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How Banks Investigate Unauthorized Transactions and Fraud

Banking institutes work overtime to investigate unauthorized transactions and prevent fraud, and they’ve certainly got their work cut out for them. Particularly now, in the age of digital banking, fraud comes in many shapes and sizes.

To help you better understand unauthorized charges and fraudulent transactions, this post will explore how banks go about investigating these types of nefarious activities.

The Fraud Investigation Process

Do banks really investigate disputes?

Yes, they do. Here are the typical steps banks follow during a fraud investigation:

Investigation request

Some fraud investigations are triggered by a bank’s automated systems, while others are instigated by a customer inquiry. Whichever the case, the commencement of an investigatory process begins with the lodgment of an investigation request.

Evaluation process

The nuts and bolts of bank fraud investigations involve the bank evaluating the evidence and transactional history recorded on their systems. Banks will scour through transactional factors like geolocation, timestamps, device IP addresses, and credit card or account history.


Once an investigation has concluded, the customer will be contacted by the bank and provided with a summary of the investigation. If nefarious activity was detected and unauthorized transactions were carried out, the customer will be refunded the amount missing from their account in full.

In the event that something more sinister has been carried out, such as identity theft, banks will hand over the information to the authorities, and the police will carry out their own investigation.

How Long Do Bank Fraud Investigations Take?

By law, most banking institutes are held to a 10 business day deadline. Within this period, a formal investigation must be conducted to determine whether or not fraudulent activity has been carried out.

Usually, investigations are concluded within this time frame.

If, for whatever reason, an institute needs longer than 10 days to carry out a bank fraud investigation, the bank will temporarily refund the customer’s account with provisional credit.

Refunding Credit Card Fraud vs. Debit Card Fraud

As most credit card issuers offer a zero-fraud liability, the refund process for credit card fraud is fairly simple. If someone gets hold of a credit card number and makes an unauthorized transaction, your chances of getting a refund are very high.

On the other hand, debit card theft investigations are a little different. Sometimes, a debit card or atm fraud investigation process won’t result in a customer receiving a refund, as many banking institutes don’t offer the same level of protection that they offer credit card holders.

Can Fraud Be Prevented?

With many transactions being processed through a business account, fraud isn’t always the easiest thing to keep on top of. Thankfully, with the help of a fraud prevention tool like FUGU, avoiding fraud has never been easier.

FUGU prevents fraudulent transactions by detecting inconsistencies in your online banking and also employs various safeguard strategies that both protect your business accounts and its bottom line.

With FUGU, the threat of unauthorized transactions or fraudulent activities is drastically reduced.

Return Item Chargebacks: What Merchants Need to Know

In most cases, a chargeback is when a financial institution reverses a fraudulent debit card transaction. So are return item chargebacks the same as regular chargebacks?

Misleadingly, return item chargebacks aren’t what you might think they are.

Allow us to explain.

What Is and Is Not a Return Item Chargeback

Unlike a chargeback that an account holder lodges to dispute an illegitimate or fraudulent credit card charge, a return item chargeback is a fee charged to a banking customer once they deposit a check that bounces.

To make things even more confusing, there isn’t even a universally accepted term for this occurrence.

How Banks Define “Return Item Chargeback”

To hear it straight from the horse’s mouth, let’s look at how one of the biggest bank in the US, the Bank of America, defines a return item chargeback on a check. Their returned payment definition is:

We charge this fee each time a check or other item that we either cashed for you or accepted for deposit to your account is returned to us unpaid.

Here are a few more names that you’ll often see banks use to categorize this type of fee:

  • Deposited item returned fee
  • Cashed item returned fee
  • Rejected check fee
  • Rejected item chargeback
  • Bounced check fee
  • Return of deposited or cashed item fee

How Return Item Chargebacks Affect Merchants

Although becoming less and less commonplace, customers will sometimes prefer to pay for your products or services with a check. While depositing a customer’s check, there may come a time when that customer doesn’t have sufficient funds in their account and the check bounces. If this happens, not only will the person who issued the check be charged a fee by their bank, but your business account is also likely to be charged as well.

