April 24, 2003, 12:00 AM

More online fraud is from organized criminal groups, expert says

As much as 60% of the fraud that processor Retail Decisions catches comes from organized theft rings, the company says.

Kurt Peters

Executive Editor

Online fraud, such as stolen credit card accounts that make it past merchants` screening measures, stems more and more from organized crime groups, Jeff Foster, executive vice president of Retail Decisions U.S., a payment processor and online fraud prevention company, tells InternetRetailer.com. "Probably 50-60% of what we catch is organized crime," he says.

The most common type of organize fraud, he adds, are groups that use powerful computers to run tumbling and swapping schemes that work with large amounts of randomly selected 16-digit numbers and constantly swap them with possible expiration dates to produce usable credit card accounts. Foster adds that fraudsters have found several e-commerce web sites that are most suitable for testing out these number combinations; once they see that a number has been authorized for a purchase, they realize they`ve produced an actual account number that can be used or sold.

"Fraud is becoming more sophisticated," he says. He adds that merchants that simply create rules to limit fraud--such as setting maximum ceilings on what can be charged, or denying any charge where the billing address doesn`t match the ship-to address--can wind up killing more legitimate sales than stopping fraudulent ones. "There are way too many babies getting thrown out with too little bath water," he says.

He adds that another 40% of the fraud stopped by Retail Decisions is what`s known as friendly fraud, or fraudulent transactions that result when consumers get advice from web sites and chat rooms on how to take advantage of certain e-retailers, such as those who are known to simply absorb chargebacks without question. In that case, shoppers will purchase something online and then call their credit card issuer to deny ever having made the purchase, without any fear that an investigation might reveal their record of purchase.

Retail Decisions and other fraud-prevention firms use software to monitor a retail sites` transactions, looking for unusual activity such as a large number of transactions coming from the same IP address. "If we see several card numbers being used from the same address, we put those card numbers into a filtering database of believed-to-be-compromised cards," he says. Then by checking those account numbers against other information, such as buying patterns that differ from an account`s historical activity, a retailer has a better chance of taking action to stop a transaction that is actually fraudulent, he adds.

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