Make yourself almost immune to credit card fraud

Thieves who buy items from your e-commerce site -- and then reverse the charges on the credit card they used -- not only cost you money, they can even cause you to lose your merchant account due to "too much chargeback activity." You can be victimized twice.

Big corporations have elaborate fraud-reduction systems to prevent this, but how can a small e-business best protect itself?

Neil Shearing, the owner of a business-support site called ScamFreeZone.com, says he found that he could reduce his chargebacks to almost nothing by taking a few simple steps:

1. PRE-AUTH. Credit-card processors ordinarily put through any transaction that initially registers as "authorized." But Shearing recommends that you ask your processor for a "pre-auth" account. Orders placed at your Web site put a hold on a card, but don't complete the charge. You must log on and approve each transaction within a few days.

2. APPROVAL. The advantage of this approach, Shearing says, is that you can catch most fraud before it becomes a chargeback. Your first step is to check the Address Verification System (AVS) that your processor provides. If the AVS says the card's security code, ZIP code, address, and country of issue all match, "you can be almost certain the transaction isn't fraudulent," Shearing found.

3. MISSING VERIFICATION. If any of the AVS fields don't verify, your next step is to check the address and phone number of the customer yourself. "I'm pretty sure that if the phone number and the ZIP match each other, and they both match the customer address I have on file, then the order is genuine," says Shearing. He uses Web services such as Mailer's Software (free), 555-1212.com (10 cents per lookup), and the RIPE U.K. Telephone Code Locator (free) to find this data online (see links below).

4. DOMAIN NAME VERIFICATION. Finally, if the customer's e-mail address suggests that he or she operates a Web site, use BetterWhois.com to check it. "If you find the admin contact matches your customer name, you can be fairly certain that the order isn't fraudulent," Shearing says.

Taking these steps, without any expensive systems, "reduced my chargebacks to virtually zero," he reports. Eliminating the cost of fraud and the risk of losing his ability to accept credit cards entirely more than pays for the verification time he spends.

His site grosses more than $100,000 each year, selling (among other things) the Internet Success Spider, highly regarded software that helps you find "super-affiliates" who generate sales growth.

Information on ScamFreeZone and the Internet Success Spider is at: http://scamfreezone.com@a2.tc/4e7f

ZIP, address, and phone lookups are available at:

http://www.mailerssoftware.com@a6r.ms/5a37, http://www.555-1212.com@54.vg/65ef and http://www.ripe.net@th.gs/71a7

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