Fraudulent vs. Legitimate Return Item Chargebacks

Thankfully, return item chargeback fees are fairly easy to spot. Once you’ve deposited a check, the amount designated will appear in your bank account. If the deposited check is returned unpaid, this amount will be withdrawn from your account with the addition of a fee – usually $10-15. For example, if a check worth $189.50 bounces, the bank will withdraw the money plus the fee. So, in this case, a fee of $10 would make the withdrawn amount $199.50.

Unfortunately, though, return item chargebacks are an area of the banking system that nefarious individuals often take advantage of. Therefore, it’s important to keep a keen eye on your business account for any fraudulent activity. If you suspect fraudulent activity happening to your account, contact your bank with the relevant information as soon as possible.

Can Fraudulent Chargebacks Be Disputed and Prevented?

Return item chargeback fraud is not a new practice, but it is a growing threat to businesses. The good news is that there are steps that companies can take to prevent and dispute return fraud.

To read more about how fraudulent chargebacks can be disputed, and ultimately prevented, see our Tips to Prevent E-Commerce Chargebacks.

E-Commerce Chargebacks: How to Dispute Them and 5 Tips for Prevention

A chargeback is a process where a customer can dispute any charge with their credit card issuer, cases are judged by credit card companies, often costing online sellers the goods, the payment, and substantial chargeback fees

Unfortunately, chargebacks have become common in the e-commerce sector. To help you avoid the potential damage posed by chargeback, we’ll break down for you what happens when a customer disputes a charge, and how to prevent chargeback fraud.

Why Could E-Commerce Chargebacks Occur?

E-commerce chargebacks can be caused by several legitimate reasons and for many illegitimate ones, merchants receive the dispute and are required to respond in order not to lose by default.

  • An unauthorized transaction was charged to a cardholder’s account.
  • The goods or services were not as described.
  • The goods or services were not received.
  • The transaction was processed multiple times.

Are All E-Commerce Chargebacks Worth Disputing?

Not all, but certainly some e-commerce charges are worth disputing – particularly if they appear to be lodged in bad faith.

If you deem a chargeback to be illegitimate, as an online business owner, you’re well within your right to dispute them. Legitimate chargeback requests can be handled easily, but illegitimate ones can be troublesome and should not be neglected. In order to prevent fraudulent or unauthorized chargebacks, follow the steps below:

  1. Work within the deadline for filing your chargeback dispute.
  2. Make a record of all your customer transaction details.
  3. Gather evidence related to the dispute.
  4. Submit the evidence to the acquirer.
  5. Use a chargeback rebuttal letter to detail your rebuttal in writing.
  6. Finally, await the decision.

5 Ways to Prevent Chargeback Occurrences

To help reduce and protect against e-commerce chargebacks, or prevent chargeback fraud, here’s a short list of some tips and tricks to help you out:

  1. Customer service

Having a team that can resolve the issue efficiently will prevent chargeback recurrences.

 2. Shipping options

It is important to offer a secure shipping option that ensures the customer feels confident in their package arriving safely.

 3. Customer satisfaction

It is key that you have a positive track record of handling customer disputes. This will ensure that customers will not be likely to file a chargeback.

4. Fraud detection

Have a robust fraud detection system in place, such as FUGU, to prevent chargebacks due to fraudulent transactions.

5. Order and transaction tracking

All orders and transactions should be monitored on a continual basis. That way, if a dispute arises, the transaction or order history is easily accessible and, if needed, a dispute can be lodged.

Contact FUGU Today

Remember, the most common chargebacks are related to customer dissatisfaction, and solving this will go a long way in preventing chargebacks. If you’re looking for a solution to fight chargebacks and ensure that they aren’t a result of your company’s error, contact the Fugu team today to schedule a demo and learn about how our chargeback prevention method can help you.

