MasterCard Expert Warns Beware of Fraudulent Orders

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GRAPEVINE, TX -- The fulfillment industry must be on the lookout for fraudulent orders that cost retailers billions each year and particularly hurt online merchants, a security expert for MasterCard International said yesterday.


Credit card fraud totals $4 billion annually for all cards, at a rate of about 8 cents per $100 ordered, said Jim Steel, MasterCard regional vice president of security and risk management. Steel spoke at the National Conference on Operations & Fulfillment here.


Though overall fraud volumes have risen due to an increase in cards issued, fraud as a percentage of dollars spent on credit card orders has declined, he said. The rate was 13 cents per $100 ordered in 1994.


Nevertheless, "card not present" fraud -- fraudulent orders placed remotely, through mail, phone or the Internet -- is rising and likely will become the main form of credit card fraud soon, Steel said. The growth of Internet sales is largely the cause of that increase.


The United States outpaces the rest of the world in credit card fraud, representing more than half of such fraud worldwide annually, Steel said. California alone has more credit card fraud yearly than any other country.


Criminals use phishing, identity theft and card brokering to obtain credit card information. They use it to get cash or merchandise that is easily convertible to cash, Steel said. Gift certificates are a target as well as jewelry and electronics.


Other ways to get card numbers include database hacking and random number generation, Steel said. Scam artists can test randomly generated numbers by trying to order services over the phone, such as by using the fraudulent number to make phone calls.


To catch fraud, watch for unusual order volumes and keep an eye on order velocity, Steel said. Crooks often place several small orders in an attempt to escape notice, or try to place orders using sequential credit card numbers in an effort to find a working number.


Maintain a negative history file of known bad numbers, Steel said. Also, watch for international orders and understand the risks associated with shipping outside the United States.


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