What e-commerce retailers need to know about combating fraud?
When sales are high and business is booming, many online retail companies push e-commerce fraud protection down the priority list. But with increasingly sophisticated scams, the damage is already done by the time they realise the need for it. Many companies that are working on razor-thin margins lose revenue, legitimate customers, and ultimately, market reputation.
This blog will explore the common types of e-commerce fraud and ways to combat them and improve revenue.*
Sources of revenue loss in the eCommerce industry
Fraud is considered the primary cause of revenue loss in the e-commerce industry as fraudsters innovate and leverage more advanced tactics each year. Here’s a look at common retail frauds, some of which often go under the carpet for a long time:
- False declines:
To protect themselves from fraud, companies may sometimes impose strict fraud identification parameters that may decline even genuine transactions. Detecting actual fraud and avoiding false alarms is a thin line. Complex fraud detection systems can also lead to slow response times and frustrated customers, resulting in loss of revenue. Therefore, the goal of an e-commerce fraud detection system should be to reduce false declines while improving order processing times.
- Chargeback fraud:
- Card Not Present (CNP) sales:
Chargeback mechanism is meant to protect the buyer from extra/unlawful charges. If a customer disputes a transaction due to excess retailer charges, the card company sends the money back from the retailer to the customer. However, fraudsters use it to their advantage to get free products. This harms the e-commerce vendor because if there is a delay between the time the chargeback is requested and when the retailer is notified, they could have already shipped the merchandise, which would be nearly impossible to retrieve. In addition, the small fee for each chargeback can quickly add up to a hefty sum. If the chargebacks hit a threshold, the card company could increase the processing fee leading to loss of business. Merchants can challenge the chargeback; however, credit card companies usually side with the customers.
CNP credit fraud can happen due to stolen card, identity theft, stolen card data, phishing, and friendly fraud. This happens when a physical card is not available during the transaction (online/phone sales). In this type of fraud, it is easier for fraudsters to scam customers as they don’t require a physical address to complete the transaction. Usually, the cardholder isn’t even aware of the fraud for many days, which allows the fraudster to pile-up the card bill.
eCommerce fraud prevention solution to increase business
By having a robust e-commerce fraud prevention service in place, you can not only filter out fraudsters but also gain the trust of your customers to increase business. Here are some of the ways a fraud management system can help:
- Identify genuine sales:
- Have a prevention strategy in place:
- Lay a foundation:
- Ship the order after the payment is processed:
- Holdover policy for large value orders:
- Tracking numbers and signatures:
- Reduce the number of declined transactions:
- Implement a robust detection approach:
Your goal should be to filter out fraudsters but not penalise genuine buyers by making the security process unnecessarily challenging. If your system sets the security filters too high, you could lose genuine sales.
It is better to have a fraud prevention plan in place than to handle it once it has happened. You can do this by following these steps:
Collect information such as IP addresses or use services like Verified by Visa or MasterCard SecureCode.
Reduce the risk of shipping the products on a declined transaction.
Hold large value orders for up to 48 hours before shipping. This will give the customer time to report any theft of credit card.
Give the customers a tracking number and have their signatures on delivery to create a paper trail.
The fraudster could be using a combination of credit card numbers if they don’t have the correct details. Block the transaction and the user if there are too many attempts and inform the rightful account holder.
Use parameters such as CVV number, IP address, customer’s phone and zip code, social media identity, and address verification services to detect a legitimate transaction.
Most merchants are not equipped to handle frauds and data protection in-house. This leaves their business wide open to scams and fraudsters. While some companies leave this job to manual scrutiny by a mid-level executive, it just doesn’t work in the long term. It is best to choose the right partner for the job.
How can Infosys BPM help?
Infosys BPM deploys fraud management solutions with a mix of domain expertise, analytical skills, and technology to protect revenue, improve brand image, and enhance customers’ trust. With a comprehensive retail and e-commerce fraud solution powered by AI/ML models, our services have increased sales and reduced false positives. Tap into our service offerings that include e-commerce fraud management, PoS fraud management, and product counterfeit management.
*For organisations on the digital transformation journey, agility is key in responding to a rapidly changing technology and business landscape. Now more than ever, it is crucial to deliver and exceed on organisational expectations with a robust digital mindset backed by innovation. Enabling businesses to sense, learn, respond, and evolve like a living organism, will be imperative for business excellence going forward. A comprehensive, yet modular suite of services is doing exactly that. Equipping organisations with intuitive decision-making automatically at scale, actionable insights based on real-time solutions, anytime/anywhere experience, and in-depth data visibility across functions leading to hyper-productivity, Live Enterprise is building connected organisations that are innovating collaboratively for the future.