The goal of any online store is clear, and it’s to achieve a steady inflow of customers and increase revenue. The growth of the customer pool also comes with a growing need to protect them and keep their sensitive data secure from any type of scams. To be able to do that, you should know what is eCommerce fraud and how it could potentially harm your clients and your business.
E-commerce fraud includes any type of fraudulent scheme that happens within the realm of online commerce. This can include tactics like credit card fraud, identity theft, chargeback fraud, or phishing scams, among others. As the popularity of online shopping continues to grow, so too does the occurrence of these types of crimes.
What Is E-commerce Fraud Exactly?
Being a target of fraudulent activities sounds stressful, but it goes beyond basic inconvenience – frauds can seriously damage your online store, your customers, your reputation, and above all – your business’ funds. But to be able to protect yourself and your enterprise, you first need to understand what it is.
When it comes to electronic payments conducted over the internet, or simply – e-commerce, they are conducted over desktop computers, laptops, or mobile devices. While e-commerce opens up a world of possibilities for different types of businesses, it also opens up a world of headaches if you’re not careful with your security measures.
E-commerce fraud, in simple terms, is when someone scams you as the merchant, the bank, or the customer in the online business world. It’s fairly similar to a street con but leaving more significant impacts. Whether you’re a small business owner selling homemade crafts or a mega-corporation, no one’s immune to it.
You might be running any e-commerce business model, such as wholesaling, a dropshipping business, or even subscription services, but make a few mistakes like neglecting to monitor suspicious activity or failing to verify customer information, and you become a target.
Why Does E-commerce Fraud Happen?
These types of fraudulent activities happen for a number of reasons, but the main one is the potential for profit. Cybercriminals see an opportunity to make money with minimal risk of getting caught, and they take it. But here are the listed reasons behind scams that happen to businesses online:
- The main reason is the opportunity for financial gain with little perceived risk of getting caught.
- The faceless and impersonal nature of online transactions makes it easier for fraudsters to hide their true identities.
- As more people shop online, the pool of potential victims for fraudsters expands.
- Companies are under constant pressure to deliver seamless and fast online shopping experiences, sometimes at the expense of proper security measures and reliable e-commerce fraud prevention.
- While technology has revolutionized e-commerce, it has also provided cyber criminals with sophisticated tools for conducting fraud. Phishing scams, malware, and other hacking tools are readily available and constantly evolving.
- Not all e-commerce businesses invest adequately in up-to-date security systems, leaving them vulnerable to fraud.
This is why it’s crucial for e-commerce businesses to invest in robust security systems and stay updated on the latest cybersecurity trends.
Different Types of eCommerce Fraud You Should Know About
To be able to combat fraudulent activities, you need to develop different techniques and strategies. But to be able to do that, you need to know how to identify the type of scam you are facing. Online scams are numerous and continually evolving, so it’s crucial to know the most common ones.
Credit Card Fraud
This is the most common type of e-commerce scam. It happens when a fraudster uses stolen credit card information to make purchases online. This often occurs in a “card not present transaction,” where the merchant doesn’t physically check the card, making it difficult to verify the purchaser’s identity. Understanding how credit card processing works can help businesses detect and prevent this type of fraud.
Also known as “friendly fraud,” chargebacks or chargeback fraud involves a customer making a purchase, receiving the product or service, but then requesting a chargeback from their issuing bank or entity, falsely claiming the transaction was unauthorized. This type of fraud can be damaging for businesses as they lose both the sales revenue and the product and also have to pay a chargeback fee.
This type of fraud involves the fraudster assuming another person’s identity to make purchases or apply for credit. In the context of e-commerce, it could involve a fraudster applying for a merchant account using someone else’s information to steal funds.
Phishing is when a fraudster tricks someone into giving out personal information, like credit card details or login credentials. They might impersonate a trusted organization or person, often through email or fake websites.
Protect Your Business by Identifying Fraudulent Schemes
In the increasingly digitized world of commerce, protecting your business from fraudulent activities is absolutely necessary. Fraudsters are growing more and more sophisticated, using various tactics to breach security measures, causing financial losses and damaging the reputation of affected enterprises. However, if you stay proactive when it comes to implementing certain practices, you can effectively avoid or minimize such risks.
Proactive Strategies to Identify Risks
Protecting your e-commerce business from fraudulent schemes requires watchfulness and alertness, advanced tools, and a thorough understanding of your operations. Identifying potential risks comes down to understanding all the vulnerabilities within the system and implementing strategies to strengthen your defenses. Here’s a list of strategies to help you identify and prevent fraud:
- Regularly reviewing your merchant statements can help you spot any unusual or unexpected transactions that could indicate fraud.
- Certain types of businesses are more prone to fraud. If you operate a high-risk merchant account, you should be extra mindful of possible scams and possibly employ some additional security measures.
