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E-commerce fraud prevention: how to protect your customers and business?


What are some of the e-commerce scams you'll encounter?

In e-commerce, there are a variety of scams you may encounter, all of which usually have one goal: to extract sensitive information from customers or merchants for unjust financial gain. 

The most common e-commerce scams include:

  • Credit card fraud: a fraudster uses a stolen credit card to purchase products or services from an e-commerce store. For example, a fraudster obtains someone else's credit card details on a dark web site. 
  • Email phishing: Fraudsters may impersonate your company and send emails on your behalf (on behalf of your e-shop) to try to extort sensitive information from customers, such as personal or login details or credit card numbers. The emails may contain malicious links that redirect customers to fake websites or download malware onto their computers. 
  • Friendly fraud (chargeback fraud): This practice involves a customer purchasing something from your e-shop and then asking the bank for a refund, claiming that they did not receive the goods, or that they received something else, or that it was a fraudulent purchase/unauthorised transaction.
  • Affiliate marketing scams: The goal is to earn commissions from affiliate sales; fraudsters use fake activity to illegally obtain or increase the value of the commission. 

Effective strategies to protect your online business

Whether an attacker chooses one of the above or any other form of fraud, it can have very unpleasant consequences for you in the form of theft of sensitive data, identity theft, legal ramifications, and painful financial losses that can irreparably harm you, your business, and your customers. It is therefore important that you take measures to minimise the risks of fraud and cyber-attacks. Below we provide tips on effective strategies.

Secure your computer network and keep your software up to date

Get an antivirus program and regularly check that the necessary updates have been made and that your company network is protected. Keep track of who has access to your company network. Always perform security patches and software updates immediately.

Verify that you are using a secure hypertext transfer protocol (HTTPS) for your web browser to communicate with your web server. Ecommerce websites that run on HTTPS operate via SSL or a newer TLS certificate. These certificates encrypt the transmitted data and allow you to verify the identity of the communicating parties. This reduces the risk of misuse of personal data or interception of online communications. If you haven't used HTTPS before, fix that.

Require CVV for online payment transactions 

The CVV number is a three- or four-digit security code on the back of a credit card that is used to authorize payments for online purchases. Requiring a CVV number for online shoppers provides additional assurance that the shopper actually has a physical credit card, which helps ensure e-commerce security.

Ecommerce fraud, how to protect your customers and your business

Use Address Verification Service (AVS) 

Credit card processors and banks typically provide an address verification service (AVS) that can detect suspicious credit or debit card transactions in real time to prevent fraud. The service verifies, at the merchant's request when authorising a payment card transaction, that the billing address entered by the customer matches the billing address of the cardholder. If the addresses do not match, the system either rejects the transaction or flags it for investigation by the merchant.

It should be added that AVS is not provided by all credit card providers and is not used in all countries. In addition, some countries do not have a well-structured addressing system, which may lead to limited effectiveness of AVS in some cases.

Set a maximum limit for orders

Limiting the number and value of e-commerce orders can be one of the preventive measures against fraud. This will make it more difficult for fraudsters to complete a large number of transactions in a short period of time and prevent attempts at bulk purchases using stolen credit cards. Based on an analysis of previous sales, set a limit on the number of purchases and the maximum amount you will accept from one account in one day. Block or screen orders that exceed this limit to reduce the risk of fraud in your e-commerce store.

Combat unauthorised chargebacks

If you suspect a chargeback request is unauthorized, gather any information that calls into question the credibility of the customer's request and contact the contracted bank. Evidence should include details of the goods delivered, shipping records and communications with the customer. 

Another option is third party protection programs and applications. For example, some payment platforms, such as PayPal and Stripe Chargeback Protection, offer custom protection plans and various coverage options. Keep in mind, however, that none of these platforms will cover all chargeback situations. 

Try e-commerce fraud prevention software

Another possible strategy to protect your e-commerce store is to get one of the e-commerce fraud prevention tools. These tools check, flag and block risky orders by identifying and verifying email and IP addresses, as well as the geographic location of customers. These tools provide different levels of protection and, of course, vary in price. Well-known examples include Shopify Protect, Signifyd and NoFraud.

Set up and regularly review your affiliate program

An affiliate program has a number of advantages. If it's working properly, it can help you expand your online store's reach, increase sales and reduce advertising costs. However, fraud does not avoid this area either. Therefore, use a reliable data tracking system that allows you to closely monitor all transactions related to your affiliate program. This includes tracking click-throughs, conversions and any signs of fraudulent activity. Examine referring URLs and IP addresses associated with your sales and leads. Be aware of suspicious transactions and verify their legitimacy. Unusually high order values from a single IP address may indicate credit card fraud. 

Make personal contact with affiliates and check with them to establish terms and conditions before confirming a partnership. Get affiliate marketing fraud detection and prevention software.

Protect your customers' data

Collect and store as little customer information as possible, ideally only the data you need to complete the transaction and ship the product. Keep in mind that you have a responsibility to protect this data.

Defend against hacker attacks by securing customer registration and login to your e-commerce site. Verify email addresses, require strong passwords and multi-factor logins.

Use a payment gateway

Secure online payments using a payment gateway. A payment gateway encrypts transactions (data). This reduces the risk of customer credit or debit card information being stolen. Payment gateways use algorithms and artificial intelligence to detect questionable transactions, and some have 3D Secure security protocols that also reduce the risk of potential fraud. Some of the verified payment gateways include GoPay, PayU, PayPal and Comgate.

Conclusion: prevention is better than dealing with the consequences

E-commerce offers endless opportunities for business development, but unfortunately it is also a breeding ground for all kinds of cyber-attacks, theft and fraud. In 2022, German online platform Statista estimates that global losses due to e-commerce fraud in online payments will reach $41 billion. In 2027, that loss is projected to be as high as $102.28 billion. 

Every business should do its utmost to protect itself and its customers from hacker attacks or risk its reputation and serious financial or legal consequences. 

Fortunately, there are ways and strategies to detect or effectively combat fraud. Secure your computer network, use antivirus programs, back up your data, set rules for your affiliate program, and get tools that can identify fraudulent transactions and block suspicious orders. Last but not least, be aware of the risks in e-commerce and train your employees in cybersecurity.

Protect your e-shop to make your shoppers feel safe. It will add to your credibility, and customers will be happy to come back to you.

 

Original text: Michaela Mádlová, translation by AI

 

 

Photo: Shutterstock

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