Indirect Fraud

July 24, 2006

Ahh, credit card fraud. How I detest thee.

Fraud is a fact of life for retail businesses, and e-commerce shops are particularly hard hit, particularly those who sell internationally. Direct fraud is certainly the most common: some jerk places an order with someone else’s credit card in an attempt to get their hands on your products. Pretty straight forward.

Indirect transactions, on the other hand, are a bit more troubling.

The Scam

The Jerk sells a product to The Buyer on a legit site, like eBay or Craigslist. However, The Jerk doesn’t have the product!

So, The Jerk buys the product from your web site. Using fake or stolen credit card info, The Jerk uses The Buyer’s personal information to place the order on your site. You ship the product to The Buyer.

The Result

The Jerk pockets the cash from the first transaction.

The Buyer receives the product, and thinks everything is perfectly legit: he received the product he bought, and paid the expected amount for it.

You’ve been scammed, and you’re in the awkward situation of attempting to reclaim your products from someone who thinks they were legitimately purchased.


The easiest way to prevent getting involved is to fully check each of your credit card transactions: make sure the information is valid. Use CVV verification. Take the credit card transaction off line to make sure it’s seen by a human before it’s processed. Call the customer when addresses don’t match.

However, there’s only so much credit card verification can do for you: here are two things that can significantly improve your ability to spot bad transactions:

  1. Save the IP address the order came from, and use a geolocation service to find out the approximate location of the customer. Raise a red flag if the billing and shipping address for the order are in Billings, Montana … but the order was placed from Singapore. A limited, but free, geolocation service is provided by
  2. Include a note at the top of the packing list that says something along the lines of: “If you did not buy this product directly from xxxxxxxx, please call us at xxx-xxx-xxxx to verify the authenticity of your purchase.” Even if everything else checks out, savvy consumers appreciate the ability to inform you of anything suspicious.

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