How geo-location services prevent fraud

One of the telltale signs of a fraudulent online business transaction is a discrepancy between the shipping address and the buyer’s actual location. Sometimes these discrepancies are glaring, like when a large purchase is made in Eastern Europe with instructions to ship to California.

Even though legitimate purchases like gifts are sent to remote destinations every day, a fraudulent order usually looks different in several ways. Larger-than-average orders that contain multiple quantities of the same item, coupled with different shipping and billing addresses, are huge red flags merchants should look for.  

Some payment card providers offer geo-location services that can help merchants spot fraud by providing data about the customer’s location, internet connection speed and registered domain. This information helps identify a consumer who may be trying to disguise his or her location, by flagging the location of an IP address that is very different from the contact information provided.

Determining the location of a customer depends heavily on the reliability of the geo-location service and the depth of information it provides. The IP address can be collected from the HTTP header on the order and then compared to the location the customer provided. A good service provider will automatically flag orders with discrepancies between the two.

The most important geo-location data is comprised of the following:

Geographic location

This information tells you where the IP address is, including continent, country, state, city and area code. Some geo-locations services also provide defined geographies like the designated market area (DMA) and metropolitan statistical areas (MSA).

Proxy data

Uncovering proxy data is extremely important since servers can hide the real location the customer is ordering from. For instance, a person who lives in New York but uses a proxy server in Los Angeles to place an online order, will look like he is ordering from the west coast. Although anonymous and cached proxies were created due to privacy concerns, fraudsters often use them to mask their true locations. AOL, in particular, makes it difficult to track consumer locations. In order to be effective, your geo-location service provider must have the capability to dig through the layers and determine the customer’s location, regardless of the proxy they are using.

Geo-location services providers are continually enhancing and improving technologies for mapping IP addresses. The growth of ecommerce, along with the rapidly changing networks that support it, demand a far reaching ability to collect, map and analyze IP addresses across the globe. A good geo-location service provider will know how to use these networks to provide reliable and adaptable information that will automatically alert merchants to the possibility of fraud. Some also allow merchants to store data, which they can use to create a more informed target customer persona that includes geographic region and time of day they are likely to shop.

Geo-location services are useful on many levels. Not only do they help prevent fraud, they can also offer greater insights into the buying habits of your best customers – information you can use to improve marketing efforts to drive sales.