Detecting Fraud Using Velocity Checks

By Author: Chris Lim
Total Articles: 4
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People are normally creatures of habit and this translates to predictable purchase patterns. For instance, paying for certain bills each month, eating at regular places and they usually don't buy expensive items in large quantities.

The idea behind a velocity check is to detect any purchase behaviour that is out of the ordinary. What would be ordinary is buying maybe 1 large screen TV but a purchase of 20 large screen TVs should raise all kinds of alarms for the merchant. Unless the purchaser is an organization of some kind, chances are this large order is a fraudulent order purchased using a stolen credit card.

When a person purchases anything from online merchants, his or her IP address is most likely recorded as part of the purchase transaction. Merchants can track this IP address and check how many purchases originating from this IP address have been made. When the number of purchases done via this IP address is very large within a short period of maybe 24 hours, this IP address should be flagged as a possible fraudster. This is a form of velocity check called IP address velocity check.

Just as you can ...
... track the IP address from a buyer, you can also track purchases via the credit card information. For safety reasons, the credit card information is usually converted into a uniquely identifiable number using a hashing function before being used for tracking purchases. This way, no sensitive information will be stored but purchases from that credit card can still be tracked.

The advantage of this credit card velocity check is that even if the IP address of the buyer changes, purchases via that same credit card can still be detected. When there are orders with either large quantities or large amounts from that credit card within a short period, any online merchant should conduct due diligence checks on the orders to verify that the transactions are from legitimate customers before releasing the orders.

Online merchants these days require customers to create a user account with them before being allowed to make a purchase. One of the information they usually require is their customer's email address which is probably also the username for logging into their website.

With that nugget of information, every time the customer makes a purchase, it can be traced back to their account and subsequently their email address. There is nothing to be alarmed about privacy wise. Often this information is used for marketing analysis to determine purchase trends so that merchants can present more relevant products to give their customers a more personalized shopping experience.

Besides that, the email address is also a good way to track purchases for the purpose of detecting credit card fraud. As with the IP address velocity check and the credit card velocity check, the email velocity check functions in a similar manner. The key here is to group the orders by email address so that a pattern can be established where orders with larger than usual quantities or very large numbers of orders within a short period of time can be detected and due diligence checks performed to ascertain the validity of these transactions.

One way to make life easier for online merchants is by using the FraudLabs Pro fraud screening service. Once it has been integrated into the merchant's website, it is relatively straightforward to configure some rules to detect all those velocity checks mentioned above and so much more. With the FraudLabs Pro rules configured, the merchants only need to review those orders that are flagged by the rules thus making the best use of the merchant's manpower in an efficient and cost saving manner.

With the FREE Micro license from FraudLabs Pro, merchants can screen up to 500 orders per month without any costs. Just go to http://www.fraudlabspro.com/ to sign up.