Analyzing IP Addresses to Prevent Fraud for Enterprises

How can businesses protect themselves from fraudulent activities by examining IP addresses?

The police would track burglars if they left calling cards at the attacked properties. Internet fraudsters usually leave a trail of breadcrumbs whenever they visit websites through specific IP addresses. They reveal their physical location and the device they used to connect to the web.

While online fraudsters take precautions to hide their actual IP addresses, merchants can get valuable insight into their intentions by carefully analyzing accessible information. How can businesses protect themselves from fraudulent activities by examining IP addresses?

IP Addresses and Fraud Prevention 

Due to the uniqueness of IP addresses, a network’s host will always be able to know who is who. Since ISPs know the IP addresses assigned to each of their customers at any moment, these can help trace the online activity of scammers. To ensure they are not detected, the first step for fraudsters is to mask their actual IP addresses.

You can use IP addresses to track down cybercriminal identities. However, the purpose of IP address analysis for merchants is not to have the police break down the door and arrest those caught up in the fraud. Instead, they can use this information as part of a risk score model. That way, merchants can better detect fraudulent activity and decide whether or not to block potentially hazardous transactions.

How Do Cybercriminals Hide Behind IP Addresses?

In recent years, users have seen the unsettling results of monitoring technologies, hyper-personalization, and big data. They have often reacted negatively, making privacy online a great worry. The number of virtual private network services and public proxy servers has increased. As a result, the number of people using these technologies to camouflage themselves online has grown, both regular internet users and people looking to scam others.

Websites only see the proxy’s IP address, not the user’s. Trackers find it challenging to identify fraudsters across multiple domains uniquely. Of course, internet fraudsters often use proxy servers and virtual private networks (VPNs) to hide their IP addresses. They can use a coffee shop or library for free WiFi. The Onion Router (Tor) is another option for fraudsters. The relay network conceals the user’s IP address and online behavior.

Internet fraudsters also usually employ hijacked routers or hosting services as launching pads for assaults or joint operations. Here, they build ad-hoc VPNs by exchanging residential IP addresses.

How Can a User’s IP Address Help Detect Fraud?

Detecting which organizations are responsible for handing out addresses is very easy. If you have an IP address, you may easily check to see if it belongs to a private network, a proxy server, or a public one. IP addresses often point to well-known residential ISPs.

But a person attempting anonymity may use an address connected with the Tor network or a Starbucks. While the proof is not enough to show the user is a fraudster, it is a red flag that warrants additional inquiry.

The first step in analyzing an IP address  is to locate its owner and investigate further to learn more about the context of that address. This study may include the owner’s location, the kind of network they operate, and any history of user fraud. 

IP Address Analysis With a Fraud Protection Plan

Merchants who have taken significant measures to reduce fraud and chargebacks will often employ an anti-fraud system. This approach uses risk scoring to determine whether to hold, accept or reject transactions pending human review. The easiest method to leverage IP address analysis is to include it in an overall risk assessment for the transaction. Just looking at the IP address won’t be enough to know everything about your buyer. By looking at a fraud history, you can get more insight into the risk of fraud associated with this specific person.

User behavior, device details, and transaction speed are factors to consider. For risk assessment, non-anonymized IP addresses are helpful since they often reveal the user’s physical location. Merchants’ fraud rates in different places also affect the rating system.

Due to the dynamic nature of IP address assignment by most ISPs, it is very uncommon for many residential customers to share a single IP address on any one day. Blocklists should have measures to allow residential IP blocks to expire once sufficient time has passed. Also, remember, you shouldn’t just block all questionable IP addresses. While clients can use professional VPN services and other anonymizers to purchase and hide their identity, it’s important to mention that this can give you fake data that will not be too helpful for marketing research.

How Verifying an IP Address Helps Reduce Fraud

The quality of data used in fraud prevention and the success of such prevention has a direct correlation. Despite the wide range of implementations, data reveals a wealth of information on the habits and whereabouts of scammers. Blocking connections from an IP address detected in fraudulent activities is a simple yet effective way to stop fraud.

The usage of consortium data is another method to verify IP addresses. Bringing different independent parties together is a standard method to fight against fraud. Businesses can safely and freely share data through appropriate procedures and agreements, effectively safeguarding the privacy of their consumers in the process. IP address verification is an excellent first step in preventing fraud, but there is a need to take other measures.

Final Words 

While an IP address can reveal a lot about an internet user, it rarely shows whether or not they are fraudsters. Though helpful, the information from an IP address analysis doesn’t constitute the whole picture. When trying to piece together where a suspicious client comes from or their goals, you should evaluate IP address data and track record. You want to see if any identifiable trends emerge concerning the origins of your fraud and disputes. Whether you seek help from experienced specialists or do it independently doesn’t matter. You can figure out how to eliminate chargebacks by analyzing the causes.

While there are ways to protect privacy online, networked computers don’t adequately hide their identities. Each linked host device has an assigned IP address to identify and connect with other devices on the network. The IPRoyal site or marsproxies.com are great information sources for related information!

About the Author: Anas Baig

With a passion for working on disruptive products, Anas Baig is currently working as a Product Lead at the Silicon Valley based company – Securiti.ai. He holds a degree of Computer Science from Iqra University and specializes in Information Security & Data Privacy.

Follow me on Twitter: @securityaffairs and Facebook

Pierluigi Paganini

(SecurityAffairs – hacking, Fraud)

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