How do eCommerce Websites Spot Fraudulent Transactions?

 eCommerce websites are notorious for fraudulent transactions. An eCommerce storefront receives 206,000 attacks per month on average. With this risk, eCommerce merchants must protect themselves and their customers from malicious fraudsters. This article delves into the definition of eCommerce fraud and how eCommerce websites detect fraudulent transactions.

E-commerce fraud has been defined.

 

ECommerce, also known as electronic/internet commerce, is a platform for exchanging money and data in order to conduct business over the internet. Statista estimates that global retail eCommerce sales will reach 5.2 trillion dollars in 2021. This figure is expected to rise by 56% by 2025, reaching 8.1 trillion dollars.

With such revenue figures, the eCommerce industry remains a hotbed for eCommerce fraud. ECommerce fraud is any illegal attempt by a scammer to intercept a commercial transaction on an eCommerce storefront for personal or financial gain.

What are the figures for eCommerce fraud?

A Statista report states:

Revenue losses from online payment fraud are expected to total $20 billion USD by 2021. A 14% increase over the previous year's figure of $17.5 billion. The untimely outbreak of COVID-19, whose isolative nature drove most people to shop online, is attributed to this rise. This created a window of opportunity for an increase in eCommerce fraudsters.

The fraud detection and prevention market was estimated to be 28 billion US dollars in 2020, with projections predicting that this figure will steadily rise to 69 billion US dollars by 2025 to help curb the rise in ECommerce fraud.

According to a 2021 study, the card verification number is still the most commonly used fraud detection tool among online merchants worldwide. This method is used by 54% of all merchants worldwide. This is followed by email verification, which is used by 43% of global merchants, and customer order history, which is used by 38%.

Why is fraud detection and prevention important?

Fraud detection is a preventive system set up by online merchants to aid in the prediction and avoidance of future occurrences of suspicious transactions. Most of these systems detect and attempt to close loopholes that fraudsters may exploit. Here are some of the reasons why fraud detection is essential:

Aids in the prediction of new fraud attack patterns

eCommerce fraudsters have recently discovered newer and more innovative ways to exploit the systems that protect online eCommerce platforms. However, advances in fraud detection and prevention use machine learning to detect new and ever-changing attack patterns. These preventative systems can use historical data to create precise predictive patterns that can aid in the prevention of a new attack.

Increases merchant revenue

The higher the order acceptance rate, the higher the revenue figures for the merchants. Using fraud detection and prevention systems can help merchants increase their revenue by increasing order acceptance rates.

These systems use artificial intelligence to distinguish a trustworthy buyer persona from an untrustworthy one, thereby improving order acceptance rates and, as a result, storefront revenues by reducing charge-backs. Here are some additional strategies for running a successful eCommerce store.

Reduces labor costs associated with manual order reviews

In general, automated systems outperform manual labor. Using these systems in the fraud detection and prevention process implies that automated systems can complete a given amount of work faster than human labor. This saves online merchants money on labor while maintaining artificial intelligence's efficiency.

Reduces the number of charge-backs

When a customer contacts their bank to dispute a transaction, this results in a chargeback. If the issuing bank accepts the dispute, the chargeback is submitted, and the transaction value is deducted from the merchant's account.

The purpose of chargebacks is to protect cardholders from fraud. To avoid chargebacks, good preventative measures can quickly identify and communicate transaction details.

What are the best practices for detecting eCommerce fraud?

Source: e-commerce security

At this point, protecting your eCommerce storefront may appear to be a daunting task. It shouldn't be. You can use some great practices to help protect your eCommerce storefront from internet fraudsters. Here is a list of some of them:

Use Shopify security.

What exactly is Shopify Protect? This is Shopify's Fraud Protection technology, which categorizes transactions as "protected" or "not protected" in order to prevent fraud on Shopify. Shopify Protect is a fraud-prevention measure that uses artificial intelligence to screen orders and eliminate instances of Shopify fraud.

When does a chargeback take place?

When the customer does not receive the product.

When there is a double-billing situation.

When an incorrect charge is made.

In the case of unrecognized purchases.

In the event that a customer is dissatisfied.

When account takeover fraud is discovered.

In the case of friendly fraud.

Perform regular website security audits.

Regular website audits are an excellent way to stay ahead of eCommerce fraud. A website audit is a thorough examination of all the factors that may make your website vulnerable to eCommerce fraud attacks.

Here is a list of things to look for when performing a website audit.

Examine any suspicious orders

Monitoring the order process for discrepancies in shipping and billing addresses is an excellent way to prevent e-commerce fraud. You should also pay close attention to your customers' physical location. By doing so, you can use past patterns to prevent future instances of e-commerce fraud.

Follow PCI guidelines.

The Payment Card Industry Data Security Standard is developed by the PCI Standards Council (PCI DSS). This set of requirements ensures that all businesses that process, store, or transmit credit card information do so in a secure manner. To ensure that organizations are PCI compliant, PCI DSS has 12 essential requirements, 78 base requirements, and 400 test procedures.

Make use of verification software.

Verification software ensures that customer addresses and email addresses from buyers who purchase from any eCommerce store are correctly recorded. This is done to prevent any instances of attempted fraud. This software also aims to make the eCommerce buyer's experience as seamless as possible while also refining a buyer profile that can be used to detect fraud in the future.

Create a block list.

A block list, also known as a black list, is a list of identified buyers whose behaviour and patterns indicate a desire to defraud a merchant. This list is created by a merchant as a future fraud prevention measure against suspicious buyers.

Order quantities should be limited.

Limiting order quantities as an online merchant is a critical step in ensuring revenue sustainability. When there is a promotional sale, maximum order quantities are frequently used. This reduces the likelihood of wholesalers purchasing the product in bulk at a lower cost and reselling it at a higher cost.

Minimum order quantities, on the other hand, assist online merchants in maintaining a predetermined profit margin. This is common when selling a single product unit is not profitable for the merchant.

Have Policies That Do Not Allow Fraud

This ideally refers to laws and regulations that protect online merchants from eCommerce fraud. While the course of action taken against fraudsters may differ depending on the online merchant. The primary goal is to serve penance for anyone who breaks the rules.

Make use of an address verification service.

ECommerce merchants must be able to verify the shipping addresses of their customers. This is accomplished by utilizing shipping information from shipping companies to validate customer addresses. This primarily aids in detecting and combating friendly fraud.

eCommerce Fraud Types

Types of E-commerce Fraud

ECommerce fraud is any illegal attempt by a scammer to intercept a commercial transaction on an eCommerce storefront for personal or financial gain. Based on the method of execution, we have different types of eCommerce fraud.

Here are a few examples of eCommerce fraud:

Fraudulent triangulation

Triangulation fraud is a type of eCommerce fraud in which a scammer creates a bogus storefront. An unsuspecting customer will go to this bogus storefront and place an order. The fraudster uses stolen card information to fulfill the order of the unsuspecting buyer. The money is then pocketed by the owner of the bogus storefront. This type of eCommerce fraud frequently goes unnoticed, especially because the unsuspecting buyer frequently receives the goods they ordered.

Friendly deception

Friendly Fraud, also known as Chargeback, is a type of eCommerce fraud in which a person orders a product from an eCommerce storefront and has it delivered to him. He then complains to the credit card company about the charges.

This causes the credit card company to pay the chargeback claim from the merchant's account. While there may be genuine cases where the goods or services never reached the buyer, goods arrived damaged, or the wrong consignment was delivered. Friendly fraud is the practice of claiming a chargeback for goods or services that were properly delivered.

Payment Fraud on the Internet

When someone obtains someone else's payment information, they use it to conduct illegal or unauthorized transactions. When the owner of the payment information contests the transactions, the bank or merchant is forced to pay chargeback fees. In some cases, the fraudster may have initiated the dispute in order to be reimbursed for chargeback fees.

Fraudulent Account Takeover

This is a type of eCommerce fraud in which fraudsters digitally breach a victim's bank account in order to steal funds or information. Unauthorized transactions or eCommerce shopping may result from a successful attempt at account takeover fraud.

To summarize

With each passing year, the eCommerce industry expands by leaps and bounds. To make the industry safer for customers and merchants, newer and more efficient fraud detection and prevention techniques must be used.