Online shopping is increasing in popularity every year and is predicted to generate over $1 trillion in sales in the US by the end of 2022. This is a huge increase from the current sales andshows that people are still trusting in online shopping despite any fears or negative publicity.
The popularity of ecommerce has increased sharply in recent years, leading to a corresponding increase in cybercrime and fraud. In a 2021 survey, online stores received an average of 824 attempted fraud attacks per month, more than double the rate in 2020. The problem is especially acute for larger businesses, which receive exponentially more attempted attacks.
As the store owner, it is your responsibility to protect your business from scams, as well as to protect your customers from scams. If you do not take precautions, you risk damage to your profits, your customers, and your reputation.
What is ecommerce fraud?
Ecommerce fraud, also known as payment fraud, refers to any type of deceptive activity that takes place during an online transaction. This can include anything from stealing credit card information to identity theft. There are many different types of ecommerce fraud, but all of them involve trying to make a profit at the expense of the merchant.
Although it’s easier than ever to launch an online store, it’s also easier for scammers to commit transactions without having physical payment cards.
Illegal online marketplaces make it easy to purchase stolen credit cards. Scammers exploit weaknesses in protocols credit card companies use for issuing refunds and customers use for accessing their accounts. These schemes can go on for years without detection.
The most damaging result of ecommerce fraud is that it falls back on the shoulders of online businesses. If a customer feels they have been scammed, they can contact their credit card provider and request a refund, thus the business loses not only the product but also the money.
If a scam is successful on a website, it not only causes the customer who was scammed to lose trust in that site, but also makes it less likely that they or others will visit or make purchases from it in the future. This is because people generally don’t want to risk being scammed again and so will take their business elsewhere.
Ecommerce Fraud Prevention Best Practices
1. Build Trust With Your Consumers
If you can manage to build trust with your consumers regarding the safety of their data, they will be more likely to make purchases from your store without worrying about their personal information being stolen.
A fraud protection system helps to improve your store’s reputation by preventing instances of identity theft.
CNP fraud is a big problem for ecommerce stores because it makes customers hesitant to make transactions. In CNP fraud, the payment is made without the consent of the card owner, which is something that no one wants to happen to them.
If you have a fraud protection system, you can let customers know that such a system is in place on the website. This way, customers will know that you are taking steps to protect against fraud and will be more likely to do business with you.
2. Look for warning signs of ecommerce fraud.
As you run your online store, you’ll hone your senses for suspicious activity on your website that sometimes (but not always) points to an attempted scam. Here are some red flags to look out for and look into if they occur on your site:
- Very large orders: Of course, you love to see large purchases. However, if a purchase is significantly larger than most others made on your site, it may be fraudulent. Also, check if the order was made with expedited shipping, as scammers want the large orders sent as soon as possible to avoid detection.
- Multiple very small orders: To test that a stolen card works, scammers start by making multiple, very small purchases. These are more likely to go undetected before the scammer moves to larger orders.
- Many back-to-back purchases: Look into any instances of multiple purchases over a short period of time from the same account or card, more than you would reasonably expect from a real customer. This could indicate bot activity.
- Multiple orders from different cards: It’s unusual for a customer to make several purchases over a short period of time (e.g., a day to a week) with different credit cards. Flag this activity as suspicious, as the same scammer may use different cards to avoid detection.
- Orders from unusual locations: This isn’t always a sure sign of a scam, but a shipping address in a city or country you’ve never shipped to before is worth looking into, especially if you see a sudden uptick in orders from that place.
- Different shipping and billing address: If the scammer is using a stolen card, that card owner obviously isn’t having the items sent to them. That’s why scammers will put a shipping address that’s different from the card’s billing address.
- Multiple failed transactions: While one or two failed transactions on a purchase is nothing out of the ordinary, multiple declined transactions in a row is a sign of a scammer trying to guess information, or trying different cards.
- PO box used as a shipping address: Again, this isn’t a sure sign of a scam — businesses often use PO boxes for shipping, for example. But, be wary of very large orders or multiple orders to a PO box with an unconfirmed owner, since scammers also use them to preserve anonymity. Consider removing the option to ship to PO boxes altogether.
- Other suspicious information provided: Sometimes, you need to go with your gut to detect potential scammer activity. Be on the lookout for dubious phone numbers, email addresses, and IP addresses. You can also use detection software to catch these occurrences — we’ll discuss that later in this post.
There is no guarantee that any of these occurrences are fraud, but it is worth investigating them when possible.
3. Require CVV on all purchases.
The three- to four-digit number located on the back or front of a credit or debit card is called the card verification value, or CVV. This number is used to verify that the customer has the physical card in their possession.
