How To Help Prevent eCommerce Fraud

From credit card signatures to lockable cash drawers to PIN numbers, there have been numerous ways merchants, consumers, and financial institutions have tried to protect payments. With today’s increasingly connected world, criminals constantly look for ways to gain unauthorized access to sensitive payment details such as credit card numbers, usernames, and passwords.

In fact, eCommerce fraud represents a serious threat to online businesses of all sizes. Larger companies may be more attractive targets since they capture, store, and transmit more payment information — however they may also have the resources to protect themselves and potentially bounce back after a data breach. Smaller companies may not be so lucky, with an estimated 60% going out of business within half a year of a cyberattack.

Below are four common types of eCommerce fraud, complete with strategies you can implement to help protect your business.

eCommerce Frauds

1. Stolen Credit Card Fraud

With this popular scam, criminals use stolen credit cards to make big-ticket purchases online. The thief uses the cardholder’s billing address, but the physical items are delivered to re-shippers, PO Boxes, or other hard-to-trace addresses.

You can help prevent this by using fraud management filters to flag online purchases in which the billing and shipping addresses don’t match. The order will only go through once you’ve had a chance to contact the user and authenticate the purchase.

2. Card Testing Fraud

Long before making large-ticket purchases, many criminals will test stolen cards to make sure they work. Usually these fake online orders are just a few pennies — but the damage can be significantly more.

It’s estimated that for every $1 in direct fraudulent losses, eCommerce merchants could lose an additional $2 due to fees, penalties, litigation, and time spent disputing unauthorized charges. Moreover, even relatively minor instances of fraud can negatively impact consumer confidence in your organisation’s ability to safeguard sensitive data.

You can help prevent card testing fraud by establishing minimum purchase amounts during checkout. It shouldn’t be possible to initiate a $3 sale if the lowest-priced item in your inventory is $4.

3. Account Takeover Fraud

Criminals don’t have to see a user’s credit card number to abuse their payment information. By gaining access to a customer’s username and password, a thief can initiate transactions using whatever credit card details are on file.

To help minimize this type of fraud, require customers to select stronger passwords, with a blend of numbers, symbols, and mixed-case letters. In addition, implement two-factor authentication (2FA) in which users are required to complete a second verification step. Criminals might gain access to a customer’s username and password, but it’s less likely they’ll also be able to:

• Intercept a security PIN sent to that user’s phone or email
• Guess that customer’s secondary password

4. Chargeback Fraud

Because this scam involves your customers, it often goes by another name — “friendly fraud.” It works whenever a customer buys something before claiming that the item never arrived or that the purchase was unauthorised. The customer keeps the item and reverses the charges through their credit card company, meaning you’ve lost the sale, the inventory, and now face weeks or months disputing the charge.

Some of the best practices to prevent friendly eCommerce fraud include eliminating guest checkout so users can no longer anonymously purchase online, using 2FA to make it harder for customers to claim someone else placed the order, and requiring signatures on delivery to verify if and when a shipped item arrives.

Although these four types of fraud represent some of the more common scams, this list is far from exhaustive. New strategies emerge every day as more payment activity moves online. The anonymity, speed, and ease of eCommerce shopping create too much temptation for career criminals and friendly fraudsters alike. As a result, the tools used to help prevent online abuse must also constantly evolve.

Infographic created by Fiserv, a connected commerce company

This information is provided for informational purposes only and should not be construed as legal, financial, or tax advice. Readers should contact their attorneys, financial advisors, or tax professionals to obtain advice with respect to any particular matter.

About The Author

Clare Anderson

Clare Anderson is a freelance technology writer with experience covering IT, software, and emerging tech trends. She contributes guides and reviews aimed at both home users and IT professionals.

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