9 best practices for e-commerce fraud prevention

We all want a slice of the eCommerce pie. Unfortunately, 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 defrauded as much as 12 percent of their revenue.

Today’s eCommerce environment requires merchants to take a proactive approach to fraud, but it also provides plenty of opportunities for them to make mistakes. Merchants make an average of 18 errors per page view when reviewing suspicious orders, and those errors lead to false declines and increased costs. 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.

E-commerce merchants should analyze the types of transactions they see, including where and how often they occur. 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. Businesses with too many systems or rules within those systems will have difficulty preventing fraud.

E-commerce merchants need to determine which variables in the process are unnecessary and how those elements interact with others. In other words, they need a one-size-fits-all approach—at least when it comes to handling suspicious orders.

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 trust network takes time and effort and can be expensive and labor-intensive. However, 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.

E-commerce merchants must establish a trust network with their customers, who must always come first. That means using an automated online support tool to deliver positive experiences while also ensuring 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 create an elaborate network of bots designed to make humans think the company is getting lots of legitimate traffic. They also employ layered transactions to maximize profits and minimize risk.

E-commerce merchants must be alert to advanced fraud tactics and invest in a human-powered review process as soon as possible to catch criminals before they can cause 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 the Pound Sterling became a currency option for some e-commerce companies, they started experiencing an influx of fraudulent orders from Great Britain.

E-commerce merchants need to make sure that their blacklisting process is working efficiently. They must also ensure 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 the use of gift cards as a form of payment.

In the same way that eCommerce merchants can build a network of trust with their customers, they’ll also want to create a network of red flags indicating some level of fraud in individual transactions.

7) Use anti-fraud services

While eCommerce companies must invest in creating their anti-fraud service, they should also consider using third-party services. Third parties can provide the same service using different methods, depending on what each business needs. These services cost money but are invaluable in staying one step ahead of criminals.

8) Always cross-check if the 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 can 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 the location of the IP address.

If there’s a discrepancy, it could indicate that something fishy is going on. At the very least, reputable companies 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 can steal credit card numbers, they can also use them on precisely the same websites where their victims shop.

Offering secure payment options minimizes the chance of fraud because it reduces one of the steps in committing this type of crime. Some criminals can 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. Investing in a third-party service might be smart if you have the resources. In addition, it’s equally important to check up on your blacklisting process and make sure that it isn’t accidentally excluding legitimate customers from being able to purchase goods or services.