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A Beginners Guide to eCommerce Fraud Prevention

May 18, 2022 / Posted in Credit Cards

The world of internet retail is becoming increasingly popular among merchants. However, basing your enterprise on the world wide web comes with its own set of challenges. Because of all the risks, eCommerce fraud prevention is essential for all merchants who plan to expand their enterprise on the internet.

According to projections, internet retail sales will account for about a quarter of total worldwide retail sales by 2025. But the growth of eCommerce will be followed by new growth in fraudulent actions related to it. Global transaction frauds have already tripled  – from nearly $10 billion in 2011 to $32 billion in 2020. There are different types of businesses affected by fraudsters who target internet stores. But the risk shouldn’t avert you from venturing into internet sales and expanding your business this way.

Understanding Online Frauds – What Are They and Why Do They Happen?

Internet sales have become increasingly important in the retail industry. According to Statista, online shopping is believed to have reached approximately 19.6% of global retail sales in 2021. If you already run an internet enterprise or plan to do so in the near future, you should know all there is about scams, prevention, and detection.

eCommerce business models imply making internet business transactions electronically, usually through an online shop. Frauds are criminal deceptions that intend to result in financial gain for the individual conducting it, and online shopping frauds will affect the merchant. The deception is meant to go undetected, and that’s why it’s important to recognize the threat and prevent it.

What Do We Mean When We Say Fraud Detection and Prevention?

Fraudsters will target all kinds of eCommerce payment options, so it’s essential to understand how to put a stop to any potential losses you may be a victim of. Fraud detection and prevention when it comes to internet sales is a set of processes and tools that a merchant should install in order to deflect potential losses due to fraudulent actions. It’s equally important to implement these tools when you’re planning to start a dropshipping business or considering just how much you could gain from online shopping vs. traditional shopping.

Why Is Our Business Targeted by Frauds?

Frauds aimed at credit card virtual terminals and online stores, in general, take place for a number of reasons. They include:

  • Simplicity. Before online shopping through a payment gateway was a thing, people committing scams had to steal credit cards. The internet has made it easier for them – they simply go to a dark website and buy as much information from debit and credit cards as they require.
  • Secrecy. Frauds committed online have risen in popularity also due to namelessness and anonymity. They can also operate from any geographical location at any given time and remain unseen. They also usually create a fake profile using false information and even rent post office boxes with those aliases.
  • Evasion. People committing online frauds are aware that the police won’t make these kinds of crimes their priority, usually due to the fact that it’s usually small amounts of money. Another thing that helps fraudulent individuals dodge the police is the fact that online fraud can easily be committed from another country.

It’s Vital to Know the Types of Committed eCommerce Frauds for Proper Detection

While the term eCommerce fraud is usually associated with scams done with credit cards, there are many other types of online crimes connected to internet shopping sites. Back in the day, only stores selling high-end goods or high-value technology were targets for con artists. But today, it’s a different story, and it makes no difference whether you offer real or digital things or if you sell expensive or more affordable stuff. Every enterprise that accepts online transactions – from recurring payments to shopping carts – is targeted by fraudsters, and this trend will continue. That is why to know fraud detection in eCommerce, you should know all about scams.

Credit Card Scams Are Most Common

All the scams committed that involve the usage of a credit or debit card are known as credit card fraud. It is also known as a card not present transaction scam or payment scam, where scammers conduct criminal activity online with stolen information from cards. Typically, they gather this information from the dark web, where the stolen data is collected and sold to them. Initially, the customers are the ones defrauded, but eventually, the merchants are at a loss since they must refund. Additionally, merchants will have to pay a chargeback fee to the issuing bank or entity.

Another way in which merchants are hit with CC scams is when they are victims of card testing. It’s when fraudulent individuals test multiple cards to see whether they are active and make purchases using them. These are typically tiny, low-risk orders, but they can mount up to a significant loss for an enterprise. This is why CC fraud prevention is essential for an enterprise.

Chargeback Frauds, Commonly Named “Friendly Frauds”

In the world of credit card processing services, a chargeback is a request to a retailer by a credit card company to repay a disputed or fraudulent transaction. However, it can also be used in fraudulent actions. It occurs when a customer that is shopping through a website makes a purchase with their cards and then receives the products in question. The shopper then proceeds to ask for a refund from the CC company that pushes the issue toward the issuer. The result is that the third-party payment processors will demand that the merchant refunds the purchase to the issuing bank. Once the bank demands the chargeback, merchants are the ones who refund.

Illegal Activity That Affects Affiliate Marketing aka Affiliate Frauds

If you don’t want to trouble yourself with a brick-and-mortar enterprise and bang your head where are the best places to open a business, an online shop is an answer. And what better way to spread the word about your shop than affiliate marketing.

