E-commerce Fraud Guide

Everyone's problem is internet security. Everyone has heard about hackers, data breaches, and money thefts. But, right now, are you prepared to say from which side your business might be threatened? Can you list the critical flaws in your online store off the top of your head? It's a hundred to one that it'll fail. We've all been asked difficult questions. In such a situation, what would we want to do? Sure, we choose to put things off till a more appropriate time has passed, and then one day, we forget about it, and everything comes into place or unravels. We've determined it's past time for you to leave your comfort zone and get things sorted out. Learn about the most common types of e-commerce fraud, the most high-profile examples from 2017, and how to safeguard your online store and all client categories against malicious activity. We are here to help you make sense of it all.

What is e-commerce fraud?

Any kind of fraud that occurs on an e-commerce platform is referred to as e-commerce fraud. e-commerce fraud includes using a stolen or phony credit card, creating a false identity, and advertising affiliate fraud. When a customer commits fraud on your online store, you, as the merchant, bear the expense, hurting your sales. Unlike fraud in a physical location, online fraud can be carried out with personal and credit card information, and the card does not need to be present during the transaction. Hackers steal personal and financial data and sell it on the black market in some situations. Although one sort of criminal fraud is more serious, there are other types of customer fraud, such as friendly fraud, in which a client makes a chargeback to receive free goods and avoid payment. Part of the reason for the predominance of e-commerce fraud today is that convictions are uncommon due to time and resource restrictions, the costs of gathering evidence, and other factors. As a result, e-commerce fraud prosecutions are unique. Therefore, it is better to integrate a high-quality fraud discovery and prevention management system to eliminate fraud on your platform and minimize its revenue impact. E-commerce fraud is brilliant and developing, with fraudsters employing increasingly sophisticated strategies with each passing year. You must be correct every time, whereas malicious actors just need to be right once. Let's look at the most typical sorts of online retail fraud before looking at measures to tackle it.

Why is e-commerce fraud prevalent?

Fraudsters are becoming more intelligent, devising new methods, and becoming more sophisticated with each passing year as everything goes digital and A.I. is used. It is simple to steal data and buy information with today's modern technologies. The use of online aliases makes it challenging to identify and apprehend the perpetrator. In comparison, there are fewer time and budget limits on obtaining evidence and prosecuting cases. To combat fraud, you must utilize a high-quality fraud detection and management system and integrate innovative methods into your organization.

Common types of e-commerce fraud

True Fraud

This is the type of fraud that most people think of when they hear the word. It refers to making an online purchase with stolen credentials—either identity theft or a credit card number. As credit card theft has become more difficult in card-present contexts, thieves have turned their focus to online targets due to the deployment of EMV technology.

Friendly Fraud

The term “friendly” fraud is a misnomer. Its term comes from the fact that it begins as a fully legal transaction. When customers dispute a purchase with their bank, they can receive their money back via chargeback while keeping the goods or services they bought. Some customers unintentionally commit friendly fraud because of impatience, frustration with the merchant, or a lack of understanding of how the chargeback process is supposed to work.

Phishing

Phishing is a term that describes a range of methods that thieves employ to acquire access to other people's accounts. There are many ways to achieve this, including guessing poorly chosen password reset security questions (finding out someone's mother's maiden name isn't difficult). In addition, a phisher who gets access to a customer account at an online business may make purchases using stored payment details.

Refund Fraud

This occurs when a criminal uses a stolen credit card to purchase and then returns the item to the merchant for a refund to a different account, cash, or store credit. This type of fraud has traditionally been easier to pull off in brick-and-mortar establishments, but the concept has been adapted for use in e-commerce.

Card Testing

A cyber thief may have a stolen credit card number but be unsure whether it is accurate or how high the credit limit is. They may make a few tiny test purchases to learn more about the card. Organized criminals can use bot networks to test thousands of stolen cards at once, allowing card testing to scale up dramatically. This form of fraud is hazardous for merchants, who may be punished with multiple chargebacks for numerous little sales, resulting in fines. This kind of fraud is on the rise, with a year-over-year increase of more than 200 percent in 2017.

