prevent e commerce fraud

How to Prevent E-Commerce Fraud in 2022

March 11, 2022

Growth in eCommerce in the US has accelerated at a tremendous pace over the past two years. Growth in 2021 clocked in at over 14%. eCommerce was 13% of all retail sales as of the fourth quarter of 2021, according to the US Department of Commerce.

Merchants should not ignore these numbers since payment processors, security experts, hackers, and bad actors will not. The trend towards noncash and online transactions grows, as does the potential for criminal activity, especially in eCommerce, and payments are growing and fluid industries and ripe for fraud.

Understandably, the security aspect of businesses will need to strike a balance between these concerns and the customer journey. On the one hand, there is the potential of criminal activity targeting unsuspecting customers in various ways, costing both businesses and their customers. However, on the other hand, you have onerous security constraints stifling the transaction, disillusioning customers used to one-click ordering.

As a result of these dynamics, below are some best practices that merchants should consider implementing to mitigate the risks posed by fraud in eCommerce to offer a frictionless consumer experience.

What are some types of eCommerce frauds?

Let’s begin with the various types of fraud prevalent in eCommerce.

Phishing is a common scam for any business, not just eCommerce. Phishing occurs when somebody poses to be a person they aren’t for team members to disclose vital information the company has on file, including credit card information, login credentials, passwords, and a host of other personal identification about their customers. Fraudsters work to gather as much data as possible to build a profile of as many consumers as possible to carry out identity theft, among other nefarious activities.

A phisher may contact an eCommerce store pretending to call from a bank to verify suspicious account activity arising from their platform. According to research, merchants are best served when they continuously raise awareness of phishing activities among their teams and have an ongoing program to test them with mock phishing attacks. Ensuring that team members are appropriately and constantly trained to handle such calls or events can save time, money, and reputation.

Chargeback Fraud – This type of fraud occurs when a person makes an eCommerce purchase, receives the goods ordered, and proceeds to file a claim that their card has been stolen to have the merchant reverse the charge to their credit card. For merchants, this type of fraud is one of the most complex and challenging types of fraudulent activity to protect against. Nonetheless, with appropriate safeguards in place and sufficient training for the team on the correct security protocols, many of these occurrences can be avoided, successfully contested, or avoided altogether.

There are other long-term costs of unchecked weaknesses against chargeback fraud. Merchant service providers determine the riskiness of a merchant based on the susceptibility to or actual history of chargebacks. If a business is classified as high-risk due to chargeback history, fraudulent or not, the merchant will end up paying higher chargeback and payment processing fees.

Are there any warning signs?

Increasingly, eCommerce fraud is conducted by skilled technology experts who understand the latest technology, safeguards, and best practices. However, there are certain warning signs and clues that fraudsters leave behind. Below are some warning signs to look for.

  • Check for the billing address to not match the shipping address.
  • The merchant can also call the issuing bank to confirm client details and verify with the card owner if they were the ones who placed the order. It’s a cumbersome process but better than the alternative of a shipped product and recurring chargebacks.
  • Numerous orders are placed for the same item by the same customer.
  • Multiple orders are placed for different items by different credit cards but delivered to the same address.
  • A substantial uptick in order flows.
  • Look out for a sudden increase in international transactions.

Are there tools available to help prevent eCommerce frauds?

Merchants have numerous tools at their disposal to combat eCommerce fraud. They can start with some of the below options.

Employee engagement is one of the best techniques to reduce security occurrences. Raising the awareness of security risks among your team members pays enormous dividends. Training against phishing techniques helps with not just fraudulent activity in eCommerce but business in general by safeguarding trade secrets. A well-trained team on the front lines of business operations can be the best defense in detecting and resolving fraudulent threats.

Technological tools – Beyond training, it is best to arm team members with the latest specialized tools, such as predictive analytics, which include systematic risk matrixes on a transaction’s nature to gauge the likelihood of fraud.

Large online retailers, merchant account providers, and financial institutions often scrutinize billions of transactions to model appropriate transactions versus fraudulent ones using factors such as IP Geolocation, device history, address verification, card security codes, user profiles, IP geolocation, and transaction logs, among many other.

These technologies are a robust line of defense, and any activity they flag should be escalated to threat analysts for human decision-making.

The ease and safety of eCommerce have been touted over the past couple of years, with eCommerce growing 14% in 2021. It is near an all-time peak of nearly 13% of all retail sales at the end of the year. But merchants need to be vigilant of the various fraudulent activities that eCommerce may be susceptible to and ensure that they can protect against loss of business and loyal customers.

Protection against fraud in eCommerce can be complicated. Merchants are constantly trying to strike a balance between convenience and security. The essential first step is recognizing that preventable risks can be tackled, although there aren’t any guarantees that these preventive measures are a panacea. Nonetheless, these are the necessary precautions needed from merchants for consumers’ confidence to develop on your platform. It showcases a merchant’s commitment that data safeguards are taken seriously.

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