Tag Archives: credit card fraud

Credit card fraud

mount seftonFraud can be a very big problem for online software vendors. Fraudsters can easily use throwaway email addresses that can’t be traced back to them (e.g. Hotmail) and IP addresses aren’t difficult to hide. Not only does the vendor lose the payment when the fraud is reported, they also often get hit with a chargeback fee. This is pretty outrageous when you think about it – the credit card companies are charging vendors for the fraudulent transactions that they themselves have failed to detect.

Thankfully I have had relatively few fraudulent transactions in the last 3 years of running my own business. However some more mainstream B2C businesses aren’t as lucky. Below are the experiences of one software vendor I have corresponded with [1]. It makes for scary reading. The vendor wishes to remain anonymous for understandable reasons.

I tracked one of our recent chargeback emails to a forum were they had been openly selling stolen credit card information for $2 each. If you do have a popular product that may be prone to chargebacks then it is a small nightmare unless you have a fraud system in place as there are 1000s of credit card info out there with full contact details. There is not a day goes by that we don’t get at least 3 stolen credit card purchase attempts.

We use WorldPay and they have a quick check on cv2 code and if the country, postal address and postcode match. But almost all of these purchases pass the simple fraud checks. You cannot even rely on IP checking as the fraudsters are pretty smart and use proxies, or even hijack PCs to make purchases from the same country the credit card is issued. PayPal is not quite as serious, but we do still receive quite a few hijacked account purchases also.

WorldPay fraud checking is next to useless. Even the ones they warn on are usually legitimate. They have recently released a new backend, but they have made the problem worse as they seem to warn if the IP address isn’t from the same country. The problem with that is we get a lot of sales that don’t match, from military based in different countries. Our whitelist used to let them go through automatically, but now we have to manually capture the payment.

The number of fraudulent purchases changes depending if you make a new release etc or if your software is hard to find an easy crack. It can be from 1% to 15% depending, as you may have a single user trying to hit you on certain days.

We were forced to make our own fraud checking system. At least we had all the information at hand as we make users sign up to our site before making a purchase and we log all activity from a user, but to get that information we had to lose many thousands of pounds in fees. Since implementing our own fraud check (as fraudsters do tend to use amazingly similar criteria each time) we have reduced it to on average 1-2 a week, which are almost impossible to catch.

I think the level of fraud has to do with the type of users we sell software to. They are the sort of people that know exactly where to find cracks/keygens. Our software does have pretty good protection and online activation, so it is not so easy to get an easy “working” crack/keygen for it. We also have large volume sales over the past few years, so we have more information than most developers would see.

The credit card companies can’t really lose, especially with “no card holder signature” sales. Chargebacks cost on average 15 Euros. I have even contacted the likes of PayPal telling them that sales are fraudulent, and quite a lot of times they do not care.

We get to see all our sales, I would hate to think what is happening at these merchant services like Regsoft etc. How many sales are being refused that may be legitimate? I tried paying a programmer once who accepted payments using Regnow from my PayPal account and they refused it. My account was verified and had been in good standing for many years. It wouldn’t have been so bad but the person I was paying did not have a clue it was refused.

So, if you have a successful consumer product that fraudsters might be interested in, be prepared to expend a significant amount of money and effort dealing with online fraud. And don’t expect the payment processors and credit card companies to give you much help. I guess the credit card companies don’t have much incentive to reduce fraud. As long as they can keep pushing the cost of fraud onto the vendors and the fraudsters don’t bring the whole system down, the credit card companies seem quite happy. Why wouldn’t they be?

[1] I have spliced together the contents of several emails and edited it for continuity and brevity.