Sarah Elizabeth
When it comes to your e-commerce business, you want to do everything you can to have it succeed. You invest in the right e-commerce platform, do the research to determine the products your customers want, and obtain the merchant account that lets you start selling to customers around the world.
One thing merchants may not have given much consideration to is their fraud solution. But they should.
Defending an ecommerce business against card-not-present (CNP) fraud isn’t easy today. Datavisor reported that in first-quarter 2018, there were 900 million attack events detected and a 50% increase in fraudulent accounts, compared with last-quarter 2017. And these numbers are likely to continue to rise as technology increases and fraudsters get smarter.
As merchants start investigating the tools and solutions that can help them avoid costly fraud, they may see “fraud prevention” and “fraud protection” used liberally — and often interchangeably — among solution providers. But there’s actually an important distinction between the two. Learn what the difference is and why it matters for the health and security of your growing e-commerce business.
The Importance of e-Commerce Fraud Prevention
With the increased risk of CNP fraud, today’s merchants must take a comprehensive approach to e-commerce fraud prevention. And an important part of that approach is finding and incorporating the strategies that will let them carefully – but quickly — screen incoming orders and stop fraud from ever happening in the first place.
Here are just three strategies that an e-commerce merchant should consider implementing as part of their fraud prevention solution.
Watch for Account Takeover Fraud
With account takeover fraud, criminals hack into customers’ accounts to make their own purchases using customers’ funds. With the massive amount of personal data available to fraudsters as a result of recent data breaches, fraudsters have ample information at their fingertips to identify vulnerable accounts, access them, change the email addresses and passwords, and go shopping on the customers’ cards.
To detect account takeover fraud, use multiple factors to verify a customer’s identity each time they shop with you. If you notice such fraud indicators as logins from new devices, larger-than-usual orders, dramatic location changes, and multiple failed attempts at logging in, route these transactions to your fraud team for manual review and verification.
Update Existing Fraud Prevention Solutions
Fraudsters are continually changing tactics and targets, so merchants can’t rely on last year’s static fraud solution to keep them safe this year. Consider that of the 100 U.S. ZIP codes with the highest risk for fraud in 2017, 70 of them were not on 2016’s list. So if a merchant is declining orders based on statistics alone, they may find that not only are they rejecting many legitimate sales, but they’re also likely letting fraudulent transactions slip through undetected.
Looking beyond superficial details and seeing the broader patterns at play can help e-commerce merchants identify emerging fraud trends and reject fraudulent transactions before they slip through. Some of the solutions merchants might consider implementing are:
- Dynamic knowledge-based authentication questions that are harder for a fraudster to answer but easy for the legitimate customer.
- Biometric identifiers, such as fingerprint scans or facial recognition, to verify a customer’s identity.
- Machine learning solutions that are enhanced when fraud analysts add data to improve fraud screening algorithms.
Add a Team of Human Analysts to Automated Solutions
Good customers may go on vacation and buy gifts online, shipping them to friends and family back home. Without a manual review, automatic fraud filters might automatically decline these transactions because they don’t recognize the IP address of the traveling customer.
But a team of trained analysts can analyze these potentially risky transactions, looking at device IDs and other transaction details and even contacting customer directly to confirm the order, minimizing false declines while also more accurately identifying fraudulent transactions.
Don’t Underestimate the Importance of e-Commerce Fraud Protection
While technology and trained experts are an effective way to improve the screening of credit card transactions, it’s not without its flaws. Savvy fraudsters have become increasingly brazen in their attempts to circumnavigate current e-commerce security solutions, making these thieves sometimes difficult to catch, even with the most advanced solutions.
So as cybercriminals try redirecting FedEx shipments, exploiting the weaknesses of alternative payment options or placing “click-and-collect” orders to get away with fraud, it’s inevitable that some of these fraudulent orders will slip through screening systems. It’s then that merchants will want to have e-commerce fraud protection systems in place, like chargeback guarantees or chargeback insurance, that limit a merchant’s financial responsibility when fraudsters strike.
Chargeback Protection
If a fraud solution includes chargeback protection, that solution covers a portion of the losses a business incurs due to fraudulent transactions. These losses may include chargeback fees and penalties.
Often, this coverage to businesses comes in the form of invoice discounts if any of the pre-agreed-to KPIs aren’t met; it isn’t reimbursements for chargeback expenses and isn’t designed to cover all of a business’s chargeback expenses.
Chargeback protection ultimately aims to prevent fraud and ensure no chargebacks are filed. Sounds good, right? Unfortunately, some providers may try to keep chargebacks low by rejecting any suspicious-looking transaction without analyzing it. As a result, merchants may see their chargeback rates go down — but they may see their false declines skyrocket. And unfortunately, false declines can also cost merchants — both financially and reputationally.
Chargeback Insurance
Another way to protect businesses against expensive chargebacks is chargeback insurance. Insurance provides a 100% guarantee that if a fraud solution approves a transaction that turns out to be fraudulent and generates a chargeback, the fraud solution will pay the entire amount of the chargeback.
How e-Commerce Merchants Can Protect Their Business
When it comes to protecting your business against CNP fraud, you have some important decisions to make. Does your fraud management solution offer e-commerce fraud prevention? If so, does it use simple (and perhaps outdated) fraud filters, or does it incorporate a sophisticated mix of machine learning and human analysis?
Not all fraud management solutions offer the same levels fraud prevention and fraud detection, so it’s important you know exactly what your vendor offers and if that’s the coverage you need.
We understand making these decisions can be overwhelming. That’s why we created our easy-to-read “Merchant Guide for e-Commerce Fraud Protection.” This free guide helps you understand your risks and select the fraud tools that will secure your business, your profits and your reputation.
