What is an IP Fraud Score?

Understanding IP Fraud Scores

An IP fraud score is a number between 1 and 100 that indicates the likelihood of fraudulent activity associated with a specific IP address. The higher the score, the greater the risk of fraud. Businesses use this score to assess potential threats and make informed decisions around security.

The IP fraud score is calculated based on a series of risk factors:

1. IP address location. Is the IP address located in a high-risk area?
2. Location consistency. Does the IP address location match the location of the third party involved?
3. Residential status. Is the IP address residential or associated with a data center or proxy service?
4. Transaction history. Is the frequency and volume of transactions associated with an IP normal?
5. Blacklisting. Has the IP address been previously flagged for suspicious activity or added to a blacklist?

Each component is assigned a value, which is then totaled to determine the overall IP fraud score. Companies set their own thresholds for what constitutes an acceptable score. 

IP fraud scores are a key tool in detecting and preventing fraud, and they help businesses avoid financial losses and reputational damage. However, a high IP fraud score doesn’t necessarily mean fraud has been committed. It simply signals the need for further investigation before proceeding with an order or partnership. So, IP fraud scores shouldn’t be the sole factor in making decisions.

Why Are IP Fraud Scores Important?

IP fraud scores are crucial for businesses to prevent losses through fraud, as they are a key indicator of the risk associated with a particular IP address. Let’s go over the key advantages of using IP fraud scores to protect your business:

1. Protection against cyber risks. IP fraud scores are a key element of any cyber risk assessment. These assessments typically involve identifying, evaluating, and responding to various cyber risks, such as malware attacks, phishing scams, social engineering hacks, ransomware fraud, etc. Using an IP fraud score, companies can better gauge the likelihood of each type of attack, which allows them to address vulnerabilities and develop robust strategies against fraud. 
2. Real-time action. Fraud scoring allows your business to respond quickly to real-time threats through automated rules. These scores are typically generated by automated software platforms, allowing for instant calculation while the third party is still engaged. This immediacy can help your business set behavior-based rules and quickly escalate concerns about potential risks, leading to further investigation.
3. Verify customers and partners. Fraud scores help prevent fraudulent activities in both business-to-business (B2B) and business-to-consumer (B2C) settings. Either way, your customers appreciate your security measures, and so do your vendors. While fraud scoring might introduce some friction into the sales process, the benefits in terms of security often outweigh the drawbacks.

Who Needs To Use IP Fraud Scores?

IP fraud scores are a valuable tool for various businesses and organizations engaged in online transactions. Here are some examples of who might benefit from using IP fraud scores:

• • E-commerce businesses. Online retailers and other e-commerce businesses often process a high volume of transactions, making them prime targets for fraud. 
  • Financial institutions. Banks, credit unions, and other financial institutions handle numerous transactions and are common targets for fraudsters. 
  • Payment processors. Companies facilitating online payments, such as PayPal and Stripe, can benefit from using IP fraud scores to assess the risk associated with each transaction.
  • Online marketplaces. Platforms like eBay and Amazon host large numbers of sellers and buyers, making them susceptible to fraud. 
  • Businesses processing online transactions. Any business involved in online transactions can benefit from using IP fraud scores to assess the risk of fraud associated with each interaction.

Ultimately, any business that wants to protect itself and its customers from online fraud can benefit from incorporating IP fraud scores into its prevention strategy.

Summary

• An IP fraud score, ranging from 0 to 100, assesses the likelihood of fraudulent activity linked to a specific IP address.
• It helps detect and prevent fraud, protecting businesses from financial losses and reputational damage.
• IP fraud scores are based on geolocation, IP reputation, past behavior, transaction history, and other factors.
• They are useful for e-commerce, financial institutions, payment processors, online marketplaces, and any business handling online transactions.