Business development · 3 February 2016

Fraud lessons: How the owner of one ecommerce platform is fighting payment fraud on a daily basis

payment fraud
Fraudsters will often make multiple attempts at low-value transactions to see if the cards they are trying to use have been blocked

For many small firm owners, the prospect of payment fraud is a nightmarish prospect which keeps them awake at night. But Rob McVey has grudgingly come to accept that it is an annoyance his rapidly expanding small online business will always have to contend with – only really able to limit rather than stop.

Copify, the company he co-founded seven years ago, is a crowdsourcing platform connecting 1,500 copywriters with businesses looking for inexpensive copy. The firm competes on scale and price, specialising in providing large volumes of text.

This business model means that the vast majority of orders are completed online, using credit cards or PayPal. As a result, and due to the intangible nature of the product provided to customers, McVey’s company is particularly vulnerable to payment fraud.

The pattern is almost always the same, he explained to Business Advice. “We’ll get a commission for some copy, pass this on to one of our writers, and provide it to a client who pays by credit card. Then there will be what’s called a chargeback, which means the card issuer takes the payment back because the card has been reported as stolen.”

McVey said it was common for the text which had been paid for fraudulently to then be sold to a legitimate client, with the fraudster pretending that they have produced it themselves. “We’ve seen lots of content published online which we made and never received any money for, which is incredibly frustrating.” With Copify’s average transaction value around £45, such behaviour can represent a serious financial burden.

And as well as this lost revenue comes the added blow of a £15 fee levied by the payment processor when a transaction has to be returned. “In the early days, when our revenue was lower and we were seeing a higher volume of fraudulent transactions that was wiping out all of our profits some months.”

In the early days of running the company, he spent many frustrating hours trying to work out the identity of fraudsters. “If you’ve got an email address and and IP address you can sometimes work it out,” he said. “But even with that information, in most cases it’s unlikely that you’ll ever get the money back. In 99 per cent of cases, if you’ve given them the content by the time you discover the fraud, it’s a loss.”

Since then, McVey has come to accept that once the content has been provided there is little he can do, especially if the buyer is based overseas. But he has learned a lot of lessons about the warning signs to look out for. Though the high number of orders fulfilled by his small team makes manually reviewing every order impossible, those which are made from IP addresses in countries outside Copify’s core markets of Europe, US and Australia will be flagged up, as will small payments into a new user’s online account which aren’t associated with a particular order.

“A common tell-tale sign that you’re dealing with a fraudster is when they make lots of transactions for 99p from a new customer account. It’s common for people using stolen credit card details to do this in order to see if the details they’ve got will work. If one’s declined, they’ll chuck it away and try another card number – they’re basically using the low value transaction as a testbed. If we pick that up, we’ll ban the account, and monitor any further attempts at attempting accounts from that IP address.” McVey also reports swindlers to ActionFraud, the UK’s national fraud and internet crime reporting centre.

As a result of this increased vigilance, McVey has seen the number of times his company is defrauded in this way decrease from up to 60 down to around six times a month. But he believes that Copify will never be completely immune from fraudsters – and now accepts that some losses will inevitably have to be absorbed. “I feel like it’s a similar situation to that of shoplifters in supermarkets: you have security guards and cameras, but you can’t have one on every aisle, so you just have to accept that sometimes the thieves are going to win.”

Copify isn’t the only business to be targeted by fraudsters ­– a telephone scam in Suffolk recently conned business there out of £1m.

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ABOUT THE EXPERT

Hannah Wilkinson is a reporter for Business Advice. She studied economics and management at Oxford University and prior to joining Business Advice wrote for Kensington and Chelsea Today about business and economics – as well as running a tutoring company.

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