Fraud prevention
Cardflo's fraud prevention capabilities protect high-risk and enterprise merchants from evolving threats. Our layered approach combines advanced analytics with customizable rules to identify and block fraudulent transactions before they impact your business.
Minimise chargebacks and secure your revenue streams.
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The overview
Fraud prevention in the payments ecosystem refers to the technical framework and logic applied to identify high-risk transactions before they result in financial loss or regulatory penalties.
In a typical merchant stack, fraud tools sit between the checkout interface and the payment gateway, analysing data points to predict the legitimacy of a cardholder.
These systems evaluate transaction metadata such as IP addresses, device identifiers, and historical card behaviour to assign a risk score.
For merchants in high-risk sectors or those processing significant cross-border volumes, effective fraud mitigation is essential to maintain low chargeback ratios, which directly influences the terms set by the acquirer.
Excessive fraud levels can lead to increased scheme fees, mandatory participation in monitoring programmes, or the termination of a Merchant Identification Number (MID).
By utilising a layered approach involving 3DS, velocity controls, and automated blocklists, businesses can distinguish between legitimate customers and sophisticated bot-driven or manual fraud attempts during the authorisation phase.
How it works
Data ingestion and enrichment
When a customer initiates a transaction, the system captures non-sensitive data including the BIN, IP address, and browser fingerprint.
This information is enriched by checking against global databases to determine the geographical location and proxy status of the user, providing a baseline for the subsequent risk assessment and scoring process.
Velocity and pattern analysis
The engine monitors the frequency of attempts from specific cards, devices, or email addresses within defined timeframes.
If a single identifier attempts multiple high-value transactions or exhibits irregular behaviour patterns, such as cycling through different CVV numbers, the system triggers a temporary block or requires additional authentication steps.
Customisable rule execution
Merchants configure specific logic based on their internal risk tolerances and industry-specific threats.
Rules can be set to automatically decline transactions from certain high-risk jurisdictions, flag orders above a specific currency threshold, or enforce SCA for every transaction where the billing and shipping addresses do not match.
Real-time decisioning and response
Within milliseconds, the system produces an allow, deny, or review recommendation. An 'allow' response permits the authorisation request to proceed to the issuer.
A 'deny' response prevents the cost of a gateway call, while a 'review' allows manual oversight before the merchant captures the funds for the order.
Why it matters
Preservation of merchant standing
Acquirers and card schemes monitor the ratio of fraudulent transactions to total sales. Exceeding established thresholds can result in a merchant being placed in monitoring programmes like the Visa Fraud Monitoring Programme (VFMP).
Maintaining robust prevention mechanisms ensures the business stays within acceptable bounds, avoiding punitive fees and ensuring continued access to card processing networks.
Reduction in operational overhead
Managing disputes and chargebacks is a resource-intensive process involving representment and administrative evidence gathering. By blocking fraudulent attempts at the pre-authorisation stage, a firm reduces the volume of retrieval requests and subsequent chargebacks.
This allows the risk team to focus on legitimate customer issues rather than fighting inevitable losses from stolen credentials.
Optimisation of acceptance rates
Indiscriminate fraud blocking can lead to false positives, where legitimate customers are declined. A granular prevention strategy uses machine learning and specific Merchant Category Code (MCC) data to refine rules.
This precision helps in identifying genuine buyers, thereby improving the overall authorisation rate and protecting the customer experience from unnecessary friction during the checkout process.
Use cases
International E-commerce expansion
When entering new geographical markets, merchants often face unfamiliar fraud patterns. A layered prevention system helps identify suspicious proxy usage or mismatched BIN-to-IP locations, allowing for safer cross-border trade without manually reviewing every single foreign transaction.
High-velocity digital goods
For businesses selling instant-delivery items like gift cards or gaming credits, fraud happens at scale. Automated velocity checks prevent 'carding' attacks where bots test thousands of stolen numbers in minutes, protecting the business from rapid, massive financial exposure.
Subscription and recurring billing
Merchant-initiated transactions (MIT) require a high level of trust in the initial credentials. Verification tools ensure the card is valid and belongs to the user during the first transaction, reducing the likelihood of future chargebacks on subsequent recurring billing cycles.
By the numbers
Industry data suggests that implementing proactive blocking and pre-chargeback alerts can reduce the total volume of successful disputes within this range for high-risk merchants.
