Fraud

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Fraud
Navigating card fraud: strategies and protocols for merchants

The fraud rate is measured as the ratio of the total amount of fraudulent transactions in U.S. dollars to the total amount of successful transactions in U.S. dollars over a certain time period.

The way to calculate the fraud rate can differ depending on the payment system and how they gather data (by descriptors, merchant account IDs, or legal entities).

Download the checklist to protect your revenue and keep your business thriving by avoiding costly fraud and chargeback.
Analysts examine locations, products, and customer behavior that may lead to an increase in the fraud rate.

Reviewing the product, payment process, and customer interactions helps find weak spots and suggest improvements.
Based on the analysis, extra steps are taken to lower the risk of fraud. This could include setting up rules to limit how many transactions can happen in a short time or using 3D Secure in certain areas. Anti-fraud Risk Rules are also used to block or force the use of 3D Secure for customers identified with a pattern of fraud.

Calculate fraud rate
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Understanding this methodology allows to accurately track and analyze fraud levels, enabling to implement effective strategies to mitigate risk and secure transactions.

➤ Fraud rate = fraud amount USD in current month / sale amount USD in current month

  • Metrics are calculated at the account level:
    • Numerator: The total amount in USD of fraud notifications received in the current month.
    • Denominator: The total amount in USD of revenue for the current month.
  • Sale date is determined by the settlement date (not the authorization date).
  • Transactions are only considered for card brands VISA and Mastercard since they provide fraud alerts.
  • Only acquiring banks that fully transmit fraud notifications are considered.

Manage fraud rates
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Card fraud alerts API report is an indispensable tool for merchants in the battle against fraudulent transactions. This report provides detailed insights into each fraud alert, including the order ID, fraud amount in the transaction's currency, and the date and time the fraud was reported.

Fraud alert Webhook notify of fraudulent activities reported by card schemes and enable rapid response.
To view the velocity rules

  1. Go to Fraud prevention > Rules.
  2. Find the needed rules to analyze.

ID is the unique number of the velocity rule, Decision indicates the action to prevent fraudulent activity, and Rule explains why the specific rule was triggered.


To bypass velocity rules or blacklist a customer

  1. Go to Fraud prevention > Rules.
  2. Click on Add to list to create a new record.
  3. Complete the list settings by specifying the following:
    • List type
    • Field value
    • Optionally, add a number of days till it expires
  4. Click on Add to create the new list.

Analysis of fraud causes
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Friendly fraud: Lack of transparency in terms can lead customers to commit fraud unwittingly.
solution Ensure clarity of terms and ease of subscription management.

Product issues: The received product does not meet expectations or is of poor quality.
solution Analyze customer reviews and improve quality.

Misleading descriptions: Discrepancies between descriptions and the actual goods/services.
solution Standardize descriptions to reflect the content of the purchase accurately.
Card verification fraud: Attempts to verify card validity through microtransactions.
solution Implement restrictions on the number of payment attempts from a single customer or IP address.

Account takeover: Illegal account acquisition through phishing, brute force attacks, and other methods.
solution Apply multi-factor authentication and monitor for abnormal customer behaviour.

Affiliate fraud: Manipulation of traffic or payments to gain undue benefits.
solution Work closely with affiliate networks, conduct traffic audits, and traffic source.

Visa uses descriptors to group and calculate fraud rates, allowing transactions to be linked to specific merchants, goods, and services. The formula for fraud rate is the percentage or amount of fraud per month divided by the total sales or amount for that month. Only the first 10 chargebacks or fraud alerts per card are counted, excluding fraud type code 3 (application fraud). Visa’s Glossary
The VDMP monitors merchants for excessive dispute activities, promoting fair business practices by requiring those with high dispute rates to implement corrective actions to comply with Visa's standards. Dispute Monitoring Program (VDMP) and Glossary
The VFMP targets merchants with high levels of fraud, enforcing stringent fraud controls and requiring detailed remediation plans to mitigate and manage fraud risks effectively. Fraud Monitoring Program (VFMP) set thresholds whose breach can lead to fines and require actions to reduce disputes or fraud levels.

Mastercard uses Merchant IDs (MID) to group transactions and assess fraud levels. The formula is the number of chargebacks per month divided by the total number of successful transactions the previous month, considering only the first 35 chargebacks from the same card. Mastercard’s Glossary
The ECM categorizes merchants into tiers based on their chargeback rates, enforcing measures to maintain transaction integrity. Excessive Chargeback Merchant (ECM) and Glossary
The EFM targets e-commerce fraud by setting strict thresholds for fraud-related chargebacks, enhancing merchant accountability and transaction security. Excessive Fraud Merchant Compliance Program (EFM) are key regulations for managing chargebacks and fraud.

Other card systems like American Express, Discover, Diners, and JCB identify merchants by their account ID and calculate fraud rate using the formula: either the number of chargebacks or the amount of fraud in a month divided by the total number of successful transactions or total sales amount for the same month.

To fully understand these processes, it’s essential to study the threshold Glossary
Prevent risk by keeping chargeback and fraud ratio below monitoring thresholds. monitoring programs individually for each card network.

Solidgate leverages TC40 (Visa) and SAFE (Mastercard) data to effectively monitor credit card fraud. These reports encompass cardholder fraud claims along with detailed transaction information.

When a TC40 or SAFE report is received, it indicates a claim of a fraudulent charge and necessitates an immediate review. It’s important to note that not every TC40 report results in a chargeback.

In some cases, merchants may issue refunds, thereby resolving the issue without proceeding to a chargeback.
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