Whether you run a small or large online business, it’s essential to protect your customers and company against potential eCommerce fraud schemes. Online shopping fraud is sophisticated, and cybercriminals leverage more advanced tactics each year.
Counteracting fraud starts with knowing how to spot it and implementing the right protocols for your organization. Read on to learn how you can detect and prevent eCommerce fraud.
1. Friendly fraud
This scheme occurs when a legitimate cardholder purchases an item or service online and then initiates a chargeback from the card-issuing bank, claiming the transaction was invalid or the item was never delivered. The bank or credit card company returns the customer’s transaction value, which must then be paid by the online retailer.
In some cases, disputes are genuine, while in other instances, they’re filed with the intent to get the product or service for free. While this type of fraud usually isn’t carried out by cybercriminals, it could still damage your company’s profits, especially since disputes are often filed after the customer has received his or her goods.
How to prevent it: Friendly fraud begins with a legitimate purchase, so it can’t be prevented at the point of sale. For this reason, it’s important to focus on documenting consumer behavior and reasons behind the chargeback (delivery problems, wrong product descriptions, faulty products) so you can better prevent chargebacks or contest potential incidents in the future. Implementing chargeback management software may also help prevent revenue loss.
2. Account takeover fraud
This type of fraud happens when criminals get a hold of a legitimate customer’s login credentials and take advantage of stored credit card information to purchase goods. An update on the shipping address will typically occur before a purchase so the criminal can retrieve the stolen items.
How to prevent it: Account takeover fraud is prevalent because many consumers are lax when it comes to online safety. Require patrons to use strong passwords that are 8–10 characters long and to change them at regular intervals.
3. Card testing
Card cracking is another name for this type of eCommerce scheme. It happens when a fraudster gains access to one or more stolen credit card numbers, either through theft or by purchasing card data on the dark web.
The fraudster will test a card by making a small online purchase. This is done for two reasons: to see if the card can successfully be used to complete a transaction and to determine the limit associated with the card. If the first purchase goes unnoticed, the fraudster will start making larger transactions. Card testing may result in thousands of dollars in potential chargebacks and fees.
How to prevent it: Consider monitoring small dollar amount transactions with fraud management filters, and analyze any unusual spikes in them. If a transaction seems suspicious, it could be card cracking at work. You may also want to watch for foreign IP addresses, since the majority of card testing fraud comes from outside the United States.
With these fundamentals in mind, you can better identify and combat different types of fraud that may affect your online business. For more information on eCommerce schemes, see the accompanying infographic.
Infographic created by First Data, a credit card processing company