How IP Validation Can Help Prevent Fraud

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Have you ever been in a business with a sign that says, “We reserve the right to refuse service”? When doing business in person, merchants may be able to detect warning signs of potential fraud. Perhaps the name on a credit card is not the same as the name on the customer’s ID card. Maybe the customer appears overly nervous. Maybe the customer’s one hundred dollar bills seem too new or out of place. In order to protect themselves from fraud, these merchants may invoke that right and refuse to proceed with the transaction.

Though the warning signs of fraud are different when doing business online, you can protect your business by using IP validation.

What is IP Validation?

The DOTS IP Validation service is one of many tools to help prevent fraud. It does so by validating the IP address of online customers. IP addresses can reveal the general location of users. For example, if you use an Internet service provider (ISP) in Los Angeles, California, your IP address will indicate that you are in the Los Angeles area. This information is transmitted to websites as you use the Internet.

Most people have no reason to hide their IP addresses. In fact, most are unaware that they even have one.

How IP Validation Helps Prevent Fraud

Now, suppose you have an online customer who says that he is located in Los Angeles but is actually located in New Delhi, India — wouldn’t you want to know about this deceit?

With IP validation, you can compare the customer’s IP address with the address claimed. In the example above, you’d immediately discover a mismatch between New Delhi and Los Angeles — a sign of potential fraud. Since IP validation takes place in real time, you can immediately invoke your right to refuse service. In other words, the transaction can be halted before fraud can take place.

Ah, but fraudsters and malicious users know about IP validation, too — and they’re tricky. To escape detection, they often attempt to hide their true location from merchants by using network proxies.

The term proxy is defined as an entity that is used to represent the value of something else. Proxies are like substitutes, surrogates, or stand-ins. With these definitions in mind, a network proxy serves as a substitute for a user’s actual network IP address. It’s a fake.

Network proxy services are readily available around the world. While there are many legitimate reasons to use network proxies including corporate networking, access control, and security and privacy concerns, bad guys often use network proxies to obscure their locations.

Let’s revisit the user in New Delhi who claims to be in Los Angeles. He’s gotten smarter and is now hiding behind a proxy. His IP address no longer provides you with the crucial clue you need to detect the user’s actual location. Thus, IP validation won’t work — or will it?

DOTS IP Validation service can detect when an IP address is a part of a proxy network. Though the IP address and the claimed location may match, the fact that the customer is using a proxy is a red flag. It’s telling you that the user may be a fraudster or a malicious user and that caution is warranted.

While the user may or may not have a valid reason to use a proxy, wouldn’t you want to be alerted that something is awry before you do business?

Help protect your online business from potential fraud by using IP validation. The warning signs of online fraud are out there, but you need a means of discovering them. IP validation is one of those means.