3 acronyms every merchant should know.
Each industry has its own acronyms and insider lingo—but the payments and fraud-prevention universe can feel like a downright alphabet soup. While you don’t have to know every unique phrase or term, it’s good to learn and understand the ones relevant to your business that help reduce fraud and chargebacks.
When it comes to online payment security and fraud and chargeback prevention, certain acronyms are especially important to know. Ever heard of SMS verification, GDPR and CVV2? Here’s what you need to know about these terms and what they might mean for your business.
1. SMS verification — enhancing authentication
SMS stands for “short messaging service,” but is more commonly known as text messaging. An increasing number of banks, payment processors and merchants are using what’s called SMS verification as a form of multifactor authentication—where a customer receives a text message requiring they take action in a timely fashion in order to either authenticate an online transaction or log into an account.
Often the text message includes either a code or a link they must click to verify it’s really them making the transaction or logging on. If the verification doesn’t happen in the allotted time—such as 10 minutes—the person may not proceed with their transaction, or worse case, account access may be blocked until the issue is resolved or an online order may be delayed or canceled.
SMS verification helps reduce fraud by greatly reducing the risk that someone other than the authorized person is making a transaction or accessing an account. In turn, it reduces the odds of chargebacks related to fraudulent purchases.
Businesses often deploy SMS verification to reduce account-takeover fraud—where a fraudster gains access to someone’s account—which is a common cause of fraud that can lead to chargebacks.
Takeaway: While SMS verification helps reduce fraud, it doesn’t protect businesses from chargebacks altogether.
2. GDPR – safeguarding customer data
The General Data Protection Regulation (GDPR) is a legal framework in the European Union aimed at helping keep consumers’ personal data safe and private—both inside and outside the EU. Essentially, any ecommerce business that sells to an EU-based consumer—even if that business is across the globe—must adhere to GDPR rules.
The regulation, for example, requires that personal data—which includes the customer’s device IP address, email address and telephone number, as well as personal details—be secured. While GDPR does not specify the exact steps that must be taken to protect customer data, companies worldwide found to be in violation could be subject to heavy fines.
While GDPR doesn’t impact chargebacks directly, businesses that adhere to it are likely strengthening their data protection—and thus may be reducing the odds of fraud and the related disputes and chargebacks.
Takeaway: Because ecommerce allows businesses to have a global customer base—even if they only rarely serve customers in the EU—it’s critical that they adhere to GDPR requirements. Every business today needs to consider how they secure customer data and limit exposure to sensitive information.
3. CVV2 – verifying card purchases
CVV stands for “card verification value,” and CVV2 is the three- or four-digit number usually printed on the back of credit and debit cards. (Some card brands print the CVV2 on the front.) This number is often required today when making an online purchase as a secondary form of identification beyond their name and card number.
The code helps verify that the user is legitimate because they need to have access to the physical card to enter these numbers—and fraudsters looking to use stolen card numbers bought or found on the “dark web” don’t have access to physical cards.
Using CVV2 verification in conjunction with other fraud-prevention measures, such as an address verification system (AVS) and multifactor authentication, helps reduce fraudulent purchases and the resulting chargebacks.
Takeaway: If you don’t currently require that customers enter their CVV2 code for online purchases, consider doing so. It’s a simple way to help prevent fraud.
Why a multilayered approach is critical
With so many transactions happening online and a heightened need to keep personal data safe, the risk of fraud is greater than ever before. More fraud leads to more chargebacks.
It’s critical that businesses approach fraud prevention in a multilayered way, which means using tools and best practices that can stop fraudsters at any point—whether that’s when they’re browsing your website to when they’re entering payment card details to after they make a purchase.
Consider working with providers who know how to stop fraud quickly and efficiently—preventing costly chargebacks before they happen.
