By Michael Habermann, Director of Fraud Services
The peak retail season is also peak season for fraudsters. Global losses due to online payment fraud reached $20 billion in 2021 and are expected to increase to nearly $41 billion by 2027. While shoppers expect fast, easy, and smooth transactions, they also expect retailers to have fraud management practices in place that protect cardholders.
In addition to resulting in financial losses, fraud is also a customer experience problem. You want to keep legitimate customers happy and returning, while denying bad actors. False declines can cost eCommerce businesses customer loyalty and negatively impact customers’ overall shopping experience, so achieving successful eCommerce fraud detection can feel like a balancing act. Get it right and you can keep a customer happy and coming back; get it wrong and you can fall off their radar when it’s time to make a future purchase.
Let’s explore what effective eCommerce fraud protection looks like and how to keep your retail business secure during the holidays—and every day of the year.
What is eCommerce Fraud?
eCommerce fraud targets retailers via online purchases. As the pandemic brought about a surge in online shopping, it also created an opportunity for increased fraud. There are multiple, often sophisticated eCommerce fraud strategies that impact retailers and their customers.
Types of eCommerce Fraud
- Friendly fraud: Also called chargeback fraud, friendly fraud is the most common type of eCommerce fraud. It happens when a consumer shops online with their own credit card, receives their order, and then disputes the transaction with the credit card company or financial institution as fraudulent or claims they never received it and requests a chargeback. Once approved, the chargeback cancels the financial transaction and the consumer owes nothing. Issuing banks often hold merchants accountable for payment when chargebacks occur.
- Account takeover: In this method, fraudsters take over legitimate accounts by stealing passwords and usernames to make fraudulent purchases. This is accomplished by using a customer’s good purchasing history to mask detection.
- Return fraud: Often part of friendly fraud and also called policy fraud, return fraud occurs when consumers purchase items with the intent of returning them to pocket cash. They do this in many ways, including wardrobing (using a product then returning it) or falsifying duplicate receipts to get returns.
- Credit card fraud: Also known as card-not-present fraud, credit card fraud is a form of identity theft where fraudsters use stolen credit card information and credit card numbers to make purchases. These purchases are often resold or refunded in order to make a profit.
Regardless of the type of strategy, eCommerce fraud is a major issue that reduces revenue, damages brand reputation, and negatively impacts customer experience.
What is eCommerce Fraud Prevention?
While brick-and-mortar retailers can use in-person verification methods during checkout to help prevent fraudulent transactions, eCommerce merchants must rely on eCommerce fraud prevention tools and technology for customer authentication and transaction approvals.
eCommerce fraud prevention helps stop fraudulent activity and fraud attacks before they happen, while still ensuring that good customers’ transactions are approved in real time.
Online retailers’ eCommerce fraud prevention practices often include customer authentication, requiring CVV (card verification value) during payment processing, 3D Secure authentication protocols, address verification systems (AVS) to ensure the shipping address and billing address match, geolocation verification, verifying IP addresses, and using eCommerce fraud prevention solutions that automate transaction verification in the background to create a frictionless customer experience.
eCommerce Fraud Prevention for Peak Season Success
Fraudsters count on retailer overload and distraction during the busy peak season. Fraud prevention is a 24×7 responsibility, but eCommerce businesses and online stores need to protect customer data and ensure their eCommerce fraud protection strategies are rigorous enough to keep pace with nefarious attackers during peak season. Now is the time to optimize your fraud prevention tactics.
One of the best ways to do so is to automate the process with sophisticated fraud prevention technology that can spot red flags; detect, identify, and block fraud attacks; and stop fraudulent order processing—at scale.
What to Look for in a Fraud Prevention Solution
There are a variety of anti-fraud detection tools and prevention solution providers available. The bottom line is that you want a solution that will integrate with your eCommerce platform and that uses continuously updated algorithms to monitor fraud. It needs to be a seamless part of the transaction process that minimizes false positives and ensures that your good customers have an exceptional, friction-free shopping experience.
Here’s what to look for in a fraud prevention solution:
- Flexible options to meet your needs. From a full-service solution to fraud management only and fraud risk assessment insights, you want a solution that fits the unique needs of your eCommerce business
- Zero fraud chargeback liability guarantee. The best providers are so confident in their capacity to keep you safe that they will cover the cost of any fraud that gets through the system
- Easy-to-use, comprehensive, out-of-the-box solution with simple API calls
- Advanced machine learning with rules management, analysis, and pattern detection
- Device fingerprinting
- Complete chargeback management
- Onboarding and setup made easy
- 24×7 processing and support and a professional order investigations team
Prepare for a Safe and Secure Holiday Season
Detecting fraud is a balancing act that the best fraud prevention providers achieve with a combination of machine learning, consortium data, and human intelligence to deliver high approval rates while guaranteeing zero fraud chargeback liability. They will reject less than 1% of orders and let you know that it’s safe to ship the order 99% of the time. The result? You maximize sales, eliminate risk and, most importantly, protect your customers.