If you have an online store, you should require customers to provide their credit or debit card’s CVV in addition to the card number. This greatly reduces the chances of a scammer successfully using stolen credit and debit cards on your website, since they likely only have access to the card number and not the CVV.
4. Use an AVS.
An address verification service is a fraud prevention tool that checks to see if the billing address a customer provides matches the address on file with their credit card issuer. If the addresses don’t match, the transaction is either flagged or declined.
Make sure that the credit card issuers you accept use an AVS system. This system will help to catch fraudulent transactions without any extra effort on your part and protect your business.
5. Require strong passwords for user accounts.
A account takeover can happen when a scammer gets ahold of a user’s login information. This usually isn’t done by a person, but rather by a bot that quickly guesses common passwords.
If you require strong passwords for customer accounts, it will prevent hacks.
The text is explaining that a password which is 10 characters long and includes a number, uppercase letter, and symbol is sufficiently safe from being guessed by a hacker.
6. Increase Your Profits
E-commerce stores lose a large sum of money every year due to chargeback frauds. The fraud can occur in two situations:
- The customer attempts to receive the products for free by requesting for a fake chargeback.
- The credit card is used by someone else other than the owner so the card owner requests for a chargeback.
If your e-commerce store experiences a lot of fraud, you will also have a high number of credit card chargebacks. Fraudulent chargebacks not only decrease your revenue, but also increase your expenses if you have to pay the associated shipping fees.
Fraud protection systems help e-commerce stores increase profits by preventing fraudsters from targeting them. In this way, stores are able to keep more of their hard-earned money.
7. Grow Without Fear
As an entrepreneur or business owner, you are always looking for ways to grow your online presence and create more revenue streams. As your e-commerce store grows and your products become more popular, you will also become a target for scammers and hackers.
intent. As you increase your advertising, you will not only attract customers, but also people with malicious intent.
Scammers are more likely to target a large e-commerce store over a small one because they can reach more people and are more likely to make a profit.
You should not let the fear of scammers stop you from growing your business. In fact, your growth is also linked with an increase in revenue which in turn means you can invest more in technology.
8. More Up-to-Date With Technology
If e-commerce stores want to reduce fraud, they need to be more technologically savvy and use machine learning technologies for predictive analytics.
Using predictive scoring algorithms and velocity rules can help a business pinpoint which IP addresses or devices are most likely to be used for fraud.
E-commerce stores can use address profiling to confirm if an entered address is valid, calculate a risk score, and remain more alert to people shopping from particular locations.
If an e-commerce store uses behavior analytics, they can track every customer’s journey from when they sign up to when they checkout. The store can use card details to see if the same card is being used multiple times by different customers. If there is a possibility of CNP fraud, the store will be alerted. In this way, the store can also prevent chargeback fraud.
The key to being successful in the online sphere for a long period of time is to be proactive in your approach and have the most up-to-date technology.
An e-commerce store that adopts technology in its business functions is more efficient. Having a fraud protection system in place ensures that the business is using the latest software and is growing.
9. Smooth User Experience
User experience is extremely important for keeping customers. According to a study, approximately 39 percent of people avoid vendors after having a negative experience with them. This statistic is based on the negative features on the website that users found unpleasant.
A single instance of fraud while shopping on a store can leave a permanent bad image of the store’s brand name on a customer’s mind. It would take hearing constantly positive reviews from the customer’s peers or reading positive reviews online to convince the customer otherwise.
If you want to keep your customers, it’s a good idea to have a fraud protection system. People tend to focus on their negative experiences more than positive ones, so if you don’t have a system in place, you could lose customers.
10. Create Your Own Industry Rules
Based on this information they can adjust their stock and pricing. Large e-commerce stores use data to determine which products are the best sellers and which ones are slow moving. Based on this information, they can adjust their stock and pricing.
Collecting and analyzing data helps professionals understand customer demographics and predict instances of fraud, both of which are immensely valuable pieces of information.
If you have data on hand and set up a fraud protection system, you can make tailored rules to find risks. By making your own specific rules, you can efficiently detect problematic transactions.
The rules you set up for your business can help you be more responsive to the types of fraud that occur in your industry, making you more aware of potential threats.
Fraud protection systems can help you avoid costly chargebacks, deter criminals, and protect your customers’ information. Some fraud protection systems are even able to automatically flag suspicious orders and transactions, making it easier for you to catch potential fraudsters in the act.
Having just one negative review from a customer can damage a brand’s reputation, so it’s important to have several positive reviews to offset the bad one. Given this, it’s crucial to take measures to prevent negative customer experiences at your online store.
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