Ecommerce fraud prevention: effective strategies to protect business
No matter what you sell, if you run a large or small business where money is involved, criminals will always be eyeing you. With a massive number of stores gone online recently, the number of fraudsters is getting bigger at a rapid-fire pace. And unfortunately, many of the newbies on the market are easy prey due to a lack of fraud protection tools or just simple ignorance.
The online fraud landscape is changing, or should I say upgrading. These days new and more elaborate criminal schemes appear out of thin air, so merchants should do whatever it takes to err on the side of caution.
Whether you own or operate an online store, spare a while to read this manual. Here you'll find the best practices and valuable techniques to prevent fraud and save your money, clients and reputation. So, off we go!
What is ecommerce fraud
Ecommerce is inseparably associated with online transactions when buyers make payments over the Internet from their laptops, tablets, phones, smartwatches etc. Fraud is a deliberate act focused on getting financial or personal gain illegally. So, what I'm hitting is that ecommerce fraud is a criminal activity conducted during an online transaction to obtain money or other unauthorised benefits. It's also called payment fraud, and it affects the merchant's revenue, reputation and brand image any way you slice it.
Unfortunately, ecommerce fraud is ever-evolving because criminals come up with more sophisticated schemes every passing year. What's even worse is that prosecution is rare when it comes to payment fraud. Why so? Most of the time, it's difficult to chase the criminal and gather evidence as they are hidden deeply in the World Wide Web. Besides, the number of Internet crimes is enormous, so you can't rely on a police officer to investigate each and every one. Frustratingly but it's true, you should think long-term and better prevent fraudulent attacks rather than dealing with them.
Our next stop here is ecommerce fraud types, and right after that, we'll look closer at the preventive tactics.
Types of ecommerce fraud
People say 'Forewarned is forearmed', and it makes perfect sense when it comes to protecting your business from criminal attacks. So, here are the most common types of ecommerce fraud for you to know.
Believe it or not, but this type of fraud has nothing to do with friendship. Why the name? That's because a criminal pretends to be your customer, innocent and naive – such a wolf in sheep's clothing.
Friendly fraud occurs when a buyer purchases something and then asks for a chargeback. The reasons may vary from an unauthorised transaction to a broken item. Sometimes customers say that the parcel wasn’t delivered, or they'd sent an order back but didn't get any money.
Unfortunately, friendly fraud is widespread as it's one of the easiest schemes – so few risks are involved. A thief files a chargeback claim to the bank or credit card company, and they often return money to smooth things over with a customer.
Another fast-growing form of identity theft is ATO (account takeover). It's malicious access to a user's account on the website with the intent to gain control over it and make unauthorised transactions. Bad actors or fraudsters usually hack accounts through various methods like purchasing data on the dark web or stealing them through phishing schemes. Once the hacker controls the account, they can make purchases, withdraw funds and engage in other kinds of fraudulent activities.
Account takeover is a serious crime that affects the brand image you've worked so hard to build. You risk losing many of your customers as they realise your store isn't safe and their data is extremely vulnerable. In a blink of an eye, they will switch over to your competitors, but easy here. There is always a way out, even several of them. We'll talk about them later on.
If the order is placed to, let's say, Michel Cunningem's address, it doesn't necessarily mean that he will receive the parcel. Unfortunately, when interception fraud is involved, the chances to get goods are minimal. The scheme works like that: a criminal uses a stolen card to order something and ship the purchase to the address linked to the card. Then they intercept the parcel before a real receiver gets it.
The interception process is not rocket science. A fraudster can simply call the store's customer service where the order has been placed and change the pickup location. They may also contact the shipping company to reroute the parcel to another address.
This sneaky scheme involves three steps. In the first one, fraudsters create a fake online store, it's usually a simple website without HTTPS protocol. The main idea is to make a real hook for naive customers, so the store often offers brand-name goods at jaw-dropping prices. Once the potential clients see such bargain-basement price tags, they place orders giving their personal information right into the criminals' hands.
If you think that the second step includes grabbing that data and running away, you're wrong. The criminals buy precisely what a victim ordered and send it to them. But the third step is where the crime is committed. Fraudsters used stolen data to make additional purchases.
The number of fraud types is countless, and you can't know them all. What you can do is to protect your ecommerce business from cybercriminals. That's what we're talking about in the next section.
How to prevent ecommerce fraud
Ecommerce fraud is like mould growing on food and destroying it from the inside. Even if it's small and doesn't affect your business that much, you should prevent it from growing and ruining your brand. Don't worry! You don't need to reinvent the wheel here. Just take a look at the following strategies and apply them to your ecommerce project.
Use Hypertext Transfer Protocol Secure (HTTPS)
If you still don't use an HTTPS connection, then what are you waiting for? It's a protocol used to transfer encrypted data over a secure connection. That means that the customer's sensitive information such as an address, name, card number, CVV and other details will be protected from hackers and cybercriminals.
First and foremost, you should obtain an SSL certificate to make use of HTTPS. That's a crucial thing to consider when starting an ecommerce website.
Leverage the 3D Secure power
3D Secure or 3DS is a go-to solution for merchants who want to prevent unauthorised transactions. As a retailer, you'd better leverage this type of authentication to deal with genuine cardholders only.
This technology provides you with some sort of guarantee that a user confirms the transactions. At the checkout stage, a buyer receives an SMS with a verification code. He or she must enter that code, or the payment will automatically be declined.
Don't store sensitive clients' information
If you store customers' credit card information on a regular basis, you should be double careful as it's easy prey for cybercriminals. Actually, consider saying 'no' to storing sensitive data and use tokenisation instead.
Tokenisation is when the user's private details are changed to random characters, numbers and letters. That process takes place right at the checkout stage when a client enters their data. That means you don't store actual information but some meaningless characters, also called tokens, that don't make any sense for criminals.
As a merchant, you cannot start using tokenisation just because you want to. What you can do is start working with a reliable payment provider that offers tokenisation by default. For instance, Tranzzo does that. You can accept online payments with Tranzzo and bid farewell to fraud attacks as we convert all sensitive data to tokens.
Use fraud detection solutions to your advantage
You can bend over backwards to protect yourself and your business from cybercriminals. Still, you can't keep an eye on anything and everything, especially if you have no time and resources to take care of every transaction. Basically, a fraud detection solution is a third-party solution aimed to fight off cyberattacks. When cooperating with a reliable provider, you can steer clear of friendly fraud, card testing fraud and other crimes.
If you wonder where to find the right fraud detection solutions, here is what we've got for you. Tranzzo offers cloud-based anti-fraud software as a Saas solution. It includes:
- simple integration via API
- 24/7 support
- high conversion rate
- three-level anti-fraud system
- regular updates of fraud schemes database
- 3D Secure
- PCI DSS certification (must-have standards for merchants)
You don't need to worry about transaction security at all. It's on us. Tranzzo charges 3 cents per successful transaction, providing everything you need to prevent ecommerce fraud.
Find out more about Tranzzo anti-fraud solution by following this link – https://tranzzo.com/antifraud
As you can see, the number of ecommerce fraud schemes shows no signs of stopping. So, it's in your best interest to leverage the power of an effective anti-fraud system. If you have no knowledge and resources to create it yourself, don't hesitate to use third-party solutions like Tranzzo. More information about it by the link – https://tranzzo.com/ecommerce-solution