Skip to main content

Fraud Detection Tools

Last Updated: 2025-02-17 Status: Complete

Effective fraud prevention combines multiple detection tools in layers. Each tool catches different fraud patterns, and combined they provide comprehensive protection.

Quick Reference

ToolDetection RateFalse PositivesImplementation
AVS20-30%LowEasy
CVV20-30%LowEasy
Device Fingerprint40-50%MediumMedium
ML Scoring70-90%LowComplex
3D Secure70-80%LowMedium
Combined90-95%Optimized-

Address Verification Service (AVS)

AVS compares the billing address provided by the customer with the address on file with the card issuer.

How AVS Works

AVS Response Codes

CodeStreetZIPMeaningRisk Level
YMatchMatchFull matchLow
XMatch9-digit matchFull matchLow
AMatchNo matchPartialMedium
ZNo matchMatchPartialMedium
W-9-digit matchPartialMedium
NNo matchNo matchNo matchHigh
U--UnavailableUnknown
R--RetryUnknown
S--Not supportedUnknown
E--ErrorUnknown

AVS Decision Matrix

ResponseRecommended Action
Y, XApprove
A, Z, WReview or apply additional checks
NDecline or require additional verification
U, R, SApply other fraud checks
EInvestigate error, retry

AVS Limitations

LimitationImpact
US/Canada/UK focusedLimited international support
Format variations"Street" vs "St." may not match
PO Box handlingMay not match properly
Apartment numbersOften excluded from matching
Issuer participationNot all issuers respond

CVV/CVC Verification

CVV (Card Verification Value) confirms the customer has physical possession of the card.

CVV Codes by Network

NetworkCode NameLocationDigits
VisaCVV2Back3
MastercardCVC2Back3
American ExpressCIDFront4
DiscoverCIDBack3

CVV Response Codes

CodeMeaningAction
MMatchApprove
NNo matchDecline
PNot processedReview
SShould be presentDecline
UIssuer not certifiedApply other checks
XNo responseRetry/Review
PCI Compliance

CVV codes must NEVER be stored, even encrypted. Storing CVV violates PCI-DSS and card network rules.

CVV Best Practices

PracticeRecommendation
Always collectRequire CVV on all CNP transactions
Decline N responsesNo match = high fraud risk
Recurring transactionsDon't require CVV after initial auth
Decline S responsesMissing CVV on card-present transaction

Device Fingerprinting

Device fingerprinting creates a unique identifier for a user's device based on its configuration and characteristics.

Data Points Collected

Fingerprint Components

ComponentStabilityUniqueness
User agentLow (updates)Medium
Screen resolutionMediumLow
TimezoneHighLow
Canvas fingerprintHighHigh
WebGL fingerprintHighHigh
Audio fingerprintHighHigh
Font listMediumHigh
IP addressLowMedium

Device Intelligence Use Cases

Use CaseApplication
Fraud detectionLink transactions to known bad devices
Account takeoverDetect login from new device
Card testingIdentify multiple cards from same device
Bot detectionIdentify automated/non-human traffic
Multi-accountingDetect users with multiple accounts

Effectiveness

ConfigurationDetection RateFalse Positives
Standalone~70%Higher
+ Behavioral Analytics~90%Lower
+ ML Models~95%Lowest

Limitations

ChallengeImpact
Privacy browsersReduced fingerprint uniqueness
VPNs/proxiesIP-based signals less reliable
Device spoofingSophisticated fraudsters can fake
Mobile limitationsFewer signals available
GDPR/privacyRequires disclosure and consent

Machine Learning Fraud Scoring

ML-based fraud detection uses algorithms to identify fraudulent transactions based on patterns in historical data.

ML Model Architecture

Common ML Models

Model TypeUse CaseAdvantages
Random ForestClassificationInterpretable, handles imbalance
XGBoost/CatBoostHigh accuracyBest performance, fast
Logistic RegressionBaselineSimple, interpretable
Neural NetworksComplex patternsHandles non-linear relationships
Isolation ForestAnomaly detectionUnsupervised, finds outliers

Performance Metrics

Vendor/SystemRecallPrecisionAUC
Top ML systems95%+80%+97%+
Stripe Radar--38% fraud reduction
Industry average80-90%70-80%90-95%

Feature Categories

CategoryExample Features
TransactionAmount, time, merchant category, currency
CustomerAccount age, purchase history, frequency
DeviceFingerprint, IP, geolocation, user agent
BehavioralSession duration, mouse movement, typing speed
NetworkRelationship to known fraudsters, device graphs

ML Scoring Thresholds

Score RangeRisk LevelTypical Action
0-20LowAuto-approve
21-50MediumApply additional checks
51-75HighManual review or 3DS
76-100Very HighDecline or step-up auth

Rules-Based Detection

Rules-based systems use explicit conditions to identify fraud patterns.

Common Rule Categories

CategoryExample Rules
Velocity> 5 transactions/hour from same IP
GeographicBilling country ≠ IP country
AmountTransaction > 3x average for customer
TimeTransaction at unusual hour
PatternMultiple failed auths then success

Velocity Rules Example

Rules vs. ML Comparison

FactorRules-BasedMachine Learning
Setup timeFastRequires training data
MaintenanceManual updatesSelf-improving
ExplainabilityHighMedium (with explainers)
New fraud typesSlow to adaptDetects anomalies
False positivesCan be highTypically lower
Best forKnown patternsEvolving threats

Hybrid Approach

Best practice combines rules and ML:

Implementing Detection Layers

OrderToolPurpose
1Bot DetectionFilter automated attacks
2Velocity RulesBlock obvious abuse
3AVS/CVVBasic verification
4Device IntelligenceContext and history
5ML ScoringRisk assessment
63D SecureAuthentication if needed
7Manual ReviewEdge cases

Integration Architecture

Performance Optimization

OptimizationBenefit
Async processingLower latency
Cached device dataFaster lookups
Pre-computed featuresReal-time scoring
Tiered evaluationQuick decisions for clear cases
A/B testingContinuous improvement

References

Share: