Using IP Geolocation for Fraud Prevention

IP Geolocation for Fraud Prevention

As you may know, an IP address is a numerical label that identifies an electronic device connected to the Internet. It serves different functions, one of which is identifying the user’s geographic location. 

This data can be used to improve the user experience by allowing sites and apps to serve data in the user’s native language, display prices in the correct currency, and serve ads targeted to the user’s geographic region. But, most importantly, it can also be used to strengthen fraud prevention strategies by validating a user’s location and detecting signs of suspicious activity.

In a more specific way, some roles IP geolocation plays in anti-fraud measures are the following: 

Authentication

By checking for discrepancies in the geographic location data obtained from the IP address for an incoming login attempt, you can catch requests coming from locations where you wouldn’t expect your users to be.

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For example, suppose you have user data in your database showing a particular user registered for your site or app in the United States, but you get a login attempt from that user in Spain. In that case, that may be a red flag that the user’s account has been compromised.

Of course, requests from different locations can be harmless ―such as when the user is on vacation or in a new place― but they indicate suspicious activities. Especially, if they come from high-risk locations, known for frequent malicious events.

VPN Detection

Some IP geolocation services can tell you whether or not the incoming request is coming from a VPN, via Proxy servers, or through a Tor network. These tools serve to hide a user’s location, so the website or app thinks the request comes from a different country or region. However, IP geolocation services detect them by cross-referencing the retrieved IP address with databases of  VPNs, Proxies, and Tor nodes

Although there are some legitimate VPN uses (like accessing your home library on Netflix when abroad) these are common ways for fraudsters to get around geo-blocking. Therefore, if you determine that a request is coming through a VPN, you may choose to block the request and require the user to turn off their VPN before trying to use your services.

Block Requests from High-Risk Locations

Some geographic locations are known to be high-risk areas for scammers, hackers, and other suspicious activities. Blocking requests originating in those areas helps you prevent potential fraudulent behavior, such as account takeover.

To achieve it, you can manually configure a geolocation API to block or restrict access from those countries. Many geolocation databases also maintain a blacklist of known potentially dangerous IP addresses against which incoming requests are checked and, if necessary, blocked.

Another option is requiring additional identity checks for transactions originating in high-risk regions. You can also set “risk scores” based on the region, country, or city associated with an IP address, as well as the request nature and context. If the request score surpasses a threshold, this will trigger a fraud alert or preventive actions.

Cross-Border Transaction Monitoring

Another way that IP geolocation helps to prevent fraud is by monitoring cross-border transactions —transactions originating in countries other than the user’s billing address or registered location. 

If the user’s IP and the billing address do not match, the transaction will be flagged for review. Automatically, the user will be prompted for additional verification. If the user is responsible for it, the transaction will be accepted. If not, it will end up geo-blocked.

Using an IP Geolocation API to detect fraud

There are different ways to check an IP address for suspicious activity and detect fraud. The most effective? Using geolocation APIs, since they have multiple features that make them ideal for preventing fraud. 

For example, APIs can immediately detect and assess the geographic location of a request. Since they use various data sources, such as IP address databases, mobile tower triangulation, and Wi-Fi networks, APIs tend to maintain high levels of accuracy.

Further, they can offer contextual data, such as ISP details, VPN/proxy usage, risk scores, and the reputation of the IP address. This helps to better identify potentially fraudulent requests. Geolocation APIs also enable the automation and customization of security processes, often resulting in more dynamic and reliable measures. 

Detecting fraud with an IP Geolocation API, step by step

This being settled, let’s walk through how to set up real-time IP geolocation detection using a free online API, such as Abstract’s.

1. Sign up for the Abstract API website. If you’ve never used AbstractAPI before, you’ll need to create an account (it’s for free!).

2. Once you’ve signed up or logged in, you’ll see your IP address. To continue, click on the “Make test request” button.

3. The website will ask you to confirm the IP address data is correct. 

4. Once you enter your feedback, you’ll be redirected to the API’s homepage where you should see your API key. You’ll need it for authentication when making requests to the API.

5. To continue, scroll down and click on the “Make request” button.
6. Although the text box showcases a “Live test” script for the API request, you can generate alternate scripts in different programming languages.

7. Insert your actual API key in the request and the IP address you want to check. If you are verifying your IP, the latter isn’t mandatory.
8. After submitting your API key and an IP address, the API will respond with a JSON object displaying the location of that IP including postal code, city, region, country, and lat/long data. It will also check for VPNs, country currency and timezone, and ISP name, among other features.

This data describes the user’s location. All you need to do now is pull the user data you have stored in your server and compare the geographic location of this request to the stored data.

Fancy Solutions: An API’s Bonuses

As we saw, using geolocation APIs for fraud detection tends to be more effective than other methods, such as manual address lookup, static IP blocklists/allowlists, and hardcoded location checks. 

Generally speaking, geolocation APIs allow for swift, context-sensitive, and real-time IP address mapping, providing more accurate fraud detection results. Two other significant advantages of geolocation APIs are that you can: 

• Customize IP address datasets to meet specific organizational needs.
• Automate the process of fraud detection, maintaining a positive customer experience.

Let’s see, more in detail, how those functions can make a difference when using IP geolocation APIs for fraud prevention.

Customization of IP data

One of your goals should be to allow users to perform smooth, secure transactions on your website or app. Customizing IP datasets enables you to achieve this by applying more refined IP-based rules that align with business needs. This helps reduce false fraud alerts and hone your fraud-detection algorithm, ensuring that only risky requests require extra verification or are blocked.

You can address different needs by customization. For example: 

• Complying with data protection laws by restricting the transmission of user data outside of certain locations. This is key in industries like healthcare services or finances.
• Prioritizing requests from specific areas. For example, to assign more resources (such as customer service support or bandwidth) to users from high-value markets, at the expense of users from low-engagement or risky areas.
• Whitelisting specific IP addresses to allow for a more flexible range of user locations. Eventually, you can create user profiles that account for frequent travel, preventing unnecessary fraud alerts for those users.
• Creating custom IP-based allowlists for specific offices or remote employees. This ensures that only authorized IP addresses can access your software.
• Geo-blocking IP addresses from areas with heightened fraud risk, as well as requests from Proxies, VPNs, and the Tor network. However, through customization, you may allow certain users to access your software through them, when necessary.

Fraud-screening Automation

Implementing automatic measures for fraud detection without interfering with legitimate requests is key to maintaining a positive customer experience. Especially, when it involves geolocation APIs.

Why? Because geolocation APIs operate as an invisible layer of security. In other words, security measures run seamlessly in the software’s background, without the need for manual intervention. Since APIs are data-driven and adapt to evolving fraud patterns, reliability is ensured.

Other reasons why automating your software's fraud detection systems using a geolocation API improves their effectiveness are:

• Real-time fraud prevention, because geolocation APIs immediately analyze the IP addresses of incoming requests, detecting and blocking malicious activity as it occurs.
• Cost-effectiveness, since the manual intervention for reviewing flagged requests and handling fraud cases becomes unnecessary. This reduces the software’s operational cost without compromising its efficiency.
• Scalability, which renders them ideal for growing business, as geolocation APIs can handle thousands or even millions of requests automatically without requiring additional human resources.
• Adaptative responses, based on a request’s risk level and, of course, according to IP-based rules. This makes sure that “safe” transactions occur without interruption, while potentially risky activities are inspected, guaranteeing both usability and security.

What can a scammer do with my IP address?

Of course, there’s always the question of how relevant security systems are. You may even be wondering what is the worst that can happen if they are not paid that much attention to. Let’s see, then, some scenarios that can develop when a hacker accesses an exposed or unsecured IP address.

One of the first things scammers can do if they get to an unprotected IP address is use it for malicious activities. People making phishing and spam email campaigns, for example, tend to “impersonate” different users by employing their IP addresses for mailing. This sort of helps validate those emails, increasing their credibility.

Not protecting your or your user’s IP addresses may result in targeted scams, for scammers will be able to estimate your general geographic location. It’s important to notice that knowing your IP address alone doesn't give scammers full access to your system. Despite this, they may claim to have accessed it, tricking you into paying a ransom or downloading malicious software.

Although an IP address does not grant direct access to your devices, hackers may use it to find open ports on your network. This can potentially allow scammers to access your devices. If, besides, your devices use IP-based security measures, hackers will be able to bypass security restrictions by, simply, spoofing your IP address.

Another consequence of not properly protecting your IP address is being banned, courtesy of a hacker, from certain services or sites. Your IP might even end up getting blacklisted! Finally, hackers can use an IP address to overwhelm the address network with traffic, causing the network to slow down or disconnect.

Shielding your IP Address

There are several measures you can take to protect your IP address, using a geolocation API being just one of them. You can, for example:

• Use VPNs or Proxy servers, especially when accessing Peer-to-Peer (P2P) Sharing Services. This way, hackers won’t be able to identify your real IP, since it will look like the server’s IP is yours.
• Skip suspicious software or links, since they may be part of phishing campaigns and trick you into revealing your IP address. 
• Secure your home network, which helps to avoid hackers accessing your IP address. To do so, you can (1) change the router’s default password, (2) disable external access to the router administration panel, and (3) enable WPA3 Encryption for the Wi-Fi network. 
• Updating your router’s firmware is also useful, as well as having an up-to-date firewall blocking unknown or unauthorized internet traffic. 

These measures reduce the overall chances of scammers discovering your IP address. Nonetheless, for a more “complete” shielding of your IP address, it is advisable to implement geolocation API security measures. That way, your IP address will be automatically protected and you’ll be notified about potential security issues in your network, allowing you to secure it on time.

If, despite your best efforts, hackers access your IP and use it for malicious activities, you can contact your ISS and request a new IP address. By doing so, you’ll disconnect your device from ongoing attacks or mapping efforts by scammers.

What Can Go Wrong When Using IP Geolocation for Fraud Detection

IP geolocation is a powerful tool, but it has its caveats. There are a few ways it can fail, so it’s important to back up this method with other fraud prevention strategies to ensure a truly robust security solution. For example, using data from IP reputation databases, calculating a device’s latency, and incorporating multi-factor authentication.

But let’s go back to business. IP geolocation is neither foolproof nor 100% accurate, (though combining different geolocation and verification methods improves its accuracy). So, what can go wrong when using it for fraud detection? 

Well, the first thing to remember is that geolocation data is not 100% accurate. It can only tell you a general region or radius for the incoming request. And the smaller the location radius becomes, the less accurate IP geolocation gets. Therefore, you can expect the following level of accuracy when looking up user locations.

• Country: 95% to 99%
• Region (State): 55% to 80%
• City: 50% to 75%

The second issue to take into account is that users may employ VPNs, Proxies, and Tor networks to spoof a device’s IP address and make it look like it’s coming from a different place. Not every one of them will be engaging in fraudulent activities. Sometimes, people want privacy online, and they don’t want companies tracking their locations.

Unfortunately, this means that determining which requests are coming from trusted users and which are coming from hackers and scammers has gotten much more difficult. IP services like Abstract API can detect that a request is coming through a VPN. However, they can’t detect its real IP address to determine whether the request is potentially fraudulent or not.

A third issue with using IP geolocation for fraud detection is distinguishing “false positives”. In other words, these are requests that seem to be fraudulent due to the IP address they originate from, but are legitimate.

Unfortunately, in today’s world of remote work, digital nomads, and global commerce, that simply isn’t the case. It’s entirely possible that a user could be making purchases halfway around the world from their registered address.

By rejecting every potential transaction that doesn’t match its billing address, you could be turning away thousands of potential customers, and seriously damaging your software’s reputation.

Fraud Prevention: Take a Step

Incorporating IP geolocation, among other fraud detection and security measures, is crucial for every app or website today. Why? Because, with the increase in digital transactions and the internet’s global nature, users lacking awareness of security best practices are more vulnerable than ever to fraudulent schemes.

In this context, IP geolocation helps validate your user’s identity, detecting suspicious activities and allowing only legitimate requests.

While IP geolocation may not be a foolproof method for identifying and blocking malicious traffic, it can be quite effective when implemented with a quality API. This not only allows for immediacy but also for custom-set precision and time-saving features, like automation. 

Willing to give it a chance? Don’t miss out!—start your free trial with Abstract API now. Preventing fraud was never that easy.