How To Identify Indicators of Shipping Fraud

Fraud takes many forms and has many potential indicators. Consumer shipping information can provide evidence of attempted fraud—the sort of fraud that can lead to chargebacks. True fraudsters may use stolen credentials to make purchases in order to capitalize on their fraud. Or a cardholder may be engaging in their own chargeback fraud schemes. In the interest of chargeback prevention, merchants should be aware of the fraud indicators that may lie in shipping information. Each of these indicators, on its own, is not evidence of fraud. But they all may point toward fraud, particularly if they appear in conjunction with one another or with other potential fraud indicators.

Addresses With Unusually High Velocity Activity

If a fraudulent actor is looking to acquire goods through illicitly acquired payment credentials, they may attempt to avoid detection by sticking to multiple small transactions rather than conspicuously large purchases. If a particular shipping address sees a noticeable uptick in receipt of smaller purchases within a relatively short span of time, it may be indicative of such a scheme.

A Single Address Receiving Shipments From a Large Number of Merchants

As a variation on the aforementioned scheme, a fraudster may try to maximize their gains by making numerous small purchases with multiple merchants. An increase in shipping velocity to a particular address that is spread across multiple merchants is indication of such a potential source of fraud. Not every individual merchant may be able to recognize these sorts of transactions, but merchants with multiple sub-brands or relationships with ISOs and merchant organizations may find it to be a useful indicator.

Inconsistencies Between Addresses and Identity

A mismatch between a shipping and billing address is not unusual and unlikely to be evidence of fraud in and of itself. But multiple, frequent inconsistencies across a consumer’s payment and shipping profile could indicate nefarious activities. This includes changing shipping and billing addresses with unusual frequency or maintaining an unusually large number of different addresses for a single person.

Suspicious Relationships Between IP Addresses and Shipping Addresses

This is a technological variation on the previous section in which the relationship between the billing and shipping addresses is non-problematic but the IP address is somehow suspicious. For example, the shipping and billing address for a transaction could both be the same address in the United States while the IP address indicates that the transaction is coming from a foreign country. Another variation on this would be transactions with some sort of suspicious elements that are also coming from the IP addresses of known VPN providers.

Large Geographic Distances Between Shipping and Billing Addresses

While it is not unusual for consumers to be billed at one address and ship to another, certain kinds of geographical mismatches may be indications of fraud. Different shipping and billing addresses within the same basic region are not particularly worrisome—a consumer may be purchasing a gift for a friend or relative or they may be having a purchase shipped to their business address while their billing address is their residence, for example. But international mismatches are worth some additional scrutiny from merchants, especially if the billing address is in the United States and the shipping address is in a region known for having high rates of fraudsters and scammers.

New Addresses

Obviously a new address is not necessarily an indication of fraud. Consumers move and get new addresses, merchants get new customers and thus new addresses in their systems. Nonetheless, there is an inverse relationship between address familiarity and fraud potential.

A Change to the Shipping Address After the Order Was Placed

This may be an innocent change due to the cardholder’s plans changing or some mistake in the purchasing process. But it is generally an unusual occurrence and worthy of attention on the merchant’s part. The fraud risk is heightened if combined with another indicator, for example a changed shipping address that is geographically distant from the billing address and original shipping address.

An Unusual Building at the Shipping Address

Thanks to street-view and satellite maps, it is easy for merchants to check what sorts of buildings are located at shipping addresses. Some potential indicators of shipping-related fraud are shipping addresses associated with buildings that appear to be abandoned and shipping addresses associated with buildings that do not match the product that was ordered—for example, personal items being shipped to what appears to be a business address or commercial goods being shipped to a residential address.

Next Steps

Preventing fraud requires a delicately balanced approach. On the one hand, merchants do not want to harm their sales by being unnecessarily cautious and canceling legitimate orders. On the other hand, merchants do not want to allow themselves to be roped into and harmed by fraud schemes. Knowing the potential indicators of fraud, having means to evaluate the riskiness of the transactions associated with those indicators, and having procedures for how to handle suspicious transactions are all essential elements of a fraud protection plan. Merchants can contact cardholders to try to assuage any suspicions before actually processing the transactions and shipping the goods. But everything starts with knowing what the potential fraud indicators are.