- Virtual terminals can be a target for fraudsters. Ensure that the terminal you’re using is secure and PCI-compliant.
- Regularly review your recurring payments. Look out for any changes in payment patterns or unusually high transactions that might indicate fraudulent activity.
- For added security, implement two-factor authentication at the payment gateway. This adds an extra layer of protection by requiring users to provide two forms of identification before processing a transaction on the way through the gateway to your merchant account.
- Many credit card processing companies offer tools that can help with credit card fraud prevention. These can identify suspicious patterns and flag potentially fraudulent transactions.
Implement these strategies, and reduce the risk of falling victim to e-commerce fraud.
Different Prevention and Protection Methods
Now, let us elaborate more on the recommended prevention and protection measures that should be paramount for any online business. Besides the basic methods for identifying potential risks, there are several methods that should be used as verified ways to protect your assets.
Data Encryption and SSL Certificates as the Fundamentals of Protection
Implementing robust encryption systems is fundamental for preventing fraudulent activities. Data encryption translates data coming from customers into a code that can only be deciphered with the correct key. Moreover, securing your site with a Secure Sockets Layer (SSL) certificate ensures that all data passed between the web server and browser remains private and integral.
Fraud Detection Tools Can Spot Payment and Account Abuse
Modern fraud detection tools are sophisticated systems, and many are powered by artificial intelligence (AI) and machine learning (ML). They are designed to detect and prevent fraudulent activities. They work by analyzing transaction data in real time, looking for patterns or anomalies that may indicate fraudulent behavior. They can evaluate hundreds of data points at once, including the location of the transaction, the device used, the speed at which the order is placed, and many more.
Use Address Verification Systems (AVS) and Card Verification Value (CVV) Checks
Adding extra layers of security during the transaction process is crucial. That’s why you should implement address verification systems (AVS) and card verification value (CVV) checks. AVS matches the known address of the cardholder with the entered address, while CVV confirms that the card is physically present with the person making the purchase.
Staff Training is Important
To keep your business on top, your team should know all about good customer service. However, keeping them up-to-date with the latest e-commerce fraud trends and prevention methods is equally important. Regular staff training equips your team with the knowledge to recognize and respond to threats promptly and effectively.
Choose a Reputable Credit Card Processing Service
Lastly, partnering with a reputable payment processor that upholds high-security standards when it comes to credit card processing services is crucial. Such a partnership ensures that the transactions processed through your site are secure, providing confidence to your customers and mitigating the risk of fraud. On top of it, they also might offer many other conveniences such as a discount program and more.
The Importance of Regular Security Audits for Your E-commerce Site
If you’re an e-commerce business owner, it’s vital that you keep it as secure as possible, and doing regular site security audits is the way to go. It comes down to testing and probing to find any weak spots that could invite trouble. This involves checking out your website’s structure and code to make sure there are no sneaky backdoors for hackers. Additionally, it’s also important to double-check your payment systems and any third-party stuff you’ve got integrated to ensure customer info is locked up tight and secure.
Part of this ‘check-up’ is also testing how your site stands up against common attacks, such as DDoS attacks, SQL injections, and XSS attacks. And, of course, make sure your site’s firewall is doing its job right and that your antivirus software is up-to-date. It’s all about keeping your business and your customers safe from fraudsters.
What Are the Current Trends When It Comes to Scams?
E-commerce fraud is constantly evolving, and staying on top of current trends is crucial for businesses seeking to protect themselves. The rise in online shopping has not only led to the convenience of shopping from your chair (as opposed to traditional shopping). It has also led to an increase in Card-Not-Present (CNP) fraud. This type of fraud is a favorite among cybercriminals as it doesn’t require a physical card to complete a transaction, making it relatively easy to use stolen card details.
In addition, account takeovers have become more common. Cybercriminals are employing more sophisticated tactics such as phishing, malware, or brute force attacks to gain unauthorized access to consumers’ accounts. Once they’ve infiltrated an account, they can make unauthorized purchases, alter login details, or steal personal information. These trends accentuate the need for businesses to stay informed and implement different and verified security measures to combat these evolving threats.
Get Ahead of Frauds With Secure Transactions
To combat these scams, merchants need robust security systems in place. They should partner with a reliable merchant services credit card processing company that complies with the Payment Card Industry Data Security Standard (PCI DSS). Additionally, merchants need a secure payment gateway, which encrypts sensitive information during transactions. It’s also recommended to work with an acquiring bank that offers fraud prevention tools.
While implementing these measures cannot eliminate the risk entirely, it can significantly reduce the likelihood of falling victim to e-commerce fraud. You can easily protect your online business by partnering with Merchant Chimp. As a reliable credit card processing company, we make sure your transactions are secure and your customer’s data is protected. Contact Merchant Chimp today and take a proactive step towards safeguarding your e-commerce business from potential fraud.