E-Commerce Fraud: Types, Detection, and Prevention Best Practices

E-commerce fraud, a broad phrase used to describe specific activities involving online fraud or scams, makes use of the internet to obtain traffic in fraudulently acquired assets. This type of fraud poses a serious risk to an online merchant’s business. Not only can e-commerce fraud cause financial loss, but it can also be disruptive to business operations and carry serious legal and reputational consequences.

To help you and your business become victims of fraudulent activity, this post will explain the main types of retail fraud and detail effective e-commerce fraud prevention techniques.

Table of Contents

How Is E-commerce Fraud Committed? 

  1. Payment Fraud 
  2. Friendly Fraud 
  1. iii. Account Takeover Fraud
  2. Prevention of E-commerce Fraud
  3. Stay Safe From E-commerce Fraud

How Is E-commerce Fraud Committed?

E-commerce fraud is committed in various ways. The basic idea involves nefarious actors carrying out criminal deception during an internet transaction, defrauding either the customer, the ecommerce merchant themselves, or a third-party in the process.

The three main types of commerce scams that are frequently leveraged by fraudsters are discussed below:

1. Payment Fraud

E-commerce payment fraud is any fraudulent activity aimed at getting unauthorized access to consumer information and accounts or obtaining goods and services without paying for them. E-commerce payment fraud can happen at any point between the consumer, the merchant, and the bank. For example, a hacker may get their hands on a customer’s credit card details and make unauthorized purchases – an activity known as e-commerce credit card fraud.

2. Friendly Fraud

E-commerce friendly fraud involves the fraudster making a purchase from a store, receiving the product, and filing an unauthorized credit card chargeback – claiming that the product was in some way faulty, damaged, or never arrived. The credit card administrator, in most cases a bank, determines that a legitimate chargeback claim has been filed, refunds the cost of the transaction, and subsequently the fraudster keeps both the goods and the original purchase amount.

3. Account Takeover Fraud

Account takeover fraud involves obtaining sensitive information like passwords, financial credentials, and payment information of a customer at an e-commerce website via various methods (such as phishing schemes or purchased on the dark web) to take control of a user’s account. The method of attack usually involves the perpetrators sending emails, making phone calls, or sending text messages to the victim that carry attached viruses files. This allows them to either change the details of the victim’s account, obtain access to other accounts owned by the user, make purchases using their funds, or even directly withdraw their money.

How to Prevent E-Commerce Fraud

There are several effective e-commerce fraud solutions and e-commerce fraud protection tools that you can employ to minimize the risks posed by e-commerce fraudsters, such as the following:

  • Use a tool like FUGU to help identify and prevent fraud.
  • Leverage SSL (Secure Socket Layer) encryption to protect your customers’ information.
  • Make use of a third-party password manager to keep all your passwords safe.
  • Check the order’s IP address to ensure the purchaser is in the same country as their selected credit card using monitoring capabilities like those possessed by FUGU.
  • Track transaction data, card numbers, billing and shipping addresses, and device signatures with fraud prediction capabilities like those of FUGU.

Stay Safe From E-Commerce Fraud

As online e-commerce transactions become more and more common, it is vital to protect your business from fraudulent activity. Thankfully though, with the fraud management and protection strategies detailed here, you can be sure to minimize and mitigate the risks posed by e-commerce fraud.

New FUGU Updates

FUGU Updates

Making sure no order is declined for the wrong reason


  • Improved customer verifications experience.

  • Customer verifications preview .

  • Dynamic rule based checkout page order blocks.

  • Advanced geolocations address IP match.


 Contact us if you have suggestions for improvements

The Role of post -payment monitoring in immediate and proportional response to eCommerce fraud attacks

Most recently we have been asked by a large online fashion retailer to help them handle a continuous fraud attack, where more than 1000 orders worth $85K were sent to a specific industrial zone in Florida. Most of these were not identified by the Shopify Risk prediction model.