In the world of affiliate marketing, the merchants with an online enterprise will pay affiliates a commission for all the sales affiliates refer to. Affiliate marketing works in a certain way – the merchant gives a trackable web link to the affiliate, and it will point potential customers to the web page of the said merchant. Once a shopper clicks the affiliate link and makes a purchase, the reward will be directed from the merchant to the affiliate. It’s a commission for referring a sale to their online shop.

Even here, the scammers have found a way to trick the system. They defraud the merchant by faking activity, and that way generate commissions or increase their number. The usual form of this type of scam is called “typosquatting.” A scammer registers domain names that are often misspelled versions of the actual URL of an online shop. After that, the fraudster transfers the domain name to the merchant’s website but with an affiliate link.

The Three-Steps Scams or Triangulation Frauds

Triangulation scams take three steps in order to defraud merchants with online stores. While you were busy coming up with bright small business ideas, crooks have been busy coming up with ways to skim some of your revenue.

In the first phase, fraudsters build a phony internet storefront, usually one that sells well-known brand-name items at shockingly affordable prices. The site’s sole purpose is to steal personal information such as names, addresses, and CC details from unsuspecting customers.

The second phase is where the scammers use the stolen personal information of the unsuspecting customers, visit an online enterprise, buy the product the customer wanted and ship it to them.

The third phase is where the scam pays off to the scammers. They abuse the stolen credentials and make some additional purchases online, which they ship to themselves. Triangulation frauds usually stay undetected for a longer period of time because the original purchase made on the fake site doesn’t raise any suspicions.

A man sitting by a laptop holding a card

Interception of the Packages Meant for Customers or the Interception Frauds

This type of scam involves stolen credentials off cards, too. Fraudsters will use this personal information to make an online purchase and let the products ship to the billing address. After the transaction is over, they will contact their good customer service and change the address for shipping, so they will basically intercept the package.

Scammers Also Use Takeover of the Accounts, Commonly Known as Phishing

The majority of online shops give their shoppers an opportunity to create an account with them. This account is used to store personal data, financial information, and history of purchases. Cybercriminals will use phishing schemes to hack into these accounts and, most commonly, will send emails to the customers from the stores. These emails will trick potential victims into revealing personal information such as passwords and usernames.

They then access the accounts of the consumers, alter the passwords, and then make unauthorized transactions. Shoppers often use social media logins to create profiles on online shopping sites, but if that data is stolen, it may be disastrous. Bots are also being used by criminals to steal personal information, leaving consumers vulnerable to identity theft.

The video below explains the different types of scams.

The Key Takeaways to Protection When It Comes to Online Scams

It’s extremely important to know the types of scams you can be victim to. But it’s even more vital to take the preventive measures that will completely eliminate the threats or, at least, reduce the risk. So what are credit card fraud prevention for eCommerce sites the best to use? The tools at the disposal of merchants include non-technical and technical, and also those that incorporate specific software. Here are the eCommerce fraud prevention best practices you should be aware of:

  • Discover the flaws in your online shop by conducting regular security audits of your website.
  • Ensure that your online shop is PCI compliant.
  • Protect your store by regular monitoring to detect suspicious activity right away.
  • Credit card processing companies and acquiring banks will not only give you a merchant ID when you open an account. They will also offer an Address Verification Service (AVS) to detect fraudulent transactions in real-time and prevent them.
  • The CVV (Card Verification Value) should be required for all purchases because it ensures all customers have their physical cards present.
  • Using HTTPS (Hypertext Transfer Protocol Secure) is the major protocol used to transfer data between the browser of the customer and the store. It also implies buying an SSL certificate, which gives a sense of security to all customers.
  • Avoid collecting too much sensitive personal information. In case of a breach, you are protecting both the store and clients.
  • Create a limit on the total dollar amount spent in a day, as well as the number of purchases.
  • Do a double-check to see whether the IP address of the customer and their CC address match.
  • Avoid shipping to virtual addresses, and make sure you only send products to existing physical locations.

In the end, it’s best if you try some anti-scam software. It can be rudimentary (IP geolocation, email address validation, device fingerprinting, and address verification). Mid-level includes Chargeback protection, an automatic decline of high-risk orders, new account scam protection, and account hijack protection.

Top-level includes management of loyalty scams, protection against policy abuse, automated choices, and manual assessment of suspect transactions. Get informed and see what fits your business. Also, you may get a free trial from a software company.

The Best Way to Incorporate eCommerce Fraud Prevention Is to Learn All New Information About Scams

As online selling becomes more popular, the amount of attacks on internet retailers is increasing, and online fraudsters are becoming more adept in their attacks. However, merchants are also becoming more sophisticated in their detection and deterrence of online criminals. Especially with help from a company that provides merchant services and credit card processing.

One of the mistakes business owners make is not getting acquainted with everything an online enterprise incorporates. That is why you should contact us, and we will help you understand everything about payment gateways and payment processors, how to protect your enterprise, and above all, what are merchant services. If you need a credit card processing company, you are at the right place.

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