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Phone Confirm - Transaction Authorized
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Case Study - Specialty Retailer
Environment: Online specialty retailer
Requirement: The need for easy to implement, economical protection against fraud in online transactions
Methodology: Assessment of the Hosted Application Interface implementation and associated economics
  • Easy to install and maintain
  • Minimal investment
  • Low per use cost
  • No monthly fees or long term commitments
This case study discusses the need, implementation and economics of a supplementary tool used to protect a specialty retailer against fraud in online transactions. The management of this company has chosen to keep the company name and their exact line of business confidential.

The Need
A specialty retail business has recently expanded from a word of mouth, monthly newsletter and quarterly catalog to include an Internet catalog and customer online purchasing capability. Their investment in the new Internet web site has contributed significantly to the customer base and increased the bottom line.

It is not all good news, however, as new opportunities for fraud and chargebacks have also increased dramatically. After many years of dealing with a rather close-knit and familiar customer base made up of mostly collectors and retail merchants, the businesses new presence on the Internet has opened up a much wider and dissimilar customer base. They learned quickly that credit card fraud does not only 'happen to the other guy'. A prime example of this is when a new customer account was opened by a criminal who had a stolen credit card number, an easy to set up 'free' email account and the cardholders address. He also used a non-existent phone number. A specialty item was purchased for $600.00 using the stolen card and shipped to a 'Ship To' address that was different from the address of the cardholder. Several days after the item had been shipped, the cardholder received an invoice from the specialty retailer and immediately notified the credit card company that he did not make the purchase. The retailer was notified that the credit card number had been stolen and he was out the item and had to pay a chargeback fee.

After that episode, the retailer soon discovered that online transactions, even those where they have checked the billing address, CVN and IP information and may appear 'clean', can still be fraudulent. They then decided to take some additional steps to protect themselves.

A Practical Solution
Among the steps that they took to help minimize credit card fraud was to consider a phone number verification scheme using an automated Internet service. allows an end-user's phone number to be verified concurrently with a transaction that is taking place online. The rationale being that criminals are much less likely to pursue a transaction on your website when they are faced with providing a verifiable phone number.

The retailer chose to implement the method whereby the online end user enters a Personal Identification Number (PIN) received and spoken via phone call into a web page. They deem that this method statistically will provide better and more accurate results than the other method where the online end user is presented with a web page containing a one-time PIN that is then entered into a phone keypad when simultaneously receiving a generated phone call. They believe entering a PIN via a keyboard is easier and more accurate than entering a PIN into a phone keypad.

The tool by itself only verifies a minor portion of the end user's account information, but when combined with all of the other safeguards constitutes an integral part of the overall online transaction protection scheme. Recognizing that the concept had merit, the specialty retailer addressed the other two major parameters - implementation and cost.

Easy to Implement
The retailer chose to set up the service specifically as part of the checkout process to verify the phone number that was aligned with the account information belonging to the online shopper. They set up a account and began the following steps to implement the new Hosted Applications Interface (API):
1 Utilizing the Hosted API HTML Template tool, the retailer customized the web page with their logo and other information to make it look similar to their own web site
2 They modified their current Shopping Cart code to make a HTTP call to passing the following parameters:
  • Retailers ID
  • Return URL (after the validation is done)
  • Phone Number to be Validated
  • Validation Type
  • HTML Template ID
  • Retailer specified parameters with specific end-user ID information (passed back to the retailer with the return URL)
3 They also added some logic to the shopping cart to process the client phone number pass/fail return from The retailer chose to stop orders that failed and give the end-user an opportunity to correct the information and try again. After two failed attempts the end-users were directed to contact the retailers customer service. Orders that failed also were redirected into a special queue where they could be examined manually.
4 A stamp was added to the retailer's web site as a warning to potential fraud perpetrators.

The implementation and testing was accomplished by a junior member of the retailer's development team within a three day period.

Straightforward Economics
Realizing that the cost of adding supplementary fraud protection had to be passed on the end user, the online retailer was pleasantly surprised at the following economic advantages that provides:
  • No short or long term contracts to sign
  • A minimal investment in implementing the Hosted Application Interface
  • No monthly fees
  • Realistic charges based solely on the number of phone calls and the call destination. In this case, the retailer made an initial purchase of 1000 phone credits for $150.00, which equates to 15 cents per call credit. Most of the verification calls made by the online retailer were to U.S. and Canadian destinations costing only one phone credit or 15 cents per call. Of the few non-U.S. and Canadian call destinations, almost all were still in the 1-2 call credit range.
End Result
Among some of the initial results of implementing the Hosted API were observations that the addition of this tool did not have a negative effect on the retailers legitimate customers. The retailer felt that the nearly seamless interface between their web site shopping cart and did not create any surprises to the end-user. Additionally, the added phone confirmation seem to have a reassuring effect on the customer base. Unfortunately, not enough time has passed for the retailer to evaluate the overall effectiveness of the tool in preventing fraud, however initial results appear to be very positive.
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