What Is Address Fraud?

Introduction

Fraudsters often manipulate customers’ personal information to deceive them and profit off merchants. One of the most common ways of doing so is address fraud, which is challenging to detect and a headache for everyone included – customers, merchants, and their respective banks.

Luckily, there are ways to prevent address fraud and merchants should work together with customers to educate them and implement advanced solutions to protect their information.

In this article, learn about address fraud and how to recognize it, the reasons why address fraud happens, and how to protect your ecommerce business and customers from it.

What Is Address Fraud?

Address fraud happens when people use fictitious or incorrect addresses to perform fraudulent activities for personal gain. The goals of address fraud range from receiving goods another person paid for to sending a child to a school in a different district (a.k.a. enrollment fraud) and paying less car insurance.

Address fraud that affects merchants the most is the activity that involves manipulating the delivery address of a legitimate customer so that the goods they paid for land at the fraudster’s address. Thus, the merchants get pulled into costly disputes with customers who never received the products they purchased.

Address fraud is considered a form of identity theft since criminals abuse addresses that belong to other people for personal gain.

Note: Address fraud is often part of a bigger online payment fraud scheme. Address fraud is commonly used for synthetic identity theft, where the perpetrators use legitimate addresses to create so-called “Frankenstein” identities and commit more crimes.

How Does Address Fraud Work?

Most often, address fraud begins with an account takeover. The criminals gain access to a person’s personal information by purchasing them on the dark web, through data breaches, or by tricking them to reveal the information themselves via phishing.

The criminals then change the individual’s address to another, depending on their goal. The address they list is rarely their own so the crime cannot be traced back to them. Instead, they either list a communal mailbox or an address of an abandoned property.

Criminals use address fraud to redirect ordered goods to another location or apply for a bank account, a loan, or a credit card. As a result, multiple parties are affected, including customers, merchants, and banks.

When a customer does not receive their order and the merchant claims to not be at fault and refuses to issue a refund, the customer will likely file for a chargeback. The merchant must pay chargeback costs regardless of how a chargeback is resolved, which affects their bottom line and negatively impacts their standing with their acquiring bank.

Signs of Address Fraud

Both individuals and merchants need to be watchful so that they spot signs of address fraud before they are seriously affected.

Signs of Address Fraud Individuals Should Look Out For

Individuals should keep an eye out for these red flags that can indicate they have been a victim of address fraud:

• Receiving an unsolicited change of address form. The U.S. post office sends individuals a confirmation form when they request to change their mailing address. If they have not submitted such a request, they might be affected by address fraud.
• Missing mail. A person suddenly receiving less or no mail might mean they have been a victim of address fraud. This is especially dangerous if bank or credit card statements go missing.
• Unwanted mail. Receiving unwanted mail or bills in another person’s name with your address is a likely sign of address fraud.
• The billing address is changed. Many people realize they have been affected by address fraud when they try to use their payment card and discover the billing address has been changed.
• Suspicious account notifications. Receiving a notification about a new account opened in a person’s name or some account details being changed is a sign of address fraud or another form of identity theft.

Signs of Address Fraud Merchants Should Look Out For

There are many subtle signs of address fraud merchants should look out for.

• Different billing and shipping addresses. Merchants should watch out for huge discrepancies between the billing and shipping addresses listed on the order. It might be that someone is buying a gift for someone else so they list the receiver’s address for delivery, but it can also be an indication of address fraud.
• New shipping address. Merchants should check the customer’s order history to verify previous shipping addresses. While changing addresses is common, merchants should verify the accuracy of data via email or phone.
• Suspicious shipping address. Merchants should look out for red flags in addresses listed as shipping locations, such as unoccupied residences or companies that engage in reshipping or freight forwarding.
• High order volume. Merchants should be wary of addresses that have a high frequency of orders. Although this can be explained, such as in the case of big companies who often make huge orders, it can also be a sign of card testing.
• Address change after the order was placed. This address fraud attempt is difficult to spot since criminals often contact the shipping company directly to change the address after placing the order. This is why it is important for merchants to maintain a relationship with the shippers, so they can be alerted about these attempts.
• The address does not match the rest of the customer’s profile. Merchants can easily check this by comparing the address with other customer information, such as their geolocation or phone number.

How to Avoid Address Fraud as a Consumer

Here are the ways to protect yourself from address fraud.

1. Go paperless. By opting to receive bank statements, credit reports, and other essential documents electronically instead of by mail, you are adding another layer of protection from address fraud.
2. Avoid sharing personal data. Beware of how and with whom you are sharing personal information, including suspicious websites. Also, do not leave your mail unattended.
3. Set Up a P.O. Box. Having a Post Office box is smart for people who want to separate their personal and business information. It also makes it harder for address fraudsters to break into your accounts.
4. Use strict credentials. Individuals should regularly change their passwords, make them as complex as possible, and avoid sharing them with anyone or using the same password for multiple accounts and websites.
5. Regularly check credit reports. Individuals should check their and their children’s credit reports to spot any suspicious activity or illogical changes.

How to Prevent Address Fraud as a Merchant

To prevent address fraud, merchants should use the below-listed fraud prevention tools and manually assess all customers’ orders that were flagged as suspicious.

• Use AVS. Address Verification Service (AVS) confirms the owner of a payment card used in a transaction by verifying their address. AVS is a fraud prevention tool and is used in combination with other fraud prevention methods to flag suspicious transactions.
• Use authorization holds. If merchants suspect a fraud attempt, they can place an authorization hold and not process the order until more information is provided by the customer that would confirm their identity.
• Implement two-factor authentication (2FA). Two-factor authentication ensures that if someone attempts to take over a customer account, the customer is alerted by receiving a text to confirm the login or payment attempt. The customer is then able to update their credentials and stop the account takeover.
• Use fraud prevention software. There are many advanced solutions available to merchants that help spot fraud attempts. They include customer behavior analysis, transaction screening, and detailed reporting on all customers’ orders.

Note: Learn more about ecommerce fraud prevention.

Conclusion

Address fraud commonly happens in ecommerce when criminals abuse customers’ personal information for their own gain. There are many reasons why someone would engage in address fraud. While the consequences of address fraud vary, it is considered a crime and should be reported to the authorities to ensure the protection of personal data.