Device Location Verification Could Curb Chargebacks

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One of the biggest challenges facing e-commerce merchants and consumers is fraud. Device location verification, however, offers promising results.

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One of the biggest challenges facing e-commerce merchants, financial institutions, and consumers is fraud. It comes in many forms—whether it’s credit card fraud, identity theft, or data breaching, it can cause millions of consumers to lose their sense of financial security, and can prove expensive for merchants and banks to remedy.

One subset of financial fraud that is constantly apparent is chargeback fraud, where an individual takes advantage of the chargeback process to get away with extra cash or free goods. Sometimes, they can even steal a merchant’s financial information. However, one solution offers promising results—device location verification.

What is Device Location Verification?

Through certain providers like Zumigo and Telcos, merchants may be able to track to location of consumer devices being used to process transactions through their website. This information is provided through tracking IP addresses and analyzing consumer information entered into a website’s payment page. For instance, if a shopper in Florida is using their smartphone to buy clothes online, the clothing merchant could have the ability to verify that the device they’re using is actually in Florida.

The prospect of using device location verification to stop fraud arose from a need for desperate measures. Hackers and fraudsters in other countries can obtain a consumer’s credit card information and sell it to other people—who then use it to make purchases. Tracking a shopper’s device through location verification can help detect fraud before it happens.

Take the scenario above. A shopper in Florida is purchasing clothing online. However, the device location verification technology indicates that they are purchasing the item from an IP address in Eastern Europe or Asia. That would indicate that fraud is being committed, and the merchant can deny the transaction and report the data to the proper authorities.

How it Could Help Stop Chargeback Fraud

Chargeback fraud—sometimes called friendly fraud—often involves someone purchasing an item from a merchant, then filing a chargeback claiming there was a shipping error or damages to their purchase. But sometimes, the fraud will even start before any purchase is made, and can happen through email inquiries.

Take the following scenario: a potential customer sends you an email asking about ordering some items from you. They do not fill a shopping cart, instead stating they’d rather deal with a representative directly. They may inquire about ordering bulk items and processing the payment through a third party—this should be an obvious sign of fraud, but some merchants accommodate the customer and make the sale.

From here, anything could happen. You could ship the products and they could never send the payment. Or, they can pay with another person’s credit card. If this happens, the card owner (not knowing their information has been stolen), will likely see the charge on their card and request a chargeback.

All of this is just more reason to adapt device location verification technology for merchants’ use. Knowing where your shoppers are purchasing from can go a long way in protecting your business as well as other shoppers who may have been targeted for fraud. Coupling this feature with your chargeback prevention strategy can help make sure that your business isn’t being exploited at the hands of fraudsters.

About the Author

Dylan Freni is a copywriter at Instabill. He writes articles for the company’s nine websites, including three articles per week for the Instabill blog. Frequent topics include merchant services, payments industry news, e-commerce tips, and merchant account how-tos.


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Jan 4, 2016 Category: General Posted by: Marketing
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In Chargebacks 101 for Merchants, Instabill teaches business owners about the chargeback process and chargeback reversal process. Instabill also offers advice on how to prevent chargebacks as well as credit card fraud.

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In Chargebacks 101 for Consumers, Instabill clearly identifies the similarities and differences between refunds and credit card chargebacks. Consumers can learn what situations are best for each type of transaction.

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