In the endless pursuit to detect and prevent fraud with better accuracy and precision, online merchants must employ a multi-pronged approach to help distinguish between a legitimate customer action and those initiated by bad actors.
One such mechanism is velocity checks, which allow online sellers to monitor transaction patterns, account sign-ups, and login activity for suspicious behaviors.
As we’ll explore in further detail below, velocity checks help keep merchants and customers safe from fraud loss, all while adding no or minimal friction to the customer experience.
Velocity Checks 101: What are They?
Velocity checks, sometimes called velocity limits, are fraud prevention tools that monitor how quickly users attempt to perform a given action or transaction within a certain time frame.
Each individual action may not warrant suspicion when taken alone. However, a more broad and comprehensive view of all activities occurring within a short period may paint a different picture.
For example, a transaction of a few dollars may not appear out of the ordinary for a given cardholder. But twenty transactions of a few dollars within five minutes might signal that something more nefarious and fraudulent is underway.
In a similar vein, bad actors may attempt to quickly create several accounts using the same selfie or headshot with different identity documents to bypass traditional security measures. While each account sign-up alone might not seem strange, if platforms notice multiple accounts have been signed up in a short time with the same visual data, there’s more cause for concern.
Thus, velocity checks aim to flag potential fraud by monitoring the rate of attempted actions and behavior patterns within a certain time limit. Plus, these tools enhance security without inconveniencing legitimate customers or users, as a normal rate of transactions or behaviors will not flag the system.
How Does a Velocity Check Prevent Fraud?
To understand how a velocity check supports better fraud detection for online sellers, it’s important to take a look at what fraudsters do with stolen payment information.
Bad actors initiating such transactions aren’t typically the ones who stole the credit card details. Instead, they likely purchased the information in bulk on the dark web and have a number of stolen card numbers at their disposal.
Fraudsters understand that cardholders will eventually notice unauthorized charges and freeze their account. So, they’ll often attempt to quickly submit a large number of fraudulent transactions back-to-back to get as much use of the card as they can before their actions are discovered, and they have to move on to the next one.
This is where velocity checks come into play. They will help merchants detect unusual transaction patterns — like a large number of transactions submitted in a short time frame — helping them catch potential fraud before it happens.
Who Uses Velocity Checks? Why are They Necessary?
Online retailers and eCommerce merchants commonly leverage velocity checks as part of a multi-layered cybersecurity strategy. It protects them from incurring losses caused by fraudulent charges that are made with stolen payment details.
When a customer’s card details are compromised and exploited by fraudsters, merchants often fall victim and incur a loss on the transaction. This is because the card issuer will help the customer recoup the lost funds through a chargeback, leaving the merchant to foot the bill.
Under these circumstances, the merchant will not only lose the sale but also have to refund the customer and maybe even face extra fees or penalties from their bank or payment processor. In other words, fraudulent transactions aren’t just a headache for consumers, and such losses for merchants can add up quickly.
By some measures, chargebacks are a $125 billion problem for the e-commerce industry. Furthermore, it’s estimated that every $100 chargeback costs merchants $240 in fees, shipping, and lost merchandise. Thus, implementing velocity checks to mitigate the risk of fraudulent transactions can help protect merchants from such devastating blows.
Simplifying Velocity Checks with AuthenticID
AuthenticID offers the first biometric-based Velocity Check system to detect bad actors who attempt to open an account or make a transaction using the same identity multiple times in a pre-determined time frame. It specifically helps organizations curb account takeover fraud and synthetic identity fraud, among others.
Here’s how it works:
- A user attempts authentication or signs up for a new account using identity documents, personally identifiable information (PII), and a selfie or headshot to confirm their identity.
- The Velocity Check system uses advanced image algorithms to compare the submitted headshot with the platform’s stored database of images from prior sign-ups/transactions.
- If the tool recognizes that the same image has already been used by another account within a certain time period, such as 48 hours, it will be denied or flagged for manual review, according to the organization’s criteria.
The Velocity Check tool also allows organizations to monitor trends in activities that require identity verification, giving them a better idea of their risk exposure and fraud loss. This helps them stay ahead of emerging fraud trends and adapt their criteria and decision workflow accordingly.
The system is compatible with other tools in AuthenticID’s suite of identity verification and fraud prevention solutions and can be implemented into any authentication workflow. Regardless of the specific velocity limit system an organization implements, it should be part of a larger cybersecurity framework to detect and prevent fraudulent activity.
Request a demo of AuthenticID’s Velocity Check solution today to see how it can help prevent fraud and ensure a friction-free customer experience.