Ecommerce is one of the most accessible ways to make a living online. Online sales have steadily increased over the past decade, seeing an even sharper rise after the onset of COVID-19 sent everyone indoors. Unfortunately, the growth of ecommerce has also given rise to an increase in ecommerce fraud. Last year ecommerce fraud losses surpassed 2020 losses by 14%, reaching over 20 billion dollars.
How can you prevent financial disasters caused by ecommerce fraud? By the end of this article, you will understand how fraud can affect your online business, how to spot it, and the steps you can take to prevent ecommerce fraud from happening to you.
What is ecommerce fraud?
Ecommerce fraud, or payment fraud, occurs when someone attempts to deceive an online retailer so they can steal money, data, or product from a merchant. There are many ways that fraudsters trick ecommerce algorithms and dupe business owners into sending products without intending to pay for them using a verified account.
As scammers get better at deceiving merchants, ecommerce business owners must have a strategy to fight fraud. This includes verifying users' identities, using backend tools to prevent spam and phishing, and protecting your assets with a comprehensive insurance policy.
Types of ecommerce fraud
Ecommerce fraud has evolved over the years from exploiting cardholders to full-blown fraudulent campaigns. Let’s talk about six main types of ecommerce fraud so that you can develop a better perspective from which to execute your ecommerce fraud prevention strategy.
CNP Fraud
Card Not Present fraud occurs when someone purchases using a card that is not in their possession. Ecommerce, with its digital nature, is a hotbed for instances of CNP fraud. Although nearly all ecommerce stores require that cardholders verify the CVV code to prove that they own the account, scammers know how to access this kind of information using phishing scams and hacker marketplaces.
Chargeback Fraud
Chargeback fraud means that a customer initiates a chargeback after they’ve received their item so that they can keep their money and the product they received. But chargebacks don’t always happen intentionally. Friendly fraud is when a chargeback occurs by accident. Although the intention is not malicious, friendly fraud still accounts for 40 to 80% of ecommerce fraud losses.
Account Takeover Fraud
ATO fraud occurs when someone hijacks a customer’s account and uses that account to buy items, use reward points, and more. Scammers usually steal the customer’s login credentials through phishing scams where they impersonate legitimate businesses to gain your customers' trust and trick them into divulging pertinent account information.
Account Enrollment Fraud
This type of fraud is similar to ATO fraud, except instead of taking over an existing user’s account, the scammer uses stolen credit card information to set up an account with an ecommerce store.
Mail Interception Fraud
When a scammer steals a credit card and uses that to ship purchases to the cardholder's actual address. But before the package arrives, the scammer reaches out to customer service to change the shipping address. This sneaky method bypasses fraud detection systems, stealing from the cardholder and the online business.
Brand Impersonation
Brand impersonation fraud tricks customers into giving away crucial financial and personal information. Fraudsters will use logos and other insignia to make their fake social media pages or phishing emails look real so that unsuspecting victims trust the attacker and fall victim to the scheme.
Identify ecommerce fraud
The impact of ecommerce fraud can have far-reaching effects, so learning how to identify ecommerce fraud can help your online business prevent further damage.
Here are some tell-tale signs that could mean ecommerce fraud:
- You receive a new device login email notification when you have not logged into any new devices.
- You notice unusual login locations.
- You notice a user purchased large volumes of the same product in one transaction.
- You receive an influx of orders all at once.
- Multiple orders are shipped to the same address with different cards (or vice versa).
- You have multiple customers using similar email addresses.
Prevent ecommerce fraud
There are no one-size-fits-all solutions to prevent ecommerce fraud. However, a strategic approach to fraud protection using one or all of these tips can prevent instances of ecommerce fraud:
Deploy Multi-Factor Authentication
Multi-Factor Authentication uses numerous authentication methods for customers to access their accounts. Although extra friction is involved, added security with MFA provides an additional layer of protection for your ecommerce business and your customer’s financial data.
Follow payment card industry standards
Payment card industry standards, or PCI compliance, help merchants identify weaknesses and prevent credit card fraud by enforcing data security best practices and other legal requirements for ecommerce business owners.
Lockdown your email security
Since phishing emails are responsible for 91% of all fraudulent attacks, business owners should develop protocols that protect their business email. New email marketing regulations require businesses to leverage digital tools that prevent spam, phishing emails, and other fraudulent email activities.
Take advantage of SSL encryption
An SSL certificate helps keep ecommerce sites secure by encrypting sensitive data to hide it from malicious onlookers. SSL encryption boosts customer confidence since they know that your ecommerce site is committed to data protection and preventing instances of ecommerce fraud.
Fraud monitoring software
If you own an ecommerce business, you need to be able to detect suspicious orders to stop fraud in its tracks. Volusion Fraud Score provides comprehensive risk analysis that includes transacting details, geolocation, device tracking, and more.
Conclusion
Ecommerce fraud affects thousands of ecommerce businesses every year, causing financial ruin and brand depreciation. Protecting your business from ecommerce fraud begins with learning about the types of fraud, identifying the warning signs, and making a strategic plan to prevent future instances of ecommerce fraud.