Prior to contacting us, the customer implemented a first aid measure, putting in place a basic rule engine blocking all orders shipped to that specific city. Our first action was to have our risk experts run a simulation recreating the last month’s orders, one by one, allowing FUGU’s unique velocity checks to identify the root fraud pattern in this specific case. (The importance of velocity checks)

Turns out the root cause was the heavy use of a series of debit cards issued with specific BINS by a certain issuer.    We immediately added this insight into our post-payment risk prediction model, automatically blocking all orders shipped to Florida using that specific credit card type.

We also noticed that several other credit card types were used to send merchandise to the same PO Box but they seemed to be 100% valid.

We then suggested a quick and easy fix: to deploy a fulfillment process change so that their superfast fulfilment process would be separated into two routes:

      A.     Fast lane covering 95% of the cases categorized by FUGU initial risk scoring as low risk

      B.     Delayed delivery lane covering 5% of the cases in which FUGU identified as  high risk.

This method allows FUGU’s platform to profile the transaction and distinguish between fraud and valid transactions sent to a PO BOX for valid reasons.

And we found quite a few of those:

Our findings were stunning ,  turns out this specific brand has a large community of fans in Honduras and Columbia that ship to a logistic warehouse In order to save the international shipping costs

We also found several very loyal customers apparently living in the same city that was previously blocked.

All in all we were able to recover 50% of the transactions previously discriminated against based on their address.

The funny thing is that around 60 days after the client began using FUGU the Shopify fraud recommendation started recognizing what FUGU recognized right away, but still with around 50% false declines.

As we Say in FUGU, Every Payments Counts, in this case ruling out shipments to  PO Boxes is easy but leaves disappointed customers unattended. It  simply makes perfect sense to try to verify these transactions rather than simply saying NO. Our automated post-payment transaction verification does exactly that.

FUGU is a new breed of payment fraud solution tracking payments post-checkout, helping merchants safely accept transactions they currently lose to fraud, false declines, and payment churn.

FUGU offers a multi-tier self-learning fraud prevention solution, fighting a wide variety of risk patterns at various points along the transaction life cycle using automatic customer verifications (KYC), pre-shipment consumer behavior scoring and chargeback representations.

Black Friday or Black “Fraud day”? Prevent Chargebacks Ahead the Holiday Peak

The most awaited online shopping events of the year are coming. In 2020, US retailers raked in $10.8 billion on Cyber Monday alone, kicking e-commerce sales indicators. While online retailers are gearing up for this year’s Black Friday, fraudsters are there for the perfect opportunity to defraud e-commerce businesses. A staggering 385% increase in payment fraud marked last year’s holiday season and analysts predict e-commerce fraud attacks to be even more ruthless this year. 

While headline-grabbing, record-breaking sales figures generate huge excitement, merchants should be aware of some common fraud challenges to look out for during Black Friday and Cyber Monday, such as identity theft, account takeover, or friendly fraud. These types of attacks are becoming more frequent, turning into fraudulent disputes after the exciting holiday season. Getting into the busiest days means more traffic and orders for merchants, more opportunities for fraudsters. Merchants loosen their velocity checks to reduce the number of manual reviews and false positives. This results in accepting more fraudulent transactions and traumatising chargebacks. 

The post-holiday season might turn into post-holiday chargebacks trauma. 

Chargeback loss is never immediate. While Black Friday week is peaking, no one thinks about that until “Black Friday Chargeback week” is arriving somewhere closer to January. 

It’s not only the cost of purchased goods and the refund the merchant needs to cover but also the fee from the acquiring bank, which covers the costs of processing the chargeback. These fees tend to range from $20 to $100 but with operation and customer acquisition costs, online sellers often lose 2 to 3 times the transaction amount. Even if the bank decides to cancel the dispute after recognizing a related refund, the online merchant still carries the dispute charges. So preventing them needs to be a high priority for all online merchants especially in the booming sales season.  

Post-payment risk scoring is a saviour against chargeback abuse. 

