As digital commerce continues to grow, merchants face an increasingly harsh reality: so, too, does the opportunity for fraud.
There are many types of digital commerce fraud – all of which cause significant issues for online retailers in any industry. And with this increase in fraudsters comes an increasing need for fraud protection for businesses across the board.
But what does fraud protection in digital commerce look like?
What is Fraud Protection, and How Does it Work?
As the name suggests, fraud protection is software that detects and prevents fraud in digital commerce.
Because there are so many types of fraud and the tactics used by fraudsters are so vast, fraud protection vendors provide several different services. Some of these include:
- Payment protection: Protection that surrounds the actual transaction, helping reduce false declines while eliminating fraud costs by identifying and preventing fraud before it happens
- Policy protection: involves preventing fraudsters from abusing specific policies, such as return fraud
- Account protection: helps protect customer accounts from different types of fraud, such as account takeover (ATO) and automated attacks.
Types of Digital Commerce Fraud
Businesses offering digital commerce options are the target of a wide range of different fraud tactics, all of which are different – yet equally detrimental – to the business’s bottom line. Some of the most common tactics include:
Card testing fraud
Card testing consists of a few different steps. First, the fraudster illegally obtains one or more credit card numbers, either through theft or purchasing card data from certain parts of the internet.
Then, the fraudster will attempt smaller purchases with each card number to test if the card can be used for transactions. The initial purchases are always smaller, as the only objective here is to determine which cards are valid and what the limit on these credit cards might be. The smaller purchases also help avoid detection.
Once limits and validity of the credit cards have been established, the fraudster will begin making larger purchases.
Chargeback fraud
Chargeback fraud is when someone makes a purchase and later disputes it with their credit card company, resulting in a chargeback.
Sometimes, the customer legitimately didn’t recognize the purchase on their credit card, resulting in “friendly fraud.” This case is accidental, though it still harms the business and the customer relationship.
The less friendly form of chargeback fraud comes when a customer blatantly attempts to circumvent and abuse company policies to either get money back or keep products for free. Chargebacks lead to many different costs to the company, including lost merchandise, chargeback fees, and even shipping costs.
» See how Forter can help resolve chargeback disputes intelligently and efficiently with Smart Claims
Refund fraud
Refund fraud occurs when the fraudster purchases a product or service using a stolen credit card and then has it refunded on their own. They can often trick the merchant by mentioning that the old credit card account is now closed, putting the merchant in a tough spot.
Account takeover (ATO) fraud
With ATOs, the fraudster gains access to a legitimate customer’s account on a merchant’s website. There are a variety of ways this can be accomplished, including:
- Purchasing stolen passwords
- Purchasing security codes
- Obtaining personal information on certain parts of the web
- Using phishing schemes on customers to get account information
ATO fraud is essentially a form of identity theft. Once in the account, fraudsters can change account information, make purchases, and even withdraw funds depending on the features associated with the site.
Not only is ATO damaging to your customer, but it can also severely damage the reputation of an e-commerce retailer. Once customers feel their account information can’t be properly protected, the chances of them purchasing from you again are slim to none.
Fraud Protection Strategies and Best Practices
Protecting yourself from fraud should be a top priority. Luckily, there are some strategies and best practices that you can employ to help keep fraudsters at bay.
Perform consistent site security audits
Ensuring up-to-date site security is often your first line of defense against fraud. Run through this site security checklist when performing the audit:
- Ensure cart software and plugins are updated
- Check for a current SSL certificate
- Check online store backup frequency
- Regularly scan for malware
- Set strong passwords for admin accounts, hosting accounts, and other critical password-protected accounts
- Confirm your store’s PCI-DSS compliance
- Ensure the encryption of all store-customer communications
- Deal with inactive plugins
Train your support team to spot signs of e-commerce fraud
Effective customer service isn’t just important in brick-and-mortar stores. A well-trained digital customer service team can help combat fraud. Train your staff to watch out for certain digital fraud indicators, such as:
- Larger-than-average orders
- Inconsistent order locations
- Multiple shipping addresses under one billing address
- Inconsistent order data
- Multiple declined transactions
- Multiple transactions taking place in a smaller time window
Consider using an Address Verification Service (AVS)
An Address Verification Service is a service offered by many banks that can help detect fraudulent and suspicious credit card transactions. This service will automatically check if the billing address provided by the customer matches the billing address on file with the issuing bank. If the addresses don’t match, the system will either flag the transaction or decline it altogether.
How Forter Can Streamline Your Fraud Protection Efforts
Forter allows you to secure the entire purchasing journey using a single platform. You’ll be able to approve more customers using accurate, real-time decisions and breathe easier thanks to an automated platform.
Total chargeback costs are expected to surpass $117 billion in 2023, with $79 billion of those losses coming at the hands of merchants. Luckily, with Forter, you can avoid both friendly and criminal chargebacks, meaning a significant cost reduction and increased revenue for your business.
And now, with our Smart Claims add-on for Trusted Conversions, Forter can alleviate the operational burden of disputing chargebacks by supporting merchants through the chargeback representment process. This enables merchants to streamline back office operations to resolve disputes intelligently and efficiently – improving win rates and recovering lost revenue.
