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December 10, 2021

E-Commerce Fraud Prevention Best Practices

The e-commerce sector is unfortunately on the list of the top fraud victims, as a result of the rapid digitalization. Here are the best practices to protect your e-commerce business from fraud!

Fraud is a huge issue for companies and it hurts businesses. E-commerce companies are one of the popular victims of fraudsters. Online shopping for customers became a must and habit due to the pandemic so e-commerce merchants rose tremendously to survive and take advantage of new habits of customers. Although the e-commerce sector has grown and keeps growing especially during the pandemic, fraud initiatives towards these companies grow as well. Therefore, e-commerce firms should adopt the best practices possible for e-commerce fraud prevention.

Let’s look at some scary and interesting fraud statistics for e-commerce merchants. Global payment fraud is increasing day by day and it’s forecasted that it will cost firms that are doing e-commerce $40.62 billion in losses by 2027. Besides, e-commerce retailers cope with approximately 206,000 web attacks monthly. There’s even more. In 2021, e-commerce losses because of online payment fraud are estimated to reach $20 billion all over the World. It is more than the number of 2020. In 2020, it was 17,5 billion dollars. Unfortunately, there’s a 14% rise. Since fraud is increasing, e-commerce companies invest a lot for fraud detection and prevention as fraud not only causes financial losses but also reputational losses for e-commerce businesses. They might lose the trust of their customers and ultimately those customers. Furthermore, they may have a hard time acquiring new customers owing to the reputation loss.  

Global E-Commerce Losses Because of Online Payment

To gain a deeper insight about e-commerce fraud prevention and e-commerce fraud detection, let’s look at a couple of fraud types e-commerce retailers or clients face frequently.  

The Most Common Fraud Types in E-Commerce
  • Payment Fraud:

Initially, payment fraud is by far the most popular method of e-commerce fraud. Hackers steal the identity of account owners and impersonate real owners to buy something. They can make many purchases if they know the real owners’ personal information including debit or credit card details. Moreover, they can possess the names, addresses, phone numbers of account owners.  

  • Friendly Fraud:

Friendly fraud is one of the popular frauds e-commerce merchants deal with as well. In this fraud type, customers purchase goods with their own cards but they claim that their cards were stolen and they didn’t make those purchases. Consequently, e-commerce companies give those customers their money back but actually those customers keep having the items they bought.  

  • Merchant Fraud (Internet Fraud):

There’s also a fraud kind called merchant fraud aka internet fraud. In this fraud type, an e-commerce firm takes the order of the customer but customer doesn’t receive the product or service. Chargebacks are not allowed either.  

  • Interception Fraud:

The last e-commerce fraud kind we’ll look at is interception fraud. In interception fraud, imposters use stolen cards to buy items on an e-commerce site but then change the shipping address of the real owner. For instance, a fraudster goes to an e-commerce site and impersonates someone else with a stolen name, address, card info, etc. The perpetrator makes some purchases and after he’s done, he calls customer service to change the delivery address of the actual account owner. Thus, he cheats the customer service and makes the goods he purchased to be delivered to his desired address.

So, what can businesses do for e-commerce fraud detection and e-commerce fraud prevention? We’ll go over some best practices for e-commerce fraud detection and e-commerce fraud prevention.  

Best Practices for E-Commerce Fraud Detection and Prevention

  1. Increasing Customer Account Takeover Protection,
  1. Preparing for Strong Customer Authentication (SCA),
  1. Investing in Address Verification Services (AVS),
  1. Benefiting from Artificial Intelligence (AI) and machine learning in fraud prevention activities,
  1. Collaborating with a trustworthy third-party payment processor,
  1. Performing card security code necessities,
  1. Updating fraud prevention tools frequently,
  1. Following Payment Card Industry (PCI) Standards.

introduction to fraud detection

Increasing Customer Account Takeover Protection

Account takeover means online identity theft and we mentioned online identity theft above. Fraudsters steal the personal details of real customers and make purchases from their accounts. To prevent account takeover, you should encourage your customers to have strong and complex passwords. You should also ask extra security questions. Furthermore, you can foster your clients to benefit from antivirus software. These practices help protect the accounts of your customers from fraudulent activities. Fraudsters can also get access to official business accounts somehow. It’s also an account takeover.

Preparing for Strong Customer Authentication (SCA)

Strong Customer Authentication (SCA) is an extra level of security. The aim is to make sure that the one making the purchase is the customer or someone the customer gives authority to make the purchase. There can be two or multi-factor authentication. Strong Customer Authentication (SCA) is a recent European Union regulation to increase the security of online card payments and decrease fraud risk. In two-factor authentication, the customer receives a passcode to her cell phone and in multi-factor authentication, facial recognition or fingerprint is needed by the customer.  

Investing in Address Verification Services (AVS)

Address Verification Service (AVS) is a very popular tool e-commerce businesses use to prevent credit card fraud. Address Verification Service (AVS) compares the billing address of card users and card owners. During this process, issuing banks and e-commerce retailers communicate. After the address comparison, issuing bank sends an AVS code to the merchant so that the merchant can cancel or proceed with the transaction. AVS helps lessen fraud risks and grow customer trust.  

Benefiting from Artificial Intelligence (AI) and Machine Learning in Fraud Prevention Activities

Benefiting from AI and machine learning decreases the excessive workload of fraud analysts and helps them do more critical and significant works. Implementing AI and machine learning in e-commerce fraud detection and prevention also decreases human error significantly. The fundamental goal here is to maintain the collaboration between fraud analysts and AI technology.  

Collaborating with a Trustworthy Third-Party Payment Processor

3rd party payment processors are actual bank clients and they process payments for merchants and other businesses. If you work with a reliable 3rd party payment processor, you can accept online payments despite not having your own merchant account as it’ll let you use its merchant account. It’s basically an intermediary between the e-commerce merchant and the financial organization. Besides, this payment processor checks suspicious payment activities. That means it contributes to e-commerce fraud detection and e-commerce fraud prevention. Customers might save their card info in their personal accounts to be able to make their online purchases quicker and easier. A payment processor you partner with can keep your clients’ private details safe and this leads to fewer fraud attempts against your business.  

Performing Card Security Code Necessities

In e-commerce sites, customers make purchases with card-not-present (CNP) actions. In these types of actions, there’s no physical card presented to the store physically. Purchases can be made online, via phone, e-mail, or mobile apps in CNP transactions. These transactions may cause fraud as identity of the cardholder cannot be verified easily. To decrease fraud risk, asking card security code is extremely crucial. Card security codes are 3 or 4-digit numbers in the back of your cards.  

Updating Fraud Prevention Tools Frequently

If you’re using some fraud prevention tools, you better update them when there’re new software updates. Since fraudsters try hard to find weaknesses in fraud prevention tools, not updating these tools might cause some vulnerabilities and you might miss fraudulent activities.  

Following Payment Card Industry (PCI) Standards 

Payment Card Industry (PCI) Standards are standards that assist firms to prevent e-commerce fraud. Thanks to these standards, e-commerce merchants can protect their clients from e-commerce fraud as well. Data of cardholders is secured thanks to PCI Standards. These standards are defined by The PCI Security Standards Council (PCI SSC).  

To sum up, these best practices are significant for e-commerce fraud detection and e-commerce fraud prevention. In addition to these best practices for e-commerce, you can also use modern, AI-powered fraud detection and prevention software to enhance efficiency in your fraud operations and to lessen the burden of your fraud and risk analysts. Thus, your fraud specialists don’t spend too much time on routine work and they can give significance to more critical tasks.