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How Credit Card Processing Companies Protect Against Fraudulent Transactions

Credit card processing does not come without its risks; thieves are fond of using credit cards to initiate fraudulent transactions for a range of items. Sellers do not always know if the card they are processing is legitimate or not due to the different methods that a card is processed. Thieves manage to get their hands on credit card account numbers through different means. Fortunately for retailers, credit card processing companies have a host of methods that prevent a fraudulent transaction from becoming successful.

The first line of defense is the AVS, or Address Verification System. The card user supplies his address when ordering over the phone or online. At a certain point during the swipe, the merchant service provider checks the address numbers and zip code against the address that the customer has on file. If the two match, the charge is considered to be legitimate. In the situation where the information provided by the buyer is not correct, a message along the lines of “declined due to AVS mismatch” shows up for the merchant. The charge does not go through at this point and can be deemed a fraudulent transaction.

Next is the CVV/CVD/CSC/CVVC, also known as the card security code. It is form of “physical” defense against a thief as it proves that the card is in the possession of the card owner at the time of the transaction. A majority of credit card processing companies require the use of the CVV when the card is run for a purchase. The purpose of the CVV is to validate the data that is stored on the magnetic card and verify that it was generated by the credit card bank. Some cards have three digits while others have four.

The payment gateway is another method to protect the merchant. The gateway is a “stopping point” for the credit card data in between the retailer, the merchant service provider and the credit card bank. All of the information is encrypted via Secure Socket Layer, preventing a third party from obtaining the information as it is transmitted. Payment gateways also have tools that look for markers that denote a fraudulent transaction. Some of these tools are purchase amount filters, hourly transaction limiter, shipping-billing mismatch filter, transaction IP check and more. Payment gateway providers regularly identify how thieves manage to process fraudulent transactions and create filters for retailers to utilize. These tools take a look at what, where and how the information is being transmitted to the retailer.

Credit card security technology is constantly changing, and the thieves do what they can to get around it. However, vigilance by the credit card processing company and retailer stops a majority of theft.


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