Statistics project that the global e-commerce retail industry will approach the $5 trillion mark. But even as sales are set to increase, fraudsters are evolving daily to keep up with changes in the industry.
With the increase in fraudulent e-commerce transactions, more sellers are placing up fraud management systems to stop the crime. However, in the process, these businesses could flag honest purchasers.
When your fraud management system flags legitimate buyers, you stand the risk of more than 60% of these customers never doing business with you.
Preventing fraud and increasing sales is a delicate game of balance. You have to use systems that protect you without compromising a customer’s experience or your sales.
Understanding the common e-commerce fraud will guide you in developing fraud management systems to protect your business.
The common types of e-commerce fraud include:
- Card-not-present fraud in which the fraudulent customers uses stolen credit cards and credentials to place an order from your store. The credit card owner will dispute the transaction, and you must issue a refund.
- Return fraud where the customer tries to get the product for free. In this scenario the buyer will create multiple accounts, purchase merchandise, return the original packaging empty and sell them elsewhere.
You could detect e-commerce fraud through the following indicators:
When retailers are the victims of fraud or want to prevent fraud, they take it to the extreme and put up as strict measures as they can.
The result is a system that filters out all customers who, for any reason, fit the description of potential fraud. Such strict screening is the leading cause of false declines and major losses in sales and customer experience.
Smart fraud management allows e-commerce retailers to have the best of both worlds: reduced losses due to fraud and increased customer retention and experience.
Too often, you might be preoccupied with analyzing every single transaction that you miss the patterns that fraudulent transactions leave. At one point, a legitimate transaction is likely to fit the description of a fraudulent one, leading to a missed sale.
As a business owner, have an expert reviewing the patterns fraudsters follow so that you can catch fraudulent transactions at different stages. For instance, a fraudster could have the credit card details, CVV, address, and real card owner details.
However, after the transaction, he or she will change the shipping address and effectively defraud you. If you have identified this as a pattern, you will have a system in place to confirm via telephone or email about the change of shipping address.
As part of the big picture, you have to keep evolving as e-commerce fraud management measures evolve. Keep your software updated and employees educated to ensure your business is as safe as possible.
Customers with weak passwords put both their information and your business at risk of loss, with account takeover fraud costing more than $5 billion annually.
As a business, you must enforce strong password policies so that your customers’ data is safe. Encourage them to use long passwords with a combination of lower and uppercase letters, numbers, and symbols.
It might be frustrating for them, but it is safer than losing their information or accounts to fraudsters.
Payment Card Industry data security standards guide e-commerce retailers on the standards to follow when storing, processing, or transmitting credit card information.
Ensure your store complies with these standards to prevent data loss, fraud, and financial losses due to fines for non-compliance.
If you are using an e-commerce platform, learn the PCI standards they have in place, and add any missing requirements.
Most merchants are not equipped to handle fraud detection or security of their e-commerce stores, leaving enough loopholes for fraudsters.
To mitigate this risk, work with security experts to manage every transaction stage, detect fraud, and test your system to catch vulnerabilities that expose you to fraud.
Most e-commerce software or processing platforms have alert systems that you can set up to notify you of suspicious activities like:
Some unscrupulous customers will receive a product and file a chargeback claiming they never received the product. However, a tracking number ensures that the customer received their product, which you can use to defend a chargeback request.
In addition to the tracking number, request your customer’s signatures upon delivering the requested product.
Fraud management in e-commerce is about assessing risks, developing systems, and adopting best practices that reduce fraud without reducing your sales or customer experience. Approach fraud management with the big picture in mind, learn fraud trends in your niche and develop measures that mitigate these risks.