Top 4 Ecommerce Fraud Types and Prevention Best Practices

Online fraud poses a threat to businesses large and small. Yet whereas larger companies often have the financial resources to bounce back...

Online fraud poses a threat to businesses large and small. Yet whereas larger companies often have the financial resources to bounce back, an estimated 60% of smaller companies go out of business within six months of a cyberattack.

Strictly speaking, eCommerce fraud is a financial problem. Though given the range of powerful IT and automation tools that thieves use to target victims, businesses increasingly turn to tech professionals (and not accountants) for help. It’s important to understand how to help protect your business from some of the most common types of eCommerce fraud.

Top 4 Ecommerce Fraud Types and Prevention Best Practices

1. Stolen credit card fraud

As the name suggests, this scam involves criminals making large-ticket purchases with stolen credit card information. The credit card statement goes to the cardholder – but the illegally purchased items go to the thief (usually through a re-shipper).

Solution: Working with a PCI-compliant payment processor is the one of the best lines of defense to help protect against stolen credit card fraud. Trusted payment processors usually offer fraud management tools that can help you flag fraudulent activity. For instance, it’s a good idea to only send items to the billing address on file with the cardholder’s issuing bank. Using a fraud filter like Address Verification Service (AVS) can signal when billing and shipping addresses don’t match. This will help give you time to investigate more closely.

2. Card testing fraud

Before making purchases, many criminals will test stolen cards with small penny amounts. Although these tiny transactions may not seem like a big deal, remember, you’re still paying authorization fees – even on the smallest amounts.

Solution: There are velocity filters and thresholds you can set up to help prevent card testing. They will help to stop rapid back-to-back transactions from occurring and enable you to set a minimum checkout amount so transactions less than that will be declined.

3. Overpayment fraud

This type of fraud happens when criminals overpay for an item before asking that the remaining balance be sent to a different account. Not only do you lose the sale and pay shipping fees for that item, but you also end up paying extra money out of pocket directly to the thief.

Solution: Limit all refunds, exchanges, and returns to the original funding source. If a customer pays via credit card, for example, he or she shouldn’t qualify for a refund sent to his or her bank account or a credit card with a different number.

4. Friendly fraud

With friendly fraud, it’s your customers you have to watch. Also known as “chargeback” fraud, this scam unfolds whenever a customer buys something online, receives it, and then claims it never arrived (or that he or she didn’t buy it). Friendly fraud happens all the time, costing eCommerce merchants an estimated $30 billion a year.

Solution: Given the stakes involved, you need a multipronged approach to help reduce this type of theft:

● Disable guest checkout and require two-factor authentication (2FA) for all online purchases. Doing so prevents customers from claiming that someone else initiated the transaction.

● Add signature requirements and tracking to any items you ship. Doing so prevents users from claiming that packages never arrived.

Although the above tips can help reduce fraud exposure, they’re only scratching the surface. If you’re not also using tokenization, encryption, HTTPS, and countless other fraud prevention strategies, your company may remain an attractive target for thieves. For more information, please check out following Infographic created by Fiserv.