Securing online business during sales peaks, especially in terms of not killing the conversion, does not look like a piece of cake. For such cases, FUGU developed a new breed of payment fraud prevention solution analyzing consumer behaviour and interactions post-payment. It not only allows us to predict all possible fraud scenarios and secure merchants from threats but minimize false declines and payment churn safely validating legitimate transactions. 

Fugu post-payment risk analysis will alert merchants of potential disputes days and weeks after BFCM allowing them to proactively reach out to suspicious customers and prevent them from filing disputes 

By analyzing a list of signals, such as website visits, mobile interactions, contact form submissions, email openings, transaction changes, or automated customer verifications (KYC), FUGU tracks the entire interaction trail to make it available with one click as a piece of valuable evidence to challenge a fraudulent dispute. 

With all this data collected, FUGU performs a 60% recovery of disputes. 

The FUGU team wishes all eCommerce merchants a happy holiday season, loyal customers and sales increase. And we are always here to cover you from all possible risks and fraudulent disputes. 

Get in touch with our experts or download the FUGU App for multi-tier payment fraud protection. 


Shopper Drop-Off Prevention: Conversion Killers In The New Era Of eCommerce Payment Security

Your shopper spends his valuable time picking the items and adding them to his cart. Finally, he is excited about the online purchase he is about to make. All that is left to do is to enter the credit card details and click “Pay”. He has come all that way of the conversion funnel, but suddenly something goes wrong. The card gets declined and the payment doesn’t go through. The shopper ends up frustrated, carts abandoned, and the merchant loses the revenue and a customer who most likely never returns.

To an average consumer, completing an online purchase is a simple one-click action. Behind the scenes, however, there is a remarkably complex process that requires a series of aligned steps between the cardholder, merchant, and issuing bank. 

The cards get declined a lot more often than merchants realize and the damage of payment failures puts them into a “rock and a hard place” situation, making them choose between effective payment fraud prevention, or lost checkout conversions due to strict security protocols. No matter if the payment failure occurred from the merchants or a customer’s end, it leads to irreversible consequences. 

What are the possible reasons behind a transaction failure?

Soft transaction declines cause around 80% of payment drops and are usually temporary, yet super confusing as they might hold transactions in pending pre-authorization status for days or much longer. They occur for varied reasons including the need to authenticate the cardholder’s information further due to unusual behaviour or technical issues processing the payment. 

Hard declines mean that the customer’s card-issuing bank rejects the payment. Examples include attempts to use an expired, lost or stolen card, invalid account information or a fraud attempt took place. In any case, the payment will not be retried. 

While any kind of decline marks a red flag for merchants to validate payment and protect themselves from possible threats, it often turns into overprotective risks obsession and legitimate customer churn. 

Multiple security and authentication steps, low tolerance rules, incompetent automatic measures and bulky obstacles might trigger an increase in false declines, leading to legitimate transactions rejections due to a suspicion of fraud. 

What Is the real cost of fraud false positives?

According to  ‘Black Boxes and Paradoxes’ research, the cost of false declines to merchants in the UK, US, France and Germany has been estimated at $20.3 billion annually. Of that, $7.6 billion was entirely written off. False-positive payment fraud costs 13 times more in lost income than actual fraud. The stats are shocking! Since it’s hard to measure false positives, most online merchants have no idea how much money and legitimate customers they actually lose. The results of such a high volume of false positives can be devastating for online businesses. 

The good news is, FUGU’s AI post-payment security solutions contain several advantages over the rules-based fraud detection programs responsible for most of the false positives threats. Modern machine learning combined with a post-payment risk monitoring system enables merchants to accurately distinguish fraudulent from legitimate transactions in seconds. This method has become a weapon against fraud detection and an effective payment fraud prevention tool for all online sellers. 

Automating payment monitoring is great, but each transaction matters and it has to be revised the most accurate way”, Amir Sadras, the founder of FUGU mentioned.  “While most payment security solutions force merchants to decline any suspicious transaction automatically, we rely on advanced technologies and monitoring tools to put an extra layer to post-payment  background scoring and balance between fraud prevention and conversions increase for each of our customers.”

