How To Prevent Fraudulent Transactions With IP Data

The online buying trend has been growing in recent years and is expected to continue growing. Of course, this presents massive opportunities in the online retail field. However, it also increases the potential for scams and fraudulent transactions on the internet.

In the United States alone, for example, many online merchants have been victims of fraud and 42% of consumers have experienced attempts to use their credit card information fraudulently. The cost of these fraudulent transactions on the internet is massive for both businesses and consumers. 

As a result of the rise in online fraud, consumer confidence has decreased. Thus, businesses have had to adapt by leveraging effective fraud prevention techniques in order to protect their bottom line as well as their customers.

Protecting E-Commerce From E-scams By Using IP Data

In any fraud prevention strategy, it is essential that the critical areas of the online shopping experience such as the registration and login process, or the payment and withdrawal of funds, be properly protected.

IP Data

Access to the location data of site visitors and customers can be very valuable in preventing e-Commerce fraud. With location detector IP data, merchants can restrict malicious traffic and flag suspicious activity. They can also request further authentication through email or SMS for potentially fraudulent accounts.

Using IP intelligence, merchants can build effective systems of fraud detection and improve the shopping experience and safety of their customers. Online scams, however, usually go beyond the eCommerce sites and involve the payment processors used by these sites.

To deal with this problem, Paypal uses IP geolocation data to verify and track shipping addresses. They also keep track of the IP addresses of their customers as a means to detect and prevent fraudulent transactions. Stripe, another popular payment processor, also uses IP data to detect illegitimate payments.

How Does IP Data Fraud Detection Work?

IP geolocation data is a crucial part of many anti-fraud strategies. It is usually employed in conjunction with other relevant pieces of data. Payment processing companies cross-reference geolocation data with the data received from the Card Issuer. This enables them to quickly identify discrepancies and flag them.

When discrepancies are detected in a transaction, the fraud score increases. In that case, a human reviewer may need to verify that the transaction isn’t fraudulent. This can be done by contacting the user attempting the transaction or requesting extra authentication.

Online fraudsters sometimes use automatic card generators to randomly generate card numbers until they find a working one. A payment processor can render this strategy ineffective by implementing a Lockout Mechanism that checks the IP address of the user for a high amount of recently declined card transactions. The payment processors can then lockout transactions from that IP address.

Sometimes, scammers employ more advanced tactics like hiding their IP addresses with VPNs, proxies, or the Tor network. In such cases, more advanced IP detection tools that can spot obscured traffic will be more effective in detecting fraud.

Fraudulent transactions will continue to be an issue for online businesses. However, with effective IP geolocation-based anti-fraud strategies, businesses can protect themselves and their customers.


  1. The Problem With How Most Banks Use IP Address Checks To Fight Fraud
  2. Fraud Detection in Payments Transactions: Overview of Existing Approaches and Usage for Instant Payments
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