Typical industry performance for a tuned fraud engine, representing the balance between security and the risk of declining legitimate transactions during the authorisation process.
The standard duration for a fraud check to be completed within the payments stack to ensure no perceptible delay for the customer at checkout.
Related terms
Talk to our team about a live rollout on your acquiring stack.
What you get with Fraud prevention
- Automated risk scoring based on real-time analysis of transaction metadata and user behaviour patterns.
- Granular custom rules for blocking specific countries, IP ranges, or suspicious email domains.
- Integration with card scheme tools like Visa Verifi RDR and Mastercard Ethoca for alerts.
- Detailed device fingerprinting to identify repeat offenders using different accounts or identities.
- Velocity management to detect and stop rapid-fire testing of stolen credit card credentials.
- Support for 3-D Secure 2.0 to transfer liability and satisfy SCA regulatory requirements.
- Proxy and VPN detection to identify users attempting to mask their true geographical location.
- BIN lookup services to verify the card type and country of the issuing bank.
- Address Verification Service (AVS) and CVV checks integrated into the initial gateway request.
- Comprehensive reporting on decline reasons and fraud trends to inform proactive risk management strategy.
A short scoping call, then a written plan for your MIDs.
Questions about Fraud prevention
How does fraud prevention impact the cost of credit card processing for a merchant?
Fraud levels directly affect the total cost of acceptance. If a merchant has a high chargeback-to-sales ratio, the acquirer may increase the per-transaction spread or request a larger rolling reserve to mitigate their own risk.
Furthermore, every chargeback usually incurs a non-refundable fee from the PSP, regardless of whether the merchant wins the dispute.
Effective prevention reduces these direct costs and helps maintain a cleaner profile with the issuer and the card schemes, leading to more favourable interchange-plus pricing terms over the long term.
What is the difference between a pre-authorisation check and a post-transaction review?
A pre-authorisation check occurs before the payment request is sent to the issuing bank. The fraud engine analyses the data and can block the transaction immediately, saving the merchant from gateway fees and the risk of a future dispute.
A post-transaction review happens after the authorisation is successful but before the merchant fulfils the order. This allows for human intervention or further automated checks.
While post-transaction reviews can stop the shipment of physical goods, they do not prevent a chargeback from occurring if the transaction has already been captured.
How do Ethoca and Verifi RDR alerts assist in a fraud prevention strategy?
These services act as an early warning system. When a cardholder reports a fraudulent transaction to their issuer, an alert is sent to the merchant before it becomes a formal chargeback.
The merchant can then choose to refund the transaction immediately. While a refund is still a loss of revenue, it prevents the incident from being recorded as a chargeback in the scheme's monitoring systems.
This is particularly useful for maintaining compliance with strict thresholds set by Visa and Mastercard for high-risk merchants.
Can fraud prevention mechanisms lead to a decrease in legitimate sales conversions?
This is known as a false positive or 'insult rate'. If fraud rules are too aggressive, they may block valid customers whose behaviour looks similar to suspicious patterns, such as making a large purchase from a new device while travelling.
The goal of a sophisticated fraud strategy is to balance friction and security. By using dynamic 3DS rules, a merchant can only challenge high-risk transactions while allowing low-risk ones to proceed through a frictionless flow, thereby protecting the conversion rate without compromising security.
Why is device fingerprinting more effective than just checking an IP address?
IP addresses are easily changed via VPNs, proxies, or mobile network switching. Device fingerprinting creates a unique identifier for a user's hardware and software configuration, including OS version, browser type, language settings, and screen resolution.
This allows the system to recognize a specific device even if the IP address changes. If a single device is linked to dozens of different cards or names across multiple sessions, it is a high-probability indicator of compromised credential testing or professional fraud activity.
What role does the Merchant Category Code (MCC) play in fraud risk assessment?
The MCC tells the issuer what type of business the merchant is running. Certain codes, such as those for cryptocurrency, gaming, or adult services, are traditionally viewed as higher risk by issuers and acquirers.
Fraud prevention systems often adjust their sensitivity based on the MCC.
For example, a travel agency may have a higher threshold for transaction value before flagging for review compared to a low-cost digital download site, as the average ticket price for flights is naturally much higher.
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