Effective prevention strategies

True fraud In-House Strategies

• Activate your payment gateway's AVS and CVV matching functionality. Only a few thieves will have both of these pieces of data. This is one of the simplest ways to screen out charges from stolen cards, and it should be available from every payment processor.
• Manually review purchases that seek rush or overnight shipment before delivering them, especially if the billing and shipping addresses are different. Fraudsters frequently request fast shipment to receive their items before retailers discover their fraud. A quick phone call or email can validate the validity of the request.
• Trace IP addresses to find out where suspicious transactions are coming from. Some nations have higher fraud rates than others, so any order from a country you don't regularly do business with should be taken seriously.
• Large orders, multiple orders from the same customer, and unexpected overseas orders should all be flagged for examination. It's challenging to look at a random order that appears too good to be confirmed with a suspicious eye, but believing the best isn't an excellent strategy to avoid fraud. Orders that don't fit your standard sales patterns should be investigated further.

Friendly Fraud In-House Strategies

• Make sure your merchant descriptions are easily recognizable by clients. Customers don't recognize your transaction on their bank statements, which leads to a lot of chargebacks. Customers should acknowledge the source of the charge if the description includes the name of their business or store
• Establish reasonable expectations for your goods and services. A consumer who believes they have been misled or fooled by your marketing materials may be hesitant to return to your organization to remedy their problem. Make no commitments that you can't keep.
• Maintain a business that is honest and ethical. You can't expect your customers to behave ethically toward you if you're attempting to take advantage of them.

Phishing In-House Strategies

• For your database and CRM system, use strict password requirements. Unfortunately, many workers make the mistake of assuming that their internal computer systems are relatively safe from hackers and choose passwords that are easy to remember as a result. Don't let them have that option.
• Make your consumers generate long passwords using numerals, special characters, capitalized letters, and a minimum length of eight characters. If you require users to answer security questions to reset their password, make sure the questions don't ask for personal information that criminals could get through social media.
• Prohibit your staff from logging into admin accounts via public Wi-Fi networks. You have no clue how secure someone else's Wi-Fi is, and some tools can sniff out and capture all the data that flows across an insecure Wi-Fi network.

Refund Fraud In-House Strategies

• For each order, you dispatch, obtain a tracking number. Customers most frequently request refunds for things that were never delivered. Therefore, refund fraud can be considerably reduced by shipping tangible products with a tracking number.
• Ensure your customers are aware of the intricacies of your refund policy and terms before they make a transaction. Refunds that are “hassle-free” can help you attract new customers, but they can also attract clients who intend to take advantage of them.
• Keep track of how many refunds a consumer wants and why they want them. Analytics can assist you in identifying internal issues that are driving your refund rates to rise, as well as customers who are abusing your return policy.
• For your customer service team, create a process and policy document. For example, when businesses use third-party call centers to handle customer care queries, refund abuse is common. Give your team specific instructions on how to qualify for returns and refunds.
• During the holiday season, stay away from overnight shipping. Shipping delays are expected at this time of year, and criminals frequently use them to cover fraud.
• Create a database for chargeback abusers to prevent double refund fraud. Fraudsters can occasionally get a double refund by seeking a refund from the business and chargeback from their bank at the same time. Unfortunately, merchants who aren't used to battling chargebacks will frequently lose the battle. Your customer care team can avoid sending refunds to known chargeback abusers by blocking these clients.

Card Testing AKA Card Cracking In-House Strategies

• Activate your payment gateway's AVS and CVV matching functionality. Fraudsters will be discouraged from making further purchases at your online store due to the error notices.
• Keep an eye out for an increase in minor orders. To test different card numbers they've stolen, fraudsters frequently try to place many minor orders in a short period. Set a minimum order value and be wary of modest order spikes that appear to be too good to be true.
• Keep an eye out for orders coming in from foreign I.P. addresses. Because most card testing fraud occurs outside of the United States, consider automatically denying all orders from foreign I.P. addresses if doing business globally isn't critical to your overall sales.

