I Know Where You Shopped Last Night

When a customer checks out at a store, the sales clerk can take a number of steps to determine if the transaction is valid: from comparing signatures on a credit card and receipt to running a bank check through a reader. But, in the online world, the challenge of detecting transaction fraud is increasing. The Internet Fraud Prevention Advisory Council estimates that as a percentage of business revenue, online fraud could be as much as 40 times higher than the amount of fraud in face-to-face transactions. Credit card fraud in online transactions could cost businesses as much as $60 billion by 2005, according to Financial Insights, a research firm (and sister company of CSO’s publisher). Whether they’re selling 50 computers or a single pair of Jimmy Choos, online merchants need to separate honest customers from fraudsters.

One tool that helps merchants do this is IP geolocation: the science of using IP location technology and mapping to determine the geographic location of a visitor to a website. Pinpointing a would-be customer’s location may not seem all that important, but IP locations that differ wildly from shipping and billing information are key indicators of credit card fraud. Criminals based overseas often use the purloined credit card information of a U.S. resident to pay for an item and have the merchandise sent to a U.S. shipping address. In cases where a customer provides a U.S. shipping or billing address but is actually placing the order from overseas, a staggering 68 percent of transactions turn out to be fraudulent, according to Experian’s credit research arm. Merchants that are able to identify a customer’s IP location can also flag transactions that originate from locations that are notorious for fraud. According to ClearCommerce, which provides fraud prevention services, 38 percent of transactions originating from a single IP domain in Indonesia in 2003 were fraudulent, as were 25 percent of all online orders that were placed in St. Petersburg, Russia.

Technologies such as Quova’s GeoPoint determine a customer’s physical location in real-time. SoftCom Technology Consulting experienced a 64 percent reduction in chargebacks after deploying GeoPoint, according to Quova President and CEO Marie Alexander.

Like any mapping technology, geolocation is only as useful as the data that is fed into it. But companies are also finding it useful for transactions in which merchandise is copyright protected or otherwise controlled by export laws. Companiessuch as HPshopping.comthat sell only within the United States use the technology to ensure that their products are being purchased only by customers who are physically located here.