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Every year
Billions of dollars are lost on chargebacks and
fraud. Some companies go out of business not because
they have a bad product or do not market themselves, but
because of fraud.
Organized Fraud is a form of organized crime. The
criminals use identity theft or some other means to
apply for valid credit cards under someone else's name.
Once issued, they set up a drop location where they have
goods delivered to (usually a vacant house or apartment)
and they spend the cards up to their limit. When the
bill comes 30 - 45 days later, there's nobody there to
pay it and the criminals move on to another credit card.
A minor variation on this theme is the hacker/cracker
using software to generate seemingly valid credit card
numbers. Both types of criminals are normally looking
for items that can be easily converted into cash. These
are probably the hardest criminals to catch because they
know all the ins and outs of the system and are
constantly altering their techniques as soon as an
anti-fraud measure begins to show any level of
success.
Opportunistic Fraud is, quite simply, fraud that is
committed because the opportunity happens to present
itself. Perhaps a waiter, a little short on cash, copies
down the credit card info from a customer and then goes
online and buys his wife a nice birthday present. There
are a million variations on this but essentially, the
person committing fraud doesn't normally do this for a
living. They are amateurs who happened to take advantage
of an opportunity.
Cardholder Fraud is when the legitimate
cardholder is the person committing fraud. Sometimes
they claim they never received the merchandise.
Sometimes they claim they never ordered the merchandise.
Whatever the excuse, the cardholder knows how card not
present transactions are treated by the credit card
companies and aims to take advantage of the system. Even
if the merchant calls the customer and confirms that
they placed the order, when the bill comes they can
claim they never heard of the company and the credit
card company will stick the merchant with the liability.
A minor variation on this type of fraud which I still
consider Cardholder Fraud is the spouse or children who
use the card and then deny.
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