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PREVENTING E-Commerce Fraud
It should come as no surprise that the past two years have seen truly tremendous growth in E-commerce in the US. During the height of the pandemic, people staying at home turned to online purchasing to satisfy their needs and wants. Even as restrictions lift and customers have begun to resume their normal routines, they have become accustomed to the convenience of E-commerce shopping. The US Department of Commerce reports that in the fourth quarter of 2021, E-commerce accounted for 13 percent of all retail sales.
Unfortunately, as a market grows, so too grow the ranks of bad actors’ intent on exploiting that market for their own illicit gains. The booming E-commerce industry is ripe for fraud in its varied forms, and businesses need to remain alert against falling victim to the acts of fraudsters – because payment processing companies have likewise noticed this trend, and will be on the alert for costly liabilities.
At the same time, companies dealing in E-commerce are keenly aware that the more roadblocks put in place to safeguard against fraud, the lengthier and more complicated the user experience can become for legitimate customers. Online shoppers have grown increasingly accustomed to the speed and convenience of one-click ordering, and the more steps placed between a customer and a completed transaction, the higher the risk of a frustrated customer, an abandoned virtual cart, and a lost sale. In trying to find the ideal balance point between a streamlined customer experience and robust fraud prevention, it’s important to understand some of the more common types of E-commerce fraud.
Phishing
When you hear news stories about companies that have suffered a significant breach of customer data, it’s possible that the business in question was the victim of a phishing scam. In this type of attack, a fraudster contacts employees of the company while pretending to be someone they aren’t – someone who has legitimate reason to ask for sensitive information. The phisher might claim to work for a bank or payment processing company, or a government agency. They use this feigned legitimacy to trick employees into disclosing sensitive data, including credit card information, login usernames and passwords, and other personal customer information collected by the business that may aid the fraudsters in committing identity theft.
Research indicates that the best defense against phishing attacks is consistent and continuous employee education, along with an ongoing course of drills and tests in which mock phishing attacks are launched, giving employee teams the opportunity to learn how to recognize scam artists and respond appropriately. This kind of sustained training provides employees with the skills and knowledge to prevent a catastrophic data breach, saving your company money, time, and your reputation as a safe company for your customers to purchase from.
Chargeback Fraud
Sometimes referred to as “friendly fraud,” this type of fraud occurs when a customer makes a legitimate online purchase, receives the merchandise or service as ordered, and then files a claim with their card provider asserting that their account has been compromised and the purchase was made by someone else, and demands that the charges be reversed. This is one of the more challenging types of fraud to protect your business against, but with appropriate precautions and safeguards in place and the right training for your employees, some of these instances can be prevented, and many can be successfully contested with the card issuer.
The importance of having robust defenses against chargeback fraud extends far beyond preventing the lost sales and merchandise that each instance of successful fraud represents. The financial institutions that provide merchant accounts carefully monitor each business’s rate of chargebacks, and classify certain businesses as “high risk” based on their perceived susceptibility to, or their actual history of, chargebacks. Being classed as a high-risk merchant can result in higher payment processing fees, onerous restrictions on your account, or even the loss of payment processing privileges entirely.
Warning Signs of Fraud
No matter how skilled or experienced the fraudster, there are certain red flags your teams can watch out for that indicate the possibility of fraudulent activity. If a transaction seems suspicious, you can always contact the issuing bank to confirm client information and have them verify with the cardholder that the transaction is legitimate before fulfilling the order. This may seem like a time-consuming extra step, but it’s better than falling victim to fraud.
- Billing and shipping addresses do not match.
- Numerous orders for the same item by a single customer.
- Multiple orders paid for with different cards, but delivered to the same address.
- Abrupt, substantial increase in order traffic.
- Sudden increase in international orders.
Overall, the best way to combat E-commerce fraud is through a combination of technological safeguards – including software tools using predictive analytics to flag potentially fraudulent transactions based on a wide range of factors – and robust employee training and engagement.
Contact us today to learn more about our Chargeback and Fraud Solutions!
