Stopping Fraudsters at Checkout: How Address Verification Helps Prevent E-commerce Fraud


It’s estimated that e-commerce fraud will cost merchants more than $48 billion in 2023. As online shopping skyrocketed in recent years, digital payment methods diversified to meet evolving consumer needs. But at the same time, fraudsters have continued to exploit new payment methods by impersonating legitimate customers and using stolen forms of payment to make purchases. 

Often, fraudsters accomplish this through the use of fake addresses that may appear real on paper but are actually invalid (e.g., uninhabited homes or properties). This makes it all but impossible to trace fraudulent purchases back to them. But if retailers can spot illegitimate addresses during checkout, they can stop fraudulent transactions before they occur. 

And that’s exactly what address verification tools are designed to do. 

With address verification tools, retailers can identify potential fraudsters by quickly verifying the legitimacy of the addresses provided during online checkout. Ultimately, these tools can create a faster and simpler checkout experience, streamlining retail touchpoints and increasing customer satisfaction in the long run.

How Fraudsters Exploit the Evolving Payment Landscape

When it comes to e-commerce fraud, criminals are relentlessly creative. One of the latest scams involves the creation of synthetic identities or “Frankenstein IDs'' using a combination of real and false personal information. This can include a stolen Social Security number as well as a fake name, home address, and date of birth — creating an entirely new identity that doesn’t exist. Fraudsters then use synthetic identities to apply for credit cards and purchase goods and services. 

Another popular fraud tactic involves the use of fake personal information to exploit popular buy now, pay later programs — making purchases on credit and never paying the balance. Similarly, fraudsters will use stolen credit cards to make purchases online and pick them up in stores. Once they max out the available credit, they simply vanish. 

Brands are on the hook for chargeback fees incurred by fraudulent transactions, but the problems don’t stop there. If retailers experience high or recurrent volumes of fraudulent activity,  customers may become concerned about the safety of their personal information or the security of the brand’s website. 

Given the stakes, brands need to use address verification tools in their anti-fraud strategies. These tools can help mitigate the impact of fraudulent activity by flagging invalid addresses and prompting further review of customer information. By verifying a crucial aspect of customer data, retailers can further protect their bottom lines and create better retail experiences for customers. 

3 Ways To Get the Most Out of Address Verification Tools

Address verification provides an extra layer of protection against e-commerce fraud by instantly validating addresses and detecting discrepancies. With that in mind, here are three ways you can optimize address verification in your anti-fraud strategy:

1. Identify and stop fraudulent transactions at checkout. Address verification can help you recognize fraud in real time. For example, fraudsters may enter typos or incorrect address formats during online checkout. Although some legitimate customers may make the same mistakes, an address verification tool can reveal these faulty entries and prompt further steps — like reaching out to customers directly for confirmation before shipping purchased goods.

Another tactic that fraudsters employ is to provide the addresses of abandoned buildings or uninhabited homes. Even though these addresses may appear valid, address verification tools can check their legitimacy by verifying whether an address is vacant or not. Based on this information, the tool will notify you if further investigation is needed.

2. Improve the checkout experience for legitimate customers. Address verification tools may also include autocomplete features that simplify and accelerate the checkout process. If a customer starts typing in a legitimate address, the tool will automatically provide a valid and up-to-date address for selection from a drop-down menu. The customer may still need to enter an apartment number, but once they select the suggested address, you’ll know that the input is a legitimate, inhabited residence. 

However, if the customer rejects the autofilled address and types a different location in the address field, the tool will prompt you to take a closer look at the entry and verify its legitimacy. This extra step provides your organization an additional layer of fraud defense while saving customers time during checkout — improving the speed and efficacy of their shopping experience.

3.Keep your customer database clean. It’s important to keep your customer database free of fraudulent customer information, and an address verification tool can streamline this process. Standardized and organized customer databases make it easier to notice data inconsistencies and ensure only accurate and legitimate addresses are in your customer relationship management (CRM) platform. But if your database houses fake customer profiles, it can increase the risk of fraudulent activity.

For example, if you unknowingly process several fraudulent transactions, your CRM platform may store invalid customer profiles. As a result, you may accidentally accept future transactions from these profiles because the platform recognizes them as legitimate. Additionally, by standardizing your customers’ address data, you can detect suspicious profiles sooner and eliminate fraudulent accounts from your database. 

Detect Fraudulent Transactions Early With Address Verification

Unfortunately, e-commerce fraud is here to stay. But you can stay ahead of potential fraudsters by implementing address verification into your prevention plan. This technology can help improve address data quality and support your anti-fraud strategy — ultimately facilitating more seamless customer experiences and protecting your organization from the effects of synthetic IDs and other fraud tactics.

— Berkley Charlton, Chief Product Officer, Smarty

About the Author

Berkley Charlton

Berkley Charlton

Charlton is the chief product officer at Smarty, a leader in location data intelligence. Prior to Smarty, Charlton worked at Pitney Bowes Software as their managing director of product management. While at Pitney Bowes, Charlton led the global data business and geocoding business in creating an entire suite of location intelligence, geocoding, and data products with their enterprise location intelligence portfolio. Berkley also worked as the VP of strategy and business development at Gadberry Group, where he managed product strategy for geocoding and data products. Through Charlton's wealth of knowledge and experience, Smarty is able to offer premium geolocation services to its customers.

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