Fraud in e-commerce is a set of illegal techniques and activities that are developed with the aim of obtaining an economic benefit. Basically, it is any type of malicious activity focused on exploiting online stores and the people linked to them (clientele and/or business partners).
No business has the e-commerce fraud solution, since no one is exempt from the risk of falling victim to a digital scam. However, it is crucial that you recognize the importance of e-commerce fraud prevention as a methodology for keeping cybercriminals at bay.
Understanding e-commerce fraud and its types
There are certain methods that stand out in particular. These are as follows:
- Phishing: The offender impersonates a company and uses the company’s relationships to deceive customers and business partners.
- Fraud in transactions: The fraudster makes the purchase with a stolen card number, the transaction is processed and the store ships the product. Subsequently, the customer demands the chargeback and the store must take responsibility for this.
- Identity theft: Also known as third-party fraud, this is based on the impersonation of the holder of the payment means and the use of this identity to make an online purchase. The scammers carry out the purchase and once the cardholder becomes aware, he/she notifies the bank and the bank cancels the charge to the store.
- Account takeover: The fraudsters take over the accounts of customers or companies and take advantage of them to deceive and obtain a financial benefit.
- Friendly fraud: This describes the exploitation of reimbursement policies. With this method, the person who receives the product alleges that it did not arrive or that it is in poor manufacturing conditions in order to have the money returned.
For example, let’s take into account one of the most known e-commerce creation platforms Shopify. Its fraud analysis prevention area helps you identify orders that could be fraudulent. Review high-risk orders to avoid potential chargebacks.
Credit card companies can reverse funds for stolen cards after orders are fulfilled. Shopify helps you to gather evidence for any disputed charges. However, the decision to reverse funds is made by the bank that issued the credit card, not by Shopify. Shopify does not cover charge reversals from banks.
Fraud analysis is designed to work with online credit card orders, when Shopify can verify the payment. This means that some types of orders, including those that are processed offline, don’t receive recommendations.
What anti-fraud preventing measures in e-commerce can I use?
It is of the utmost importance that these measures are structured on the basis of 3 steps: (1) Authentication measures, (2) e-commerce fraud management processes and (3) constant updating of new methodologies. You can make use of tools focused on:
- Review of the social footprint: This process involves verifying the identity of the supposed buyer and owner of the means of payment via the use of public data obtained from their digital presence.
- The identification of VPNs, proxies or emulators: Not everyone who withholds information about their online presence is a fraudster. However, falsification of data is one of the main indicators of the presence of irregularities, so it is better not to run the risk.
- Review of the shipping and payment points: This entails confirming the legitimacy of the buyer by means of his IP address and the address to which he wants the product to be delivered;
- Monitoring of the use of cards for micropayments: This technique makes it possible to recognize the so-called “tests” carried out by fraudsters to evaluate the functionality of the purchase method within commercial trade. Keeping an eye out for small transactions is one of the keys to catch criminals before the scam develops.
Establishing effective fraud prevention processes
You should put a series of protocols in place that are focused on preventing the possible effect on your online store and its productive potential. Here are some of the key elements in this process.
- Create a solid database: Create profiles for your customers and collect information that enables you to verify their legitimacy. This means data such as their e-mail address or telephone number, among other things.
- Use additional information as a means of verification: Apply several filters for customers entering the purchasing platform.
- Inform your clientele: In a simple and understandable way, inform customers of the possibility of fraud and indicate the steps necessary to protect them when buying.
- Establish parameters for anomaly detection: Set purchase limits and use indicators that allow you to recognize massive purchases or movements featuring strange characteristics.
- Make alliances: Guarantee customer security by contracting cybersecurity and information verification with third party companies. Investing in BigCommerce fraud prevention is critical for ensuring the sustainable growth of a large company within the online commerce landscape.
Single e-commerce fraud prevention and protection tools
Simple fraud prevention and protection tools (often called “fraud filters”) are designed to help automate the process of identifying fraudulent transactions. They are usually integrated into an e-commerce platform.
There are dozens of types of such tools available, including:
- Speed filters that control how many transactions can be sent to the merchant’s website during a certain period of time.
- Address Verification Services (AVS), which allow merchants to reject or request the review of orders where the numerical elements of the billing and shipping addresses do not match.
- Card verification value (CVV) filters, which look for discrepancies between a credit card’s CVV number and the one entered during the checkout process.
- Purchase amount filters that cause merchants to review transactions that are greater or less than a pre-determined range.
Are e-commerce fraud filters effective?
One advantage of fraud filters is that they are generally inexpensive to implement. Unfortunately, these tools are often not a comprehensive solution; merchants have to combine tools to create a more complete approach.
Keeping up-to-date with the latest fraud trends and prevention strategies
The main advanced technologies used for fraud prevention
- Privacy by design: The idea is to go beyond regulations by proposing protection as part of the entity’s operational planning. The aim is not for preventing fraud to be an institutional action, but rather a guiding principle on the basis of which online engineering is developed.
- Special attention to the handling of cryptocurrencies: It is necessary to develop studies and propose alternatives for payment with virtual currencies. These are by definition anonymous, making it difficult to identify and mitigate cases of electronic fraud.
- Use of artificial intelligence: The option of machine learning tools that allow early recognition of risks and structural flaws related to electronic fraud is being considered.
What questions should I constantly ask myself in order to evaluate the integrity of my fraud prevention plan?
Seek out your task force and ask yourself the following questions.
- Do I know how many frauds have occurred in the recent history of my business? Am I aware of their origins?
- Is there a trend towards any specific type of fraud in the sector?
- Am I up to date on the resources needed to detect suspicious activity? Do I use machine learning or purchase origin analysis, among others?
- Do I have an up-to-date model to identify suspicious transactions? Is a change of algorithm necessary?
After examining and evaluating your business, keep in mind that e-commerce fraud protection is critical to your customer relationships, product distribution and revenue collection.
Keeping transactions secure and mitigating risks is one of our specialties. If you need guidance in this process, we invite you to contact our specialized Pay Retailers team.