Key Takeaways
- Protect your store’s reputation and profits by implementing a proactive fraud detection strategy.
- Reduce your risk by always requiring CVV numbers and setting daily limits on customer purchases.
- Build lasting customer loyalty by demonstrating you are serious about protecting their sensitive data.
- Learn to identify warning signs like multiple quick orders to many different addresses.
E-commerce fraud can have a serious impact on your business, causing damage to both your finances, reputation, and even compromising your customers’ sensitive information.
There are many types of e-commerce fraud, including card testing fraud, account takeover fraud, refund fraud, triangulation fraud, and friendly fraud. The good news is that there are some easy ways to guard against it happening.
Common Types of E-Commerce Fraud
Some of the most common types of e-commerce fraud are chargeback fraud and account takeover fraud. The latter is where thieves steal customers’ data to access their accounts, and it can result in significant financial losses for both the customer and the retailer. “Card Not Present” is another type of e-commerce fraud that regularly does the rounds, involving cybercriminals using stolen card details to make purchases online.
Ways to Spot E-Commerce Fraud
The first step in fighting e-commerce fraud is knowing the red flags to watch out for. These include multiple orders made using many different credit cards, multiple shipping addresses, multiple orders from unusual locations, and a series of rapid, back-to-back transactions. Unusual purchasing behavior can also be a warning sign. This could look like, for example, a regular customer making a much higher value order than they normally would.
How to Fight Back Against E-Commerce Fraud
E-commerce fraud may be on the rise, but there are plenty of things you can do to keep your business safe. Here are the actionable steps to take right now:
- Deploy a high-quality fraud detection solution such as DataDome, which effectively analyzes user behavior to spot potential fraud. Such software blocks the malicious source before an attack takes place without negatively affecting the customer experience.
- Audit your e-commerce platform’s security regularly to ensure it remains robust, even in the face of newly emerging threats. You should also regularly scan your site for malware and viruses, and back up data.
- Always require CVV numbers for credit card transactions, and set limits on the total purchases a single account can make in a day.
- Use “https” on your e-commerce website, rather than “http”, to ensure data transmitted online is encrypted and therefore secure. It’s a good idea, too, to only collect the necessary sensitive data from customers.
- Reject invalid shipping addresses and never ship orders to P.O. boxes and virtual addresses.
Staying Safe from E-Commerce Fraud: Now and in the Future
The internet has provided fraudsters with rich hunting grounds, and more cybercrooks than ever before are engaging in e-commerce fraud to access sensitive data, harvest payment details, and cause chaos. For businesses, this type of fraud can be catastrophic and create a serious breach of trust with even the most loyal of regular customers. To fortify your e-commerce platform against this type of attack, consider using a great fraud detection solution to analyze site behavior and spot potential threats. Regularly audit your site for safety, too, back up data, and follow best practices such as always requiring CVV numbers for card transactions and rejecting risky shipping addresses.
Frequently Asked Questions
What is e-commerce fraud in simple terms?
E-commerce fraud involves dishonest activities where criminals use stolen information, like credit card details or account logins, to make purchases online. This harms not only the business’s finances but also the security and trust of its customers.
What are the first warning signs of fraudulent activity on my site?
Key warning signs include a sudden series of rapid orders from one account, multiple orders placed using different credit cards but shipping to a single address, or a customer making an unusually large purchase that deviates from their normal spending habits.
What is the most important first step to secure my online store?
The most important foundational step is to ensure your website uses “https,” not “http.” This encrypts the data shared between your customer and your site, making it much more difficult for criminals to intercept sensitive information like payment details.
Is fraud detection software enough to protect my business?
While fraud detection software is a powerful first line of defense that automates threat analysis, it works best as part of a layered security approach. Regularly auditing your site’s security and training your team to spot red flags provides an additional level of protection that software alone cannot.
What is ‘friendly fraud,’ and is it really a problem?
Yes, it is a significant problem. “Friendly fraud” happens when a legitimate customer makes a purchase and then requests a chargeback from their bank without a valid reason, claiming the product never arrived or was not authorized. Although not malicious like theft, it still results in financial losses and inventory issues for your business.
Why do fraudsters target customer accounts instead of just using stolen cards?
Criminals target customer accounts through “account takeover” fraud because these accounts often have stored payment methods, shipping addresses, and a history of trusted transactions. This allows them to place orders that appear legitimate, making their fraudulent activity much harder to detect.
Should I block orders shipping to P.O. boxes?
Rejecting orders to P.O. boxes is a common security practice because they can be used to hide a fraudster’s true location, making them harder to trace. While some legitimate customers use them, the risk associated with them is often higher, especially for high-value orders.
How does requiring a CVV number help prevent fraud?
Requiring the three or four-digit CVV number for every transaction helps verify that the person making the purchase physically has the card. This simple step is effective against “Card Not Present” fraud, where criminals may have the card number and expiration date but not the CVV code.
Besides financial loss, how else does e-commerce fraud hurt a business?
Beyond direct financial costs, e-commerce fraud severely damages a business’s reputation and erodes customer trust. A security breach can make customers feel unsafe shopping with you again, leading to long-term loss of loyalty and negative word-of-mouth.
What is the single most practical action I can take today to reduce fraud?
A simple and highly practical action is to review your checkout settings and ensure you are only collecting the customer data that is absolutely necessary to complete a transaction. Storing less sensitive information means there is less for criminals to potentially steal in a security breach.
