The rise of eCommerce has brought tremendous benefits to businesses and consumers alike. Not only did it make shopping more convenient and accessible than ever before, but it also allowed merchants to reach entirely new markets.
However, the benefits also come with unknown risks and challenges, including the threat of fraud. Minimizing the chances of eCommerce fraud is essential for any company that wants to stay competitive in today’s business world.
Most common types of eCommerce fraud and their consequences
E-commerce has revolutionized the way we shop but also how fraudsters conduct their malicious activities. They are constantly looking for new ways to exploit unsuspecting eCommerce merchants, which is why it is essential to stay up-to-date with the most common fraud types that pose a danger to their business:
- Account Takeover Fraud
- Credit card Fraud
- Chargeback Fraud
- Friendly Fraud
No matter what type of fraud a business encounters, they are left to deal with the aftermath and try to recover quickly. A new study from Juniper Research expects that the total cost of eCommerce fraud to merchants will exceed $48 billion globally in 2023, increasing from just over $41 billion in 2022. But that is not the only consequence of fraud. From lost revenue and increased operational cost to loss of customer trust and reputational damage, companies that fail to protect their business will have to deal with sometimes irreparable damage.
Minimizing the Risk of eCommerce Fraud
Merchants can no longer wait for something that might damage their business, but they need to start taking proactive measures to prevent it from occurring in the first place.
- Implement fraud prevention strategy: By utilizing security tools that use machine learning and AI, merchants can detect suspicious patterns that might indicate fraud and prevent it before they cause any damage.
- Utilize chargeback management systems: This allows merchants to respond to chargebacks quickly and effectively and prevent them from happening.
- Implement multi-factor authentication: This method provides an additional level of security. Since it requires customers to complete multiple verification methods before a transaction, it reduces the risk of account takeover fraud.
- Monitor high-risk transactions: In an article, PayOp explained that by monitoring high-risk transactions, such as large purchases or purchases from new customers, you could identify suspicious transactions as soon as they happen and stop them before any damage is done.
- Educate employees: They should know how to recognize signs of fraud and what steps to take to protect themselves and your business.
- Stay up-to-date on industry trends: Fraudsters are constantly developing new fraudulent activities, while cybersecurity experts are developing new methods to prevent them. By staying informed and up-to-date on the latest trends, merchants can detect and prevent fraud more effectively.
Dealing with friendly fraud
Despite taking proactive measures to prevent fraud, eCommerce merchants may still face friendly fraud as it includes legitimate customers. According to SEON, 86% of all chargebacks are likely friendly fraud. Regardless of the intent of the chargeback request, friendly fraud is still costly for merchants, especially as there are hidden costs attached to it.
- Chargeback fees and administrative costs: Merchants are charged a fee for each chargeback while also paying for administrative expenses connected with disputing the requests. Additionally, if they receive many chargeback requests, their bank can claim they are high-risk and block their services.
- Lost revenue: Due to chargeback, merchants will lose the payment for the product or service sold, including the shipping costs.
- Increased operational costs: To protect themselves and handle friendly fraud, merchants usually invest in additional resources, such as more professional security methods or extra employees.
- Loss of customers: Dealing with friendly fraud, especially when implementing an invasive cybersecurity solution, can cause friction and result in loss of customers. It can also damage the customer’s trust in the merchant, leading to a loss of future business.
This is why you should try to deal with friendly fraud as quickly and effectively as possible to ensure you minimize the costs for your business.
- Utilize cybersecurity tools to prevent it before it happens: Use tools at your disposal, such as device fingerprinting or IP lookup tools, to determine customers’ intent and stop them before they can commit fraudulent activity. For example, Airbnb uses machine learning (ML) to analyze past examples of confirmed fraudulent behavior to identify suspicious activity.
- Gather evidence: You should gather as much evidence as possible to support your case and prove the order was made purposely and completed correctly. This can include order details, shipping information, and any communication with the customer. Many eCommerce companies are vigilant about it, for Amazon will sometimes take a photo of your package being delivered, especially if left unattended.
- Work with payment processors: Payment processors often have chargeback management tools and can provide guidance on how to respond to disputes. This can make the process faster and frictionless.
- Respond quickly to all requests: If you don’t respond quickly enough, a chargeback could be automatically granted to the customer.
- Communicate with customers: Keep customers informed of any updates or progress, as this can help you maintain good customer relationships. You can even prevent chargeback from happening by having a clear return policy, ensuring the product description is informative enough, and keeping communication channels, such as live chat, open.
eCommerce fraud is a severe problem that can damage finances and reputation. By taking proactive measures to prevent fraud, such as using fraud detection tools, educating employees, or implementing multi-factor authentications, eCommerce merchants can reduce the risk of fraud and protect themselves even from friendly fraud.