Online fraud is a serious threat for eCommerce retailers – small and large. It’s not just the out-of-pocket losses about which online businesses have to worry. For every $1 in fraudulent transactions, companies lose an estimated $3* once factoring in the following:
- Fines and punitive damages
- Legal fees and settlements
- Diminished consumer confidence
All of this is on top of the time spent disputing fraudulent claims – a process that can take many months of valuable time away from your core business of selling goods and services online.
Tips to Prevent eCommerce Fraud
This article explores some of the most common types of eCommerce fraud, complete with commonsense tips to help reduce the frequency and severity of these attacks.
1. Stolen credit card fraud
This is one of the most familiar types of fraud. It happens whenever a criminal steals a user’s credit card information and starts making big-ticket purchases shipped to a third-party address.
Although it’s not possible to verify the authenticity of every anonymous online user, you can help reduce stolen credit card fraud by asking for more information during checkout. A thief might be able to get his or her hands on a user’s 16-digit credit card number. It’s much harder to obtain the three-digit Card Verification Value (CVV) on the back of the card or the four-digit Card Identification number (CID) on the front of some cards. The same goes for billing addresses – which you can reconcile with an Address Verification Service (AVS).
2. Card Testing
Card testing is when a criminal runs tiny charges on stolen credit cards to see whether they work. If they do, that thief could begin to use valid cards to make bigger-ticket purchases.
You can help reduce this practice in your eCommerce store by scanning for:
- Small transactions – especially if the amounts don’t line up with prices you charge (e.g., $0.01)
- Back-to-back transactions, which is often an indication that criminals are “testing” stolen cards in quick succession
- Foreign transactions – you can flag suspicious purchases made from IP addresses outside your normal service area
While it’s possible to monitor the above manually, many payment solutions now come with security filters that will automatically flag transactions that are too small, too rapid, or from the wrong country.
3. Chargeback fraud
Also known as “friendly fraud,” chargeback fraud happens when a user orders something online only to claim it never arrived (when it really did). That customer then reverses the charge through his or her credit card company instead of asking for a normal refund from you, the merchant.
Publishing a clear refund policy can help reduce “honest” chargebacks. A better strategy involves disabling guest checkout. This makes it harder for customers to claim they didn’t place the order. You can also add a layer of protection by requiring two-factor authentication (2FA) for all logins.
Payment fraud has always been an arms race, with criminals and security experts on both sides doing everything they can to gain an advantage. The advent of Internet technology has only expanded fraud’s reach – allowing thieves to scale their operations as more payment activity moves online.
Becoming PCI-compliant can help. In fact, it’s mandatory if you store, process, or transmit credit card information in your business. Leveraging security tools such as tokenization and encryption can also help minimize risks. These security and fraud management filters now represent the minimum for staying safe in today’s digitally-connected world.
If you are concerned about the impact eCommerce fraud could have on your organization, the strategies outlined above can help make your online store less inviting to criminals – and more attractive to legitimate shoppers.
Author bio: Dori Bright is Senior Vice President of Marketing Intelligence and Small Business Market Development at Fiserv, a leading global provider of eCommerce payments and financial technology solutions, helping businesses connect with customers through physical, digital, and mobile payment experiences that drive commerce.
Infographic created by First Data