Fraud warning signs

Suspicious I.P. addresses

Using a delivery address outside of the country, clever scammers can obscure their country of origin. So it’s worth looking into if the I.P. address's geographic location doesn't match the shipping or billing address — especially if the I.P. address is from a higher-risk country. A disguised I.P. address could potentially be an indication of trouble.

Strings of orders from new countries

If you've never had a single purchase from Russia before and suddenly receive ten in a week, then it could be a sign that something suspicious is going on.

Special orders

Customized merchandise is particularly vulnerable to chargeback fraud because it's simple to claim the task was done incorrectly and seek a refund. Therefore, it’s a good idea to limit special orders to trustworthy customers, especially since international protocols can make it difficult for merchants to pursue chargebacks that aren't justified.

Orders placed at odd hours

Shopping online is convenient 24 hours a day, seven days a week, but orders placed at odd hours could be a sign of fraud. Fraudster activity tends to peak late at night and early in the morning, regardless of time zone, and may appear to be typical business hours if the time is not compared to the country of origin.

Huge orders

A substantial volume of orders from a single country or region could be a red sign. Single charges that cost more than the average ticket price are likewise questionable, especially if they involve express shipping and large quantities of the same item. Customers that place many orders in a short period and ship to multiple addresses should be investigated further.

Suspicious contact information

Fake email addresses and phone numbers can create suspicion. For example, a confused or incomprehensible email address, such as asfgy1234@yahoo.com, may have been constructed to be discarded. Names and addresses written entirely in lowercase characters or with spelling problems should be regarded with suspicion. Unfortunately, many fraudsters prefer to send packages to freight forwarders, shipping businesses, P.O. boxes, or even uninhabited buildings to conceal their names and whereabouts.

Inconsistent information

Alarms should be raised if customer information does not match across successive purchases. For example, retailers may notice that the same email address being used for many orders, each with a different phone number or name.

M-commerce

Mobile apps can potentially be hacked, allowing fraudsters to acquire actual consumers' personal information without their knowledge. International fraudsters may also disguise their location by using American shipping and billing addresses. In addition, retailers can use geolocation services to see if a customer's information matches the I.P. address of the device they used to place an order.

How to detect e-commerce fraud in online transactions

In the world of e-commerce, fraud detection is becoming increasingly important. But, how does fraud take place? Who do fraudsters intend to defraud? What kinds of things should a company look into to detect fraud? Here are several red flags to look for to see whether the transaction is potentially fraudulent:

• Shipping to the unusual location
• The contradiction between shipping address and I.P. address
• Utilizing multiple cards on a single I.P. address
• Many transactions in a short amount of time
• Shipping to an incomplete address
• Large quantities of products
• Fast shipping

How to prevent e-commerce frauds

Here are some strategies for preventing fraud in the e-commerce industry.

• Running online stores with up-to-date, high-quality software
• Make use of a more advanced and dependable third-party payment processor
• Using the Address Verification System (AVS) and the Verification of Credit Codes (CVV)
• Assuring that all websites associated with the online store are HTTPS-secured
• Detecting high-risk transactions with fraud detection and management software
• Analyzing the risk factors and assessing the fraud risk
• Making the online payment procedure comply with the rules, laws, and regulations that apply
• Employee and customer fraud awareness workshops

Final thoughts

Responding to chargebacks promptly, assembling the evidence needed to have them reversed, and determining the fundamental reasons for your chargebacks can all take a lot of time, effort, and resources. While some organizations may have a minor enough chargeback problem that they can handle it in-house, it's occasionally more cost-effective to employ a chargeback management provider. The key benefits of outsourcing chargeback management include access to experts, 24-hour availability, and detailed reporting that can help you understand your company's risks. On the other hand, chargeback management organizations can be costly, so choose one that provides transparent billing and security and performance assurances. A good company should demonstrate to you how they're generating a decent return on your investment in hiring them by looking at the numbers. Fighting fraud and chargebacks is a never-ending, ever-changing effort. The biggest thing you can do is keep informed, understand the threats you're up against, and do everything you can to safeguard your company from those who want to take the money you've worked so hard to achieve.