How Analysts Identify Fraud When Reviewing Transactions

To effectively identify and analyze potentially fraudulent transactions, e-commerce merchants need more than a one-size-fits-all solution. Specially trained fraud analysts combine industry insight with extensive experience to make the transactional decisions that keep customers happy and revenue growing.

But what seems like a near-instant process for customers actually involves many behind-the-scenes processes, from analyzing fraud scores to comparing transactions against known scams.

Let’s look at what a fraud analyst considers when a customer makes a purchase on an e-commerce site.

What Do Analysts Look for to Identify Fraud?

Multiple factors are behind nearly every transaction decision.

Customer History

Analyst will often start here. If the order comes from a longstanding customer with no history of fraudulent behavior, analysts generally won’t add friction by requiring additional verification steps, and they’ll often approve the order immediately. But for new customers, or for existing customers making an unusual purchase, analysts will want to look at more information before approving the order.

Fraud Scores

A fraud score on an order is an all-in-one number that’s derived from a comprehensive analysis of a credit card transaction to evaluate the transaction’s risk. This score provides a quantitative way for analysts to assess the likelihood a transaction is unauthorized or fraudulent.

Fraud Indicators

Frequently, a combination of suspicious indicators leads a fraud analyst to take a closer look when evaluating a transaction. These might include:

  • Recently created email accounts, which might indicate a fraudster created a new account just for this transaction
  • Proxy IP addresses, which are frequently used by fraudsters to hide their real location
  • Virtual phone numbers instead of landline or mobile numbers, since virtual numbers are virtually untraceable
  • First-time customers that quickly make multiple purchases

How Quickly Can Analysts Review Orders?

Transaction reviews generally happen almost instantly. Most orders are legitimate, so there’s no reason for fraud analysts to hold them up for further review.

On questionable transactions, analysts will need to conduct extra research to confidently determine whether the order is legitimate. For a well-trained analyst, this can take between two and 24 hours to gather additional information before making a decision. For example, the analyst may want to verify an address, or the analyst may reach out and contact a customer directly to confirm the customer’s identity.

It’s this extra time that enables analysts to uncover fraud strategies that a simple fraud filter or automated fraud solution never could.

Why e-Commerce Merchants Turn to Outsourced Fraud Protection Solutions

Because there are so many possible indicators of fraud, many merchants rely on outsourced solutions to spot and prevent fraud.

These fraud management programs use customized software to conduct fast, expert analysis on every transaction to identify fraud before it has the chance to damage a retailer’s reputation and revenue. These programs also deal with fraud on a large-scale basis, ensuring they have the perspective and expertise to spot fraud trends and patterns that only become apparent when a range of orders are analyzed.

Consider purchases being made with a gift card. Most fraud protection solutions automatically approve such transactions. And yet, these often are in fact fraudulent purchases. In one recent scam, a fraudster was placing legitimate-looking orders with an online merchant. After the transaction was approved, the fraudster would call to cancel the transaction and request the refund be placed on a gift card (which are often untraceable). Upon receiving the gift card, the fraudster would place a new order and pay with the fraudulently obtained gift card.

In another case, a fraudster would place an order and request the order be delivered to the actual card holder’s address – thereby ensuring the order would pass through the fraud filters undetected. Then, once the order was in transit, the fraudster would call FedEx pretending to be the merchant and request the order be delivered to a different address and right into the hands of the fraudster.

Patterns like these can be extremely difficult to spot without the trained eye of a professional fraud analyst.

Choosing the Right Fraud Protection Partner

When it comes to successfully defending your business against scheming fraudsters, you need a partner who focuses exclusively on fraud protection, has the expertise to prevent fraud from damaging your business, and is constantly monitoring the changing fraud landscape.

As a pioneer and innovator in the fraud prevention industry, ClearSale recognizes your business needs a customized solution for its complex needs. If you’re not sure what solution is best for your growing business, read our “Merchant Guide for e-Commerce Fraud Protection” today and learn how to protect your business, profits and good reputation.

ClearSale Fraud Protection Buyers Guide