Protect your business from E-commerce fraud

Consider this scenario: You find yourself engrossed in the world of social media, leisurely scrolling through various posts and updates. Suddenly, a stroke of luck befalls you. The online store that you hold dear announces an enticing deep-discount sale, accompanied by the added perk of free shipping. Naturally, your interest is piqued, and without hesitation, you click on the advertisement, which promptly redirects you to the brand's official website. With a sense of eagerness, you promptly load your virtual shopping cart with the items you have been eyeing for an extended period. Completing the purchase, however, leaves you perplexed as you fail to receive a confirmation email. It is at this point that many consumers realize, to their dismay, that they have fallen victim to fraudulent activity.

Understanding how to safeguard your business from the perils of ecommerce fraud is of utmost importance in today's rapidly growing online sales landscape. As the digital marketplace expands, the risk of falling prey to unscrupulous individuals seeking to exploit businesses and their customers also increases. We are here to assist you in navigating the intricacies of ecommerce fraud, providing you with valuable insights and effective strategies to ward off potential threats.

Throughout our consultation, we will explore various preventive measures that can be implemented to shield your business and customers from online fraudsters. By arming yourself with this knowledge, you can fortify your defenses and establish a secure environment for your online transactions. Together, we will embark on a journey to ensure the integrity of your business and the trust of your valued customers remain intact in the face of ever-evolving cyber threats.

What is ecommerce fraud?

what is fraud

Ecommerce fraud comes in many forms. Basically, it’s when a criminal knowingly scams an online store or other ecommerce business transaction, for either personal or financial gain.

Ecommerce fraud is just a different type of fraud where the customer and the merchant both lose. Over 20% of all retail purchases will be made online in 2023 (over 6 trillion).

Friendly fraud, also known as second-party fraud, is a deceptive practice where a genuine customer initially makes an authorized purchase using their card but later denies it. This can involve providing their card information to a family member or someone else to make it appear as third-party fraud or to falsely claim they didn't make the purchase. Subsequently, the customer disputes the transaction with their bank, resulting in a chargeback. Reasons for filing a dispute can range from claiming non-receipt of the product to dissatisfaction with the item or simply canceling the order shortly after placing it.

What is card-testing fraud

Card-testing fraud, also known as credit card validation testing or card cracking, involves the use of bots, scripts, and programs by thieves to swiftly test large sets of stolen card data. This stolen data typically includes debit and credit card numbers, account numbers, card expiration dates, and card verification values (CVV). The fraudsters then utilize the stolen data to systematically run credit card numbers through an ecommerce platform or shopping cart of a business. Through trial and error, they attempt multiple small transactions to avoid detection by both the merchant and fraud monitoring systems. If a transaction is successful, it confirms the validity of the card number and cardholder data, allowing the fraudsters to exploit or sell the information on the dark web.

What is refund abuse?

Refund abuse refers to a form of ecommerce fraud where customers exploit retailers by returning stolen or damaged merchandise in order to receive a refund. Retailers have observed an alarming increase in the number of returned stolen goods or items purchased using stolen payment methods. Furthermore, incidents of employee return fraud and collusion are also on the rise. Refund abuse accounts for a staggering $84 billion of the total losses incurred through refunds. Although implementing a stringent refund policy can offer some level of protection to businesses, it does not effectively mitigate the financial impact when such fraudulent activities occur.

How to spot ecommerce fraud

Merchants can employ various strategies and tools to spot ecommerce fraud and minimize its impact. Here are some common methods:

  1. Fraud Detection Systems: Merchants can utilize advanced fraud detection systems that employ machine learning algorithms to analyze transaction patterns, detect suspicious activities, and flag potentially fraudulent transactions for further review.
  2. Address Verification System (AVS): AVS compares the billing address provided by the customer during checkout with the address associated with the credit card on file. Significant mismatches can indicate potential fraud.
  3. Card Verification Value (CVV): Merchants can require customers to provide the CVV code, a three or four-digit security code on the back of the credit card. Verifying the CVV helps ensure that the customer possesses the physical card.
  4. IP Geolocation: Analyzing the geographical location of the customer's IP address can help identify inconsistencies. For example, if a customer claims to be in one country but their IP address indicates a different location, it could be a red flag.
  5. Order Velocity: Monitoring the frequency and volume of orders from the same customer can help identify unusual behavior. A sudden increase in order velocity, particularly for high-value items, may indicate fraud.
  6. Manual Review: Merchants can conduct manual reviews for high-risk orders or transactions that trigger certain predefined criteria or suspicion. This involves investigating the customer's details, contact information, order history, and any additional supporting documentation.
  7. Device Fingerprinting: By analyzing device-specific data such as IP address, operating system, browser version, and cookies, merchants can identify if a particular device has been associated with fraudulent activities in the past.
  8. Behavioral Analysis: Merchants can analyze customer behavior, such as navigation patterns, time spent on the website, or the sequence of actions during the checkout process. Deviations from normal behavior may indicate fraudulent intent.
  9. Collaboration and Data Sharing: Merchants can collaborate with industry networks, sharing information about fraudulent activities and suspicious individuals to stay updated and protect themselves collectively.

It's important to note that no single method is foolproof, and a combination of these approaches, tailored to the specific business needs and risk tolerance, is recommended to effectively identify and prevent ecommerce fraud.

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Scott Lorts

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