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Another fraud-busting method that has moved from offline to online is address and phone number verification. Many online retailers already are familiar with checking to see if phone numbers and addresses correspond with billing and shipping addresses. But new technologies, such as Qsent’s iQ411, are giving retailers more streamlined options to do so. The Portland, Ore.-based company last year launched its iQ411 product, the first licensed web-based directory information listing service which allows merchants to input a phone number and get back a name and address to verify orders.
The service streamlines what today is a cumbersome and expensive process of checking suspicious transactions with telephone company directory assistance, Keene says. Keene stresses that the information is updated nightly, not a small consideration given that the Baby Bells update as many as 500,000 records every day. “Our information is 98% accurate because it comes from an updated source,” Keene says. Qsent built its system based on relationships established with all the former Baby Bell companies, which provide access to 140 million records.
Keene says checking numbers takes two-tenths of a second, which does not slow down online checkout. Retailers must input code so a retail system can connect with the iQ411 system while a transaction takes place. That coding takes only a few hours to complete, he says. Address verifications start at 42 cents and fall with volume, Keene says.
Hang up the phone
The Sharper Image, which sells on the web, through catalogs and in stores, says it has saved $1,000 a month just in directory assistance fees since it installed the iQ411 system last summer-and that’s not counting the time it took staffers to obtain the information, says Paul Towey, senior manager of operations. Sharper Image, which has had its fraud rules in place for about 15 years with its catalog business, checks transactions above a certain amount.
Towey says it’s difficult to tell by how much fraud has been reduced, but the savings in reduced directory assistance bills is obvious.
Using the Internet to verify cardholders’ home addresses isn’t the only way the web is verifying addresses. ClearCommerce Corp. last year rolled out an updated version of its GeoLocator product that identifies the IP address of the customer placing the order. The IP address identifies the server where the order originates. Once the server is identified, its location can be matched against the address of the person placing the order. ClearCommerce says the service will flag mis-matches; that is, if the server is in Argentina and the customer’s cardholder address puts him in Missouri. Further, it can identify servers in high-fraud countries and give the merchant the option of accepting or rejecting the order.
One particularly devastating example of international fraud that might have been detected if the IP address could have been identified was responsible in part for doing in Flooz.com, the online currency company. CEO Robert Levitan says Flooz, which was having money and funding problems to begin with, was forced out of business after it was hit by $300,000 in chargebacks from a Russian crime ring using stolen credit cards to buy Flooz. Levitan says the crooks ordered Flooz in increments just under $100, the amount the company flagged for scrutiny to prevent fraud.
“Our new product is one more bullet in the gun to help prevent this kind of international fraud,” says Julie Fergerson, vice president of emerging technologies at ClearCommerce. ClearCommerce’s FraudAnalyzer neural network generates risk scores for online transactions from a database of online transactions at 40,000 merchants. From that, it identifies and ranks the relative risk of accepting orders from various countries. It has found that the top ten fraud countries account for more than a third of international online fraud (see box) while generating less than 5% of international orders.
Who is that person?
ClearCommerce also identifies the 10 lowest-risk countries. Retailers who routinely block all international orders for fear of fraud may be missing out on global sales that otherwise would be good sales, Fergerson says.
One of the most vexing problems of online card payment for merchants has been merchants’ inability to do anything themselves to verify the identity of the customer. In the store, at least, clerks can check the signature and observe the behavior of the customer. Plans to distribute smart cards to consumers or to get consumers to install small peripheral card readers on their computers have gone nowhere because most consumers don’t see a compelling value to the new technology.
So the card companies are trying to adapt real-world procedures to the online world. Last year, Visa introduced its Verified by Visa Payer Authorization Service, which allows cardholders to choose passwords for online purchases. Merchants who participate in the Verified by Visa program download software to trigger a password box at checkout. If the cardholder correctly enters the password, the transaction proceeds and the merchant is relieved of risk. If a cardholder forgets the password, the payment processor prompts her with a clue. If she still can’t enter the password, the transaction will not be complete.
While merchants worry about adding a step that could alienate customers while they’re checking out, Visa says 66% of consumers it surveyed last November said this new system is worth doing if it protects their credit card information online. They also said they would not view the password prompt as a hassle at checkout because they already use passwords for security in other parts of their lives.