Although online shoppers can’t physically shoplift from an online store, fraudsters still target buyers and the merchants they buy from. In fact, about $20 billion in e-commerce losses were reported in the United States alone due to online payment fraud. 

Fraud is on the rise worldwide, and no country is safe. Notably, North American merchants saw a 68 percent increase in fraud attempts during the COVID-19 pandemic.

This post will give you some tips on identifying and handling e-commerce fraud.

Types of E-commerce Fraud

E-commerce fraud, or payment fraud, refers to any fraudulent activity during online transactions through an e-commerce platform. This type of fraud can occur in different ways, including:

1. Payment fraud: This occurs when a fraudulent payment is made using a stolen credit or debit card or a fake or stolen identity to make a purchase.

2. Account takeover: This happens when a fraudster gains access to a legitimate user's account by stealing their login credentials or using a phishing scam. They can then make purchases or change account details to steal personal information.

3. Shipping fraud: This transpires when a fraudster steals merchandise during the shipping process or creates false tracking information to make it appear as if a package has been delivered when it hasn't.

4. Chargeback fraud: This takes place when a customer disputes a legitimate charge with their bank or credit card company, claiming that they did not make the purchase or that the goods or services were not as described.

E-commerce fraud can be damaging to both online businesses and shoppers, resulting in financial losses, damaged reputations, and compromised personal information. You must take steps to defend against fraud.

E-commerce Fraud Prevention Tips

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Online sellers use e-commerce fraud prevention strategies to detect, prevent, and solve fraud. About 90 percent of merchants globally consider fraud prevention crucial to their business strategy, not only for customers' safety but also to avoid losing profits.

Here are fraud prevention tips to minimize the likelihood of it happening to you.

1. Review questionable orders

A good e-commerce software can easily flag risky orders. Go through orders that raise a red flag and contact the customer to get further information regarding legitimacy. If you don’t hear back from the customer, there’s a high chance that the order was made using a stolen card.

You can also check the customer’s purchase history to determine whether the risky transaction is a fraud. Be vigilant with new customers and prepare to cancel or refund if anything looks suspicious.

2. Build a blocklist

Just because you caught fraudsters doesn’t mean they won’t become repeat offenders. Online scammers trick you by changing their name, address, or credit card to make fraudulent orders fly under your radar. 

Merchants use blocklists to prevent repeat offenders from committing fraudulent website transactions. This is the same as how you block a number on a phone. It contains a list of names, IP addresses, credit card numbers, and shipping addresses flagged as fraud risks. 

If you have new orders with the same information on the blocklist, they’ll be automatically blocked. But while blocklists help prevent fraudulent orders before they get processed, use them carefully. A real customer might be using a credit card flagged as fraudulent without even realizing it, causing frustration.

3. Restrict order quantities

Big order quantities are a red flag for fraudsters using stolen credit cards to purchase on your online store. You can limit the likelihood of these orders by reducing the number of units a customer can buy.

Check your previous sales data to determine the average, typical number of units you sell daily. Block orders that exceed this volume automatically to restrict chances of fraud. 

4. Ensure Payment Card Industry Data Security Standards (PCI DSS) compliance

All e-commerce businesses must comply with PCI DSS to safely process online payments. These include:
 

• Changing default passwords for software and systems

• Encrypting cardholder data across open, public networks

• Prevent malware attacks using antivirus software 

• Restrict which employees can access cardholder data

• Frequently testing online security systems 

One way to ensure PCI compliance is to install a firewall between internet access and any of your systems that store credit card info. Having a set of security standards ensures that credit card information's processing, storage, and transmission maintain a secure environment.

5. Establish security policies on your website

You should have policies that make clear how your business functions. Don’t just place blanket terms and conditions. Show clear policies that’ll help you catch fraud. Examples would be:

• Promotions and rewards policy - Use this type of policy to identify fraud that goes against the terms and conditions of a promotion. This may include limiting order quantities and prohibiting the sale of reward points. 

• Return policy - Explain to your customers what qualifies for a return. Outline what documents are needed and how cash refund, exchange, or store credit will be processed. 

• Strong password policy - Ensure each customer’s login details aren’t easy to hack. While password requirements can be quite a hassle, it makes it harder for scammers to get into their accounts. Add two-factor authentication alongside this.

6. Use Secure Sockets Layer (SSL) Encryption

SSL (Secure Sockets Layer) encryption is essential in e-commerce fraud prevention. It secures data transmission between the user's browser and the e-commerce website's server. SSL encryption uses public and private keys to encrypt the data, making it unreadable to anyone who intercepts it.

This is crucial when it comes to sensitive information, such as payment and personal information. SSL encryption ensures that this information is secure and protected from this interception.

Furthermore, SSL encryption helps prevent an attack from the "man-in-the-middle" attack. This is where a fraudster intercepts the data transmission between the user and the e-commerce website and then changes the data to steal information or perform fraudulent transactions.

By using SSL encryption, you protect users' data and prevent fraudulent activity. This helps build trust and confidence in your store.

Shop With Confidence

From losing revenue to affecting customer loyalty, falling victim to e-commerce fraud is an expensive problem. Customers are unlikely to shop with you again if they become a victim the last time they purchased. Having a security system in place ensures that you can resolve and mitigate fraud issues quickly.