FUGU post-payment risk monitoring system is a game-changer in stopping fraudsters while allowing legitimate customers to shop unhindered. 

FUGU’s advanced toolset is aimed at all available risks scoring between the transaction and the actual product shipment to perform sufficient background information checks and predict all possible fraud scenarios. FUGU successfully identifies friendly fraud for a specific period from each payment request individually. It might be surprising, but this is the only solution existing today that prevents possible risks and all gives a go-to “payment-go-through legitimate payments. 

FUGUs prediction technologies allow a change in approach and adjust the payment security processes for e-commerce businesses to prevent payment fraud losses, maximize revenue, and keep their customers loyal and happy alike. 

If you want to secure your payments, reduce risks, and increase conversions, GET IN TOUCH with our experts!

To download FUGU App please visit https://apps.shopify.com/fugu-sensing-post-payment-risk 

Velocity Checks: An Immediate Response to New Fraud Patterns

Velocity Checks: An Immediate Response to New Fraud Patterns

Over the past year, every successful attack turned into a chargeback costing merchants a fortune and leading to significant business losses. As eCommerce fraud evolves and becomes more sophisticated, the staggering amount of financial losses makes you understand how crucial it is to have an efficient security toolset in place to fight it. 

This is where velocity checks play a critical role in identifying risks and fighting nearly any type of systematic fraud. Monitoring the pace of buyers’ submissions and recurring patterns allow merchants to segment out suspicious transactions, identify cases in which a fraudster might be engaged in card testing or driving multiple transactions with a valid card. 

How does it work?

Fraudsters can purchase lost or stolen credentials and start testing them by submitting multiple orders to the same merchant. You do not want to be that merchant who ends up covering the losses as soon as cardholders discover the fraud and claim a dispute. 

Velocity checks were designed to scan the information submitted with each transaction and alert repeated submissions of the same information in a selected timeframe. Monitoring various types of transaction data, such as IP addresses, card numbers, device signatures, billing or shipping addresses, helps capture suspicious scenarios and prevent new fraud patterns. 

It is possible to track the number of transactions that have come from a single device in a certain timeframe or predict how many orders have been placed with a particular shipping address. Other attributes that are possible to track include email address, phone number, and credit card details. One attribute that matters would be an IP address since many legitimate users could be coming from the same IP. If you combine different attributes, that increases the chance to reduce the risks. It is crucial to monitor different measures of velocity scoring. 

FUGU strives to cover all possible threats and demonstrates great performance in velocity checks implementation when it comes to eCommerce post-payment security specifically. A great example from one of the biggest US-based retailers demonstrates it clearly: FUGU’s advanced security toolset detected repetitive payments from a certain district around Miami moving all payments to a pending phase. After deeper analysis, a breached credit card BIN was detected blocking 80% of the payments and validating the rest 20%. 

This example raises another important issue: 

Can it generate false positives and mark legitimate orders as a fraud? 

Exactly! What about “Kosher” transactions? What if merchants can lose legitimate customers due to overprotection? For example, if the above merchant decided to block all payments originated in Miami it would have resulted in a significant loss of valid business. The combination of FUGU velocity checks and our machine learning pattern detection algorithms allowed them to quickly find the root fraud origin and ensure minimal valid business decline.

So it is a complex fraud management strategy and you shouldn’t solely rely on it as a singular indicator. 

FUGUs response to a threat 

FUGU implements a 360° payment security approach and adds extra value to velocity checks by combining it with automatic post-payment KYC procedure, fully covering the merchant’s risks from possible threats leading to chargebacks. Instead of rejecting transactions, FUGU collects, evaluates, and uses the evidence required, completing the transaction in the most advanced way, helping hundreds of merchants worldwide. 

If you want to secure your payments, reduce risks, and increase conversions, 

GET IN TOUCH with our experts!

To download FUGU App please visit https://apps.shopify.com/fugu-sensing-post-payment-risk