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How Fraudsters Steal from Merchants

There are certain characteristics for a transaction or buyer that can identify different categories of fraud. Only after a merchant spots the type of fraud attacks they are seeing can they know the best way to stop them.


There are certain characteristics for a transaction or buyer that can identify different categories of fraud. Only after a merchant spots the type of fraud attacks they are seeing can they know the best way to stop them.

Why do fraudsters steal? To make money. So when a fraudster is stealing from a merchant it is their intent to make money. They may do this by directly reselling the goods or services they got from a merchant or by tricking a merchant into refunding cash or other monetary devices (gift cards) for goods or services that were theirs to begin with.

On this page I discuss four categories of fraudelent activity:

  • Identity Theft

  • Social Engineering

  • Convenience (Ease of Use)

  • Internal Fraud

These four categories are just the beginning, as you read through this section you will get more specific descriptive discussions on schemes and fraudster personalities. The main reason I start with these four categories is to give you a starting context for describing fraudsters so you can start to tie historical fraud knowledge with types of schemes and personalities.

Why is it important that we describe and categorize fraudster activities?

The main reason is it helps us detect patterns and develop fraud-prevention techniques to stop these types of fraudulent behaviors. In working in fraud prevention it is important to not only build strategies that can detect sophisticated fraud activity but that can also shut the door once you have spotted a fraud pattern. No fraud practitioner wants to be known as the one that could stop the most sophisticated fraudster, but let the dumb ones keep coming back for more. I say this because it is easy to focus so hard on one type of fraudster, one point of attack, that we lose sight of the bigger picture. Remember, fraud has always been around. The moment you successfully stop a fraudster’s attack they will be looking for a new attack. Likewise, if you don’t stop them, they will keep coming back until you do.

The fraudster is going to make themselves look and “feel” like they are someone else, and they are very good at it!

In this section of the website we are going to dive deeper into understanding the fraudster. We are going to look at the history of fraudulent activity, the types of schemes they use, and ways to describe specific fraudster “personalities.”

To begin our discussion I want to segment fraudulent activity into four categories: Identity Theft, Social Engineering, Convenience (ease of use), and Internal Fraud.

These four categories give us a generic way to describe a fraudster’s trick or scam by describing the activities and characteristics of the order the fraudster is presenting.

Identity Theft

Large purchases, bust out activity (maxing out of cards in short time periods), many purchases, perfect identities, address, phone and Credit card Data look clean.

Social Engeineering

Attempting to find out information by asking questions, or to change information through social interaction Hijack orders by changing shipping information, or changing billing data on an existing credit card account

Convenience (Base of Use

Testing cards to see if they work by making small purchases at safe locations like gas stations, electronic download services, or free-for-service locations.

Internal Fraud

Organized faudulent activity by person or persons working in a company, sharing information on how to perpetuate fraud to conducting actual theft.

Take another look at the four general categories listed above. Where would you focus your attention to try and spot (“Spotting”) this type of fraud activity? What would you do to shut the door and stop (“Stopping”) that type of fraud from reoccurring? The following table shows some of the places you can look for these activities and how you could shut the door.

Stopping Identity Theft

Check for multiple accounts, look at purchase patters over 90 days, use out-of-pocket checks, cross-merchant checks.

Stopping Social Engineering

Reprocess all changes through normal risk-prevention processes, conduct a call back on all in-route address changes, or simply do not allow them.

Stopping Fraudsters Convenience

Use of velocity of change and velocit of use checks, hot lists.

Stopping Internal Fraud

Strong employment checks, education, accountability and checks & balances, no one person with the keys to the kingdom. Don't allow CSR's to override their own orders.

If this still doesn’t make sense, don’t worry. I will be discussing the schemes, personalities and fraud-prevention techniques in much more detail as we go through the website. The intent of this exercise is to share a mindset. When you read stories of fraudulent activity, or share stories with peers, put on your fraud practitioner hat and analyze the activities that let the fraudster gain access and commit fraud (spotting), and then think about how you would prevent that same fraudster from returning (stopping).

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