how to detect a fraudulent order

How to Detect a Fraudulent Order

One of the things you’ll find as you do more and more business online is that not everyone is honest. It is a problem, and one you have to watch out for, but most of the time these tools are easy to spot.
If you’re in a low volume business, you can inspect each order individually. But if you are running dozens of orders per day, you’ll need to put some automated screening in place, or a least have a set of flags set up – so that if an order comes through that gets flagged, you can take a closer look.

So what are the “tells” that indicate a fraudulent order? Let’s take a look at one that we got this year…


Detecting Fraudulent order

  1. Next day shipping – almost always. They normally want to get the item as quickly as they can. That stolen credit card won’t work forever.
  2. Different ship to and bill to addresses. Every time. This is a case where Google Maps is your friend. Often you’ll find that the ship to address is a self storage facility, or a Mailbox Plus in a strip mall. Another trick is to have the item shipped to an unsuspecting home owner who is gone to work all day. The thief watches for the drop-off, then takes the box off of the porch.
  3. Ship to address is Miami. Sorry Miami. At least a fourth of the fake orders I get ship to south Florida. I’m not sure why this should be, but it is. Maybe they send it all to South America?
  4. Neither phone number works – or just goes to an answering service or voice mail. Calls requesting more info will not be returned.
  5. Throwaway email address. Thieves love Gmail, Hotmail and Yahoo.
  6. Expensive product. Hey, if you’re going to steal, steal something worth stealing, right?
  7. Paid by credit card. Every single time.
  8. If you process the card it fails address verification (bill to does not match address on file with bank).

As you can see, it’s not too hard to protect yourself. But what happens if you get stung? Let’s say you get an order for $500 and you ship it. Normally the odds of catching the thieves are slim indeed. That leaves two people holding the bag:

You and the poor guy whose card number was stolen. He will get a refund from the credit card company. You will get a charge-back. The card company will simply take that cash back out of your account. Now, you’re not actually out the entire $500. Hopefully, you pay less for things than you sell them for. Let’s say you have a 25% gross margin on your item. Here’s our loss:

Cost of goods sold: $375.00
Shipping to the customer
Shipping from your supplier  (if you hold stock)

Plus you lose the time and trouble to process the order, and to straighten things out with the credit card company. Your payment processor will have address verification and possibly some other tools to help keep you safe, but in the end it is your responsibility.

The good thing is, thieves are by and large stupid, and it is not too difficult to catch them out. If they were smart, they’d be the ones running an ecommerce business, wouldn’t they?

Sometimes, though, you run into something truly inventive. We recently ran up against a scheme that really stretched the limits of credulity. It involved stolen checks, hijacked UPS accounts, and a very sophisticated nationwide ring of con artists. I’ll be going over that in an upcoming post – not so much because I think it’s something you may run into, but because it’s a hell of a story.