Best Practices to Prevent E-commerce Fraud

  • By Bryan Lee
  • Published: Dec 19, 2023
  • Last Updated: Dec 22, 2023

Steps To Prevent E-Commerce Fraud

Roughly 20 percent of all retail sales occur online. This statistic may sound lukewarm now, but e-commerce is rapidly becoming the lion’s share of global transactions.

However, the model’s incredible growth also provides criminals ample opportunity to steal from online businesses. The absence of a physical location removes much of the criminal’s risk, and new strategies constantly pop up.

A robust fraud prevention strategy should cover the majority of business operations. This is a huge undertaking and may be a struggle for retailers at any stage of their e-commerce journey. Here are a few of the red flags of fraud that will help retailers start creating their fraud prevention strategy immediately.

What is E-Commerce Fraud?

E-commerce fraud is an umbrella term for any illegal or deceptive activity occurring in an online transaction. Criminals steal customer accounts, trick customer service, or exploit aspects of the e-commerce environment to steal money or free products.

In 2022, global e-commerce fraud stole more than $40 billion, most of which came from the online retailer’s pockets. The density of threats like phishing attacks is also growing in number and sophistication, making every business a viable target.

Types of E-commerce Fraud

Even the most basic e-commerce websites have a substantial number of moving parts. The automation site configuration means owners and administrators aren’t intimately familiar with minor, exploitable sections like the CMS or checkout carts. Even if retailers lock down the technical aspects of their sites, malicious actors can steal customer accounts and initiate fraudulent transactions.

Identity Theft Fraud

Cybercriminals steal sensitive personal information through data breaches, malware, or buying it off the dark web. They use this information to open new credit lines or use the victim’s existing payment methods to make fraudulent purchases.

Account Takeover Fraud

In account takeover fraud, bad actors access customer accounts and use the saved payment information for financial gain. Accounts are generally broken into due to weak login credentials or social engineering attacks.

Chargeback Fraud

A chargeback occurs when credit providers demand retailers refund a consumer’s loss on a disputed transaction. This action becomes fraudulent when a customer disputes a legitimate charge to get a refund and keep the item.

Phishing and Social Engineering Attacks

Social engineering tricks targets into divulging sensitive information by installing malware or creating fake shopping websites. These attacks aren’t restricted to e-commerce fraud and are a huge problem for online activity. However, businesses must safeguard against social engineering attacks against their consumer base as it’s a surefire gateway to fraud.

Signs of Fraud

Cybercriminals form habits that help them avoid detection. Ironically, these habits are so common that they assist attentive businesses in detecting fraud and educating you on your most likely threats.

  • Accounts with new email addresses: Fraudsters use new email addresses to avoid linking their activities to their main accounts.
  • Strange or multiple shipping locations: Multiple shipping locations hide the criminal’s location, making it more challenging for businesses to track their orders and prove a product was delivered.
  • High or low order volumes: Some criminals try to get the most out of stolen credit card information by making as many purchases as possible in a short time frame. Others avoid financial fraud detection by keeping their purchases small and under the radar. Both can be signs of identity theft fraud.
  • Mismatched billing and card addresses: Transactions with different card and billing addresses could signify that the payment method was stolen or copied.

You might read these signs and think they sound like normal behavior. You’re right. There are countless reasons to use a new email or ship to multiple places when shopping online. We don’t recommend using any single reason to reject a transaction; these are simple signs of concern.

The lack of concrete indicators of fraud makes prevention a struggle, so businesses must adopt a suite of security tools to better determine fraudulent activity.

Recommended Security Measures and Technology

We’ve reviewed a few cybercriminal’s favorite attack patterns, so here’s what you can do to keep them out of your hair. Remember that the best fraud prevention strategies aren’t passive. They require frequent monitoring and updates to stay ahead of the threat landscape.

Pull from Multiple Data Sources

Creating a varied data pipeline helps business owners more quickly identify suspicious trends. If you’re only pulling information from your main website, you may miss signs of fraud from sales made through social media.

Manually Review Suspicious Orders

As we said before, there is no definitive sign of fraud that a program can catch. If you leave everything up to programs, you may act on false positives and lose legitimate business. Have an employee investigate further once a user has enough red flags.

Research Your Niche

Fraudster’s attack patterns will vary depending on the industry. This is because they know certain businesses are more likely to have more robust defenses at specific points. Understand what your weak points are and learn where attackers will target.

Build a Culture of Security and Awareness

Creating a culture among employees is paramount to a successful fraud prevention plan. Most attacks occur due to small mistakes or inattentiveness, but those moments can bring catastrophic results to your business. Introduce employee training cycles so that people can remain informed about the dos and don’ts of e-commerce.

Integrate Address Verification Mismatch

AVS mismatch measures the differences between a customer’s billing and card address information. The more the addresses deviate, the more suspicion you should place on the transaction. This service is proven to lower chargebacks and is far less intrusive than multi-factor authentication.

Utilize Artificial Intelligence for Real-Time Monitoring

Artificial intelligence and machine learning have become indispensable to cybersecurity. They analyze vast datasets in the moment and find patterns that indicate fraud. Users benefit from pulling from globally available data to address threats before they attack and create a proactive defense. Timely intervention can prevent fraudulent transactions, minimizing potential losses.

Regularly Updating and Auditing Security Protocols

The barrier to entry for e-commerce is becoming lower. Many site creation processes are automated through plugins, themes, and advanced CMS. This trend is undoubtedly convenient but puts a lot of security responsibilities on the providers of those tools. You must regularly update the tools, as each patch likely addresses known security issues.

The Problem with Multi-Factor Authentication (MFA)

The Problem with Multi-Factor Authentication

The most challenging thing about tackling identity theft and account takeover is convincing your consumer base to help. People are prone to making weak login credentials, but adding MFA to the login process mitigates that problem. Even if the fraudster steals the username and password, they won’t gain access to the account.

However, MFA creates a significant barrier to entry in account creation, and people find the process tedious. This translates to potential customers abandoning their carts and shopping elsewhere. MFA is an excellent toggleable option for accounts but isn’t a solution to stopping ‘new account’ fraudsters.

Don’t Lose Out Because of E-commerce Fraud

Protecting your online business from e-commerce fraud is an ongoing and multifaceted effort. It’s challenging to differentiate between legitimate customers and intelligent criminals. Removing fraudsters requires many resources, but businesses can minimize those costs through innovative strategies. They just have to know what they’re up against.

IDStrong’s library contains all the information you need to understand the current threat landscape and updates regularly in response to new attacks. If you need immediate advice, our team is always ready to help guide you towards continued safety.

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