A New Chargeback Fraud Scheme

Scammers are creative, you have to give them that I suppose. Recently we’ve started seeing a new chargeback fraud technique. Here’s how it works:

  • A thief possesses a stolen credit card and also knows the billing address of the owner of the credit card.
  • They purchase a large e-gift certificate, using the billing and shipping address of the actual owner of the card.
  • They then use the gift certificate to place several smaller orders under a variety of aliases.
  • After they receive their orders, they then file one large chargeback for the gift certificate.

This technique can circumvent some (maybe most?) fraud filters because:

  • There is an AVS match (address verified) on the original purchase.  They can get away with that because the gift certificate is sent electronically and never sent to the original card owner.
  • All subsequent orders don’t use a credit card or PayPal, and thus aren’t subject to failing an address verification check.

Luckily we keep a pretty close eye on orders.  Thus far we’ve foiled these attempts prior to any products leaving our warehouse, so we have yet to fall victim to this particular scam.  But this just reaffirms how creative credit card thieves can be, and how important it is for us to stay one step ahead with our fraud detection.

2 comments on A New Chargeback Fraud Scheme

  1. Dave says:

    Interesting scheme, thanks for sharing! Can you get into more detail as to how you have circumvented this? How soon are they placing orders using the gift card? If they wait a while to use the gift card, are you still able to catch it? How are you verifying if it’s a legit order for the gift card?

    Maybe it’s better for gift cards to be something you actually ship rather than electronic?

    • Adam McFarland says:

      Dave, I’ll shoot you an email with the specifics. We have been adjusting our gift certificate policy – in some instances we’re mailing them now, but overall we like the immediacy of the electronic ones. Most of our gift certificate sales are just before holidays, like the day before Father’s Day or Christmas Eve.

Leave a Reply

Your email address will not be published. Required fields are marked *

Commenting Rules

I'm honored that you found this post interesting enough to leave a comment. Before posting, I have a few ground rules:

  • Please keep your comments as relevant to the post as possible.
  • No personal attacks or any other nastiness.
  • Your first comment is subject to my approval.

Thanks!