9 best practices for ecommerce fraud prevention

We all want a slice of the eCommerce pie. Unfortunately, it seems that some bad actors also want a piece of the action – and they’re willing to do anything to get it. On average, merchants lose around 1.6 percent of revenue annually due to fraud, but some major online retailers have been defrauded as much as 12 percent of their revenue.

Today’s eCommerce environment means that merchants must take a proactive approach to fraud, but it also means that there are plenty of opportunities for them to make mistakes. In fact, merchants make an average of 18 errors per page view when reviewing suspicious orders – and those errors lead to false declines and increased cost. While each merchant’s fraud strategy is unique, there are some eCommerce fraud prevention best practices every merchant should consider.

So how can merchants reduce fraud and ultimately create a better user experience? It’s time to take a look at 9 simple eCommerce fraud prevention best practices:

1) Create a detailed profile of your typical buyer

A detailed buyer profile is key for fraud prevention, and it’s important to remember that each business has different purchasing characteristics. A few examples include:

  • Smaller eCommerce retailers might experience more fraud than larger retailers because their goods are in greater demand.
  • New businesses might be at greater risk than established businesses due to a lack of reputation.
  • Businesses that primarily do business in cash might experience more fraud than those that request payment before shipping.

Ecommerce merchants should spend some time analyzing the types of transactions they’re seeing, including where they’re occurring and how often. Armed with this information, they can create a more accurate buyer profile and begin to detect suspicious activity.

2) Reduce the number of variables in your business process

If there’s one thing that fraudsters are good at, it’s exploiting loopholes in a business’ system. When businesses have too many systems or too many rules within those systems, they’re going to have a hard time preventing fraud.

Ecommerce merchants need to determine which variables in the process are unnecessary, and they also need to decide how those elements interact with others. In other words, they need a one-size-fits-all approach – at least when it comes to the way that suspicious orders are handled.

3) Build a network of trust

This is one of the most underrated eCommerce fraud prevention best practices. When merchants do business with other companies, they quickly learn that trust is one of the most critical pieces of any relationship. Unfortunately, building up a network of trust takes time and effort – and it can be expensive and labor-intensive. But gaining customers’ trust through high-quality customer service will save money in the long run, as satisfied customers are less likely to become a source of future fraud.

Ecommerce merchants need to establish a network of trust with their own customers, and it’s important that the customer always comes first. That means using an automated online support tool to deliver positive experiences, while also making sure there are humans involved in the process when necessary.

4) Stay on the lookout for advanced fraud tactics

The days of simple credit card phishing are long gone. Today’s sophisticated eCommerce criminals might use malware to hijack customer devices, or they might create an elaborate network of bots designed to make humans think that the company is getting lots of legitimate traffic. They also employ layered transactions in order to maximize profits and minimize risk.

Ecommerce merchants must stay on the lookout for advanced fraud tactics and invest in a human-powered review process as soon as possible to catch these criminals before they’re able to do any damage.

5) Maintain a blacklist

In addition to maintaining a network of trust, eCommerce companies also need to have a blacklist that includes customers who are unable to make purchases due to suspected fraud. The list needs to be updated frequently, especially if the business starts accepting payments in different currencies or from different countries. For example, when Pound Sterling became a currency option for some eCommerce companies, they started experiencing an influx of fraudulent orders from Great Britain.

Ecommerce merchants need to make sure that their blacklisting process is working efficiently. They also need to make sure that it’s not inadvertently blocking legitimate customers and transactions.

6) Watch for red flags

Common red flags that indicate a customer is engaging in at least a bit of fraud include:

  • Using an email address that looks anonymous or fake.
  • Ordering multiple items from the same website, but paying with different credit cards or PayPal accounts.
  • Refusing to provide a mailing address or physical business location.
  • Requesting to use gift cards as a form of payment.

In the same way that eCommerce merchants can build up a network of trust with their customers, they’re also going to want to create a network of red flags that indicate some level of fraud might be present in individual transactions.

7) Use anti-fraud services

While it’s important for eCommerce companies to invest in creating their own form of anti-fraud service, they should also consider using third-party services. Third parties can provide the same service by using different methods, depending on what each individual business needs. These services cost money but represent an invaluable part of staying one step ahead of criminals.

8) Always cross-check if IP address and credit card address match

A common fraud tactic is to use a stolen credit card number to make purchases, but when the cardholder receives their monthly statement they discover the charge and call their bank. If they’re able to cancel the payment before it’s processed, the eCommerce merchant will not get paid for any goods or services provided. That’s why it’s essential to check if the location where the credit card is registered matches up with the location of the IP address.

If there’s a discrepancy, it could be an indication that something fishy is going on. At the very least, reputable companies will only ship items to addresses listed on customers’ credit card statements. If they receive a request for a different address, they might want to investigate more closely.

9) Offer secure payment methods

Another way that eCommerce merchants can fight fraud is by offering online customers different secure payment options, such as PayPal Credit and Apple Pay. Some criminals are phishing customers’ credit card numbers so they can buy items from another company using the same number. If criminals are able to steal credit card numbers, they can also use them on precisely the same websites that their victims shop at.

Offering secure payment options minimizes the chance of fraud because it reduces one of the steps in committing this type of crime. It’s possible for some criminals to find new methods, but making it harder on them is just another form of self-protection.

Final Thoughts

If you’re an eCommerce merchant, it’s important to focus on eCommerce fraud prevention best practices. If you have the resources, investing in a third-party service might be a smart move. In addition, it’s equally important to check up on your own blacklisting process and make sure that it isn’t accidentally excluding legitimate customers from being able to purchase goods or services.