Fighting Online Fraud with 2Checkout’s Sebbe Jones (Part Two)

In yesterday’s blog Fighting Online Fraud with 2Checkout’s Sebbe Jones, Sebbe discussed how 2Checkout developed a sophisticated fraud scrubbing process, over a number of years, by intimately learning the mitigation process, through the manual examination of tens of thousands of orders the first few years of 2Checkout’s existence. Through hard work and innovative thought, 2CO developed a world-class fraud scrubbing process, but “the times were a changin’.” Each year, fraudsters were becoming more advanced and organized and 2Checkout’s volume of sales was increasing at an amazing rate. It was all his staff could do to keep up with the increased volume of sales and fraudsters.

Then dark times hit. When 2Checkout switched its system from Version 1 to Version 2, the sophisticated fraud queue was errantly left out of the upgrade. Years of work were wiped out in an instant. Sebbe and his staff endured a two-fold increase in manual order checks. The days were growing long, fraudulent transactions were on the rise and something had to give. — (Back to Sebbe’s story)

Taking Fraud Fighting to the Next Level

To say the least, vendors were not happy. 2Checkout was not happy. Customers who had their orders denied were not happy. 2Checkout had to do something to right the ship… so we did.

Following this misstep, we joined the MRC (Merchant Risk Council). We attended their annual conference, talked to the giants in the industry to learn best practices, and quickly discovered that if there was ever a company out there who could help us get our fraud prevention back to a manageable level it was 41st Parameter. Read the copy on their “About Us” link, as it sums up their services very well:

As leaders in fraud intervention, 41st Parameter’s innovative solutions help you protect your customers and your brand, reduce fraud losses and make the Internet a safer place to conduct business.

Through a combination of best practices, leading technology and human interaction, our innovative solutions provide an unprecedented level of Internet security, decrease the anonymity of the Internet and help you gain valuable insight into every online transaction and customer interaction.

We make the process of preventing and detecting Internet fraud easier and more effective, reducing both expenses and potential losses.

In August of 2005, 2Checkout integrated fraud mitigation services and software from 41st Parameter. The progress and improvements that have come from this integration are undeniable. Our review rates reduced from 45% to 15%. Our chargebacks-to-fraud ratio reduced from over 1% to less than 30 basis points. In addition, we gained access to additional investigator tools and a more knowledgeable staff due to a clearer picture of the elements that go into world-class fraud scrubbing.

41st Parameter provides 2Checkout with a full user interface of over 300 algorithms (or rules) that help us detect fraudulent activity. The ability to recognize fraud when it happens provides us the ability to recognize positive transactions as well. We have a robust negative list of which I referred to in Part One. The same goes for our positive list. There are velocity rules that tell us if multiple orders have been placed in a short period of time. There are so many tools and algorithms put in place in the 41st Parameter suite of software. In fact, I cannot discuss a majority of them.

Simply put, today, we use a state-of-the-art software package managed by a leader in the fraud mitigation industry to supplement our already robust system of checks and balances. In addition, we attend fraud conferences to ensure we are up-to-date on the “latest and greatest” in fraud mitigation and we network regularly with the world’s largest e-commerce companies to keep up on best practices and industry standards.

As you can see, throughout our history, 2Checkout has worked its way through multiple models of fraud detection and prevention. We won some and we lost some, but we continued to improve our service. We built a homegrown system, lost our homegrown system in what I like to refer to as “the dark days,” when we were left with nothing more than AVS, CVV, and IP tools to investigate questionable orders, then we rebuilt our system and joined forces with the world leader in fraud mitigation. Through the ups and downs, the long nights and the weekends of work, we learned an amazing amount about fraud protection which has strengthened our service every step of the way.

A CLOSING WORD TO THE WISE

Throughout the fraud monitoring process, we try to provide our 2Checkout vendors some valuable information on the transactions within their accounts. Regarding payments, we provide AVS and CVV responses, as well as an IP address identifying the order origination. This is excellent information for a company to have about its customers, but is not nearly detailed enough to decide whether or not the order is possibly fraudulent. As the provider of your product and/or service, there will definitely be times when you will know better than 2Checkout whether a potential customer is trying to rip you off, or not. However, this information would come from additional data you have collected outside of the information provided you in 2Checkout’s Admin Area. While I preach that there is no silver bullet when it comes to investigating orders for fraud, I can confidently say that AVS/CVV and IP data do not provide nearly enough information to detect and decide whether or not an order is fraudulent.

We recommend you leave the fraud decision-making process to the experts! We spend our entire day and over 10,000 man-hours annually catching bad guys. With that said however, I also recommend you utilize our fraud agents as partners to best mitigate losses by letting us know if you have additional information which can help us in our decision making. You can’t do it alone, and neither can we. It is imperative that we communicate regularly with one another and work together to stamp out Internet crime once and for all, one order at a time!