eCommerce Fraud Detection & Prevention: Detailed Guide

Let’s say you have a successful eCommerce website with all the bells and whistles. Best case scenario, that means quite a few customers (hopefully, in thousands or even more). They like to shop on your eStore, come back for more products, and even refer it to other potential customers.

Then the last thing you want is fraudulent activity on the website. It will not only be a threat to your incredibly important core website data, but also to the sensitive customer data and information. That could jeopardize the current customers and deter the potential ones. That’s why the eCommerce experts implement a few critical practices to detect and prevent the frauds.

That’s what we’re going to discuss in this blog. I’ll tell you all about eCommerce frauds, their different types, their impact, and the best prevention tactics. So let’s begin.

Overview of eCommerce Frauds

Simply put, the fraudulent activities that occur during online transactions conducted through eCommerce platforms, are called eCommerce frauds. The scamsters aim to take advantage of weaknesses in online security measures for personal gain. eCommerce fraud can affect both businesses and shoppers, resulting in financial losses and damaged reputations.

Common Types of eCommerce Frauds

eCommerce Fraud	Description
Account Takeover	Criminals gain unauthorized access to a user’s eCommerce account by stealing login credentials. Then they can make unauthorized purchases or exploit stored payment methods.
Card Not Present (CNP)	Fraudsters use stolen credit card information to make purchases online without physically presenting the card. They exploit the lack of in-person verification.
Phishing Attacks	Cybercriminals send fraudulent emails or messages impersonating legitimate entities. The aim is to trick recipients into revealing sensitive info like login credentials or payment details.
Identity Theft	Fraudsters steal personal information, such as names, addresses, and credit card details, to make fraudulent purchases or create fake accounts.
Friendly Fraud	Customers claim they didn’t make a purchase, which they did. That may be due to buyer’s remorse or forgetting about the purchase. That results in chargebacks and financial losses for merchants.
Chargeback Fraud	A customer disputes a legitimate charge with their bank, even though they received the product or service. Then, the business may be forced to refund the customer, even if the charge was valid.
Inventory Scams	In this scam, fraudsters list fake products for sale on a marketplace or online store. They take payment from customers but never ship the products.

One of the most common frauds is phishing. Besides the eCommerce website credentials, phishing can result in loss of other sensitive customer info. That’s why eCommerce services do everything they can to prevent that on their sites.

Now, you must be thinking that these frauds tend to be quite rare, and you are right. So what kind of impact can they possibly have on the eCommerce business? Well, the impact is more significant than you may think. Let me elaborate.

Impact of Frauds on eCommerce Business

Contrary to what some may think, eCommerce fraud is a huge problem for businesses. Beyond affecting their wallets, the frauds can have a detrimental effect on the site’s reputation and customer trust. Let me tell you a few ways eCommerce frauds have a negative impact on the eCommerce business.

• Direct Loss of Revenue: This is the most obvious consequence. Fraudulent transactions result in lost sales and stolen inventory.
• Chargeback Fees: When customers file chargebacks, even if illegitimate, businesses often have to pay fees to dispute them.
• Increased Transaction Fees: Businesses with high fraud rates may be classified as “high-risk” by payment processors, leading to higher transaction fees.
• Loss of Customer Trust: Frequent fraud can make customers wary of shopping with a business, leading to decreased sales and customer churn.
• Negative Reviews: Customers who have been victims of fraud may leave negative reviews online, further damaging the business’s reputation.
• Increased Costs for Fraud Prevention: Businesses need to invest in fraud detection software, security measures, and staff to review suspicious transactions.
• Delayed Order Processing: Time spent verifying the legitimacy of orders can slow down order processing and fulfillment.
• Reduced Staff Productivity: Dealing with fraudulent transactions can take time and resources away from other important tasks.

Overall, eCommerce frauds can be a senior threat to a business, with respect to its finances, reputation, and operations. So along with understanding the types of frauds, you need to know how to detect the frauds and prevent them. Let me tell you how the eCommerce development experts do it.

eCommerce Frauds Detection and Prevention

eCommerce fraudsters are constantly evolving their tactics. But there are a few evergreen tactics to detect and prevent eCommerce frauds. Let’s take a look.

Detection

• Transaction Monitoring: Analyze purchase history, order value, and product types for anomalies. Large or unusual orders, especially for new customers, can be flagged for review.
• Velocity Checks: Monitor the frequency of transactions from a single IP address or account. A sudden surge in purchases might suggest stolen card testing.
• IP Tracking and Geolocation: Verify if the billing address and IP location correspond. Significant discrepancies can indicate suspicious activity.
• Machine Learning (ML) and Artificial Intelligence (AI): These tools can analyze vast amounts of data to identify patterns and predict fraudulent behavior with higher accuracy.
• Manual Review: Train staff to identify red flags in orders, such as inconsistencies in billing and shipping information or suspicious email addresses.

Prevention

• Address Verification System (AVS): This system verifies the billing address provided by the customer with the one on file with the card issuer.
• Card Verification Value (CVV): This three-digit code on the back of the card adds an extra layer of security as it’s not typically stored electronically.
• Secure Sockets Layer (SSL) Certificates: Ensure your website uses encryption to protect customer data during transmission.
• Multi-factor Authentication (MFA): Require additional verification steps, like a code sent to the customer’s phone, for logins and high-value transactions.
• New Customer Scrutiny: Be cautious of first-time buyers making large purchases, especially with expedited shipping options.
• Multiple Billing or Shipping Addresses: Orders with different billing and shipping addresses, or frequent changes, might warrant investigation.
• Free Email Providers: Email addresses from free services like Gmail or Yahoo can be more susceptible to fraudulent use.
• Offer Secure Payment Options: Integrate payment gateways with strong fraud prevention measures.
• Unusual Shipping Locations: If the shipping address significantly differs from the customer’s usual location or the billing address, it could be a red flag.

Fraudsters develop new tactics constantly. So staying updated on the latest trends and scams is crucial. Also, consult with an eCommerce development company for regular security audits and implementation of the best eCommerce security measures.

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FAQs on eCommerce Fraud Detection and Prevention

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Conclusion

Whether you’re a seasoned business owner or just starting your online store, protecting yourself from eCommerce fraud is essential. Otherwise, there may be some dire consequences for the finances, reputation, and the operations.

So you need to detect and prevent eCommerce frauds. For detection, you can use data analysis and machine learning along with the customer behavior analysis. After that, you can use security measures like address verification, CVV, SSL, and multi-factor authentication for the prevention of eCommerce frauds.

So, need help with eCommerce fraud detection and prevention? Then consult with our experts today!