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How to protect your business from eCommerce fraud

Apr 19, 2022

The rapid growth of e-commerce over the last few years has been matched by an unprecedented rise in cybercriminals targeting online retailers. The e-commerce fraud they commit refers to any type of fraud that occurs on an e-commerce platform. There are many different types, but CNP fraud (card-not-present-fraud) now accounts for the largest part of all online fraud.

When exposed to e-commerce fraud, merchants will bear full liability for the losses, meaning they will absorb the whole of the costs of the fraudulent transaction: a significant amount as this includes the cost of the product, shipping cost, payment processor penalty fees and administrative costs for investigating a chargeback. On top of that, negative social media and online reviews might damage the merchant’s reputation.

There are no practices that can prevent e-commerce fraud 100 %, but the following steps can help to reduce the risk:

1. Adapt your risk assessment model to your specific industry

There is definitely no one-size-fits-all approach to fraud prevention. It would be useful to understand what eCommerce fraud looks like in your particular business category and analyse the latest fraud patterns. FMPay have implemented enhanced risk control modules which will help you to access the risks in real time, protect your customers and increase your revenue. Our limits will apply to the number of transactions per card per month, the number of transactions per card per day and the maximum value of transaction per card. You may add extra restrictions (for example on IP addresses, or countries) that you think will be necessary.

2. Implement CVV checks and 3D Secure during your check-out process

Card Verification Value (CVV) requires a customer to provide a separate three-digit identifying code that is physically written on their credit card when they make a purchase. CVV also has a unique security feature: it is illegal for merchants to store a client’s CVV data after a transaction is authenticated. If a database of transactions is compromised, the CVV will still be safe, making the stolen cards less useful to fraudsters. 3D Secure (3DS) is an extra layer of protection known as 2 factor-identification (2FA) available for cards issued by Visa and Mastercard. Having a 3DS in place will help you to avoid the liability for chargebacks in the case of fraud, where a chargeback arises from a lost or stolen card. Both 3DS and CVV are part of FMPay’s fraud protection tool and come absolutely free.

3. Watch for red flags in details of your orders

eCommerce merchants are constantly facing a dilemma. Cancelling any suspicious order will lead to rejection of many safe purchases made by legitimate customers, who for some reason fall into the fraud risk category or have made small errors while entering their card data during the check out process. This leads to lost sales and a decrease in your customer portfolio. However, allowing too much fraud will increase the risk of chargebacks, which are associated with high operational costs, and maybe even leading to a potential loss of processing ability. Modern fraud detection solutions, especially AI and data analytics, have made it easier to find the right balance.

4. Avoid merchant errors

A mismatch in your business name and the billing descriptor, errors in products/services descriptions and pictures as well as confusing return policies can frustrate your customers. This means that they can mark legitimate transactions as fraudulent and initiate chargebacks. Customer satisfaction should be your main priority. Make sure your customers are not feeling swindled or taken advantage of, with a generous refund policy to prevent refund requests from becoming chargebacks.

5. Keep detailed order records

Chargeback fraud, also called friendly fraud, occurs when a customer disputes the charge with their bank for a product or service without a legitimate reason. It will help to validate your claim quickly and effectively if you collect and store evidence showing that the transaction was authorised by the cardholder and the product or service was delivered. It will be helpful to maintain an internal blacklist of customers who file chargebacks, which will prevent repeat offenders.

Having implemented robust fraud-detection and fraud prevention practices will never eliminate all potential fraud. Cybercriminals are always improving their skills with the development of new technologies, finding more innovative ways to gain access to the credentials of online customers. However, if you take the task seriously and constantly assess and improve your anti-fraud practices by smart screening and multiple layers of fraud control, you will help to significantly reduce the impact of eCommerce fraud on your business.

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