company they use. Fortunately, credit card processing companies are at the forefront in identifying and stopping fraudulent transactions before completion.

While criminals view consumers and merchants as unlimited targets, it is difficult to take the same advantage of a credit card processing company. Processing services have developed both first and second lines of defense that assist in identifying and stopping fraudulent transactions.

The first line involves verification systems and security protocols. While the customer is still in the store swiping a card or filling in his information online, verification systems and security protocols are checking and rechecking the information on his card and in his credit card account. A credit card processing company with the latest technology will use terminals that have both address verification and card verification features.

The address verification system (AVS) offers instant confirmation the information at the bank issuing the credit card matches the cardholder’s address and zip code. Should these items not match up, a code appears on the terminal and the merchant can decline the transaction before goods exchange hands. Card verification methods (CVM) make use of an additional security code of three of four numbers that appear on the back of the card but aren’t embedded in its magnetic strip. CVM are especially useful in Internet, mail and telephone orders where the customer must supply the code himself and prove he is in possession of the card.

Processing companies also employ data encryption systems that prevent a customer’s personal information from being intercepted during a legitimate transaction. Secure socket layer (SSL) and 3DES provide 128 and 192-bit encryption respectively.

If fraudulent transactions make it past these protocols, credit card processing companies have an array of fraud-detecting software that flags patterns of behavior and identifies possibly fraudulent transactions. Fraud detection software looks at such things as purchases of very high quantities of a single item; multiple orders from the same IP address but using different cards; several orders sent to the same address; numerous orders placed quickly on one card; and, the use different expiration dates with the same card, among other indicators.

Credit card fraud is a criminal activity that will never be completely eliminated, but it can be managed. Selecting a credit card processing company that uses up-to-date technology is an essential tool to use to combat financial loss through fraud.


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