E-commerce fraud is on the rise, posing a growing threat to businesses. Based on Global Fraud Report 2023, 43% of merchants are experiencing phishing, pharming or whaling whereas 34% of merchants are suffering from friendly or chargeback fraud and then followed by 33% of them are experiencing card testing and identity theft respectively. Hence, choosing an appropriate fraud prevention solution is vital for businesses before it is too late.
What is E-commerce Fraud
E-commerce fraud is a fraudulent activity that occurs with online transactions. Fraudsters will deceive businesses and customers to gain unauthorized access to personal and financial information and then conduct fraudulent transactions for personal gain. Therefore, a fraud prevention solution is needed to secure your store and maintain customer trust.
Common Types of E-commerce Fraud
E-commerce businesses face a myriad of challenges. To effectively mitigate these risks, it’s crucial to maintain a deep understanding of emerging fraud trends.
Credit card fraud
- Bad actors steal credit card information to make unauthorized purchases.
Account takeover
- Malicious actors gain access to customer accounts to make fraudulent transactions.
Chargeback fraud
- Customers dispute legitimate charges, claiming unauthorized purchases.
Phishing
- Fraudsters trick victims into disclosing sensitive information or taking harmful actions.
Affiliate fraud
- Fraudsters manipulate the system to claim credit for sales or leads that were not genuinely generated. Read more about affiliate fraud.
Types of Fraud Prevention Solutions
A variety of fraud prevention tools and services are available to address different types of fraud.
Address Verification System (AVS)
- Compares a customer’s billing address with the one registered with their card issuer.
- This helps ensure the purchaser is the rightful owner of the card.
Card Verification Value (CVV)
- Verifies the 3 or 4 digits printed on the back of a credit or debit card.
- This validates the possession of the physical card.
Device Fingerprinting
- Creates a unique digital fingerprint of each online device to identify suspicious activity.
- Detects unusual behavior, like multiple logins from different locations or devices.
Machine Learning
- Utilizes advanced algorithms to analyze transaction data and identify fraud patterns.
Behavioral Biometrics
- Analyzes user behavior to detect anomalies indicative of fraud.
Email Verification
- Confirms the validity of the email address associated with the transaction.
SMS Verification
- Authenticate users’ identities by using OTP code.
Choosing the Right Solution for Your Store
When selecting a fraud prevention solution, consider the following factors:
Define Your Objective
Clearly outline your desired outcomes and specific requirements. This ensures that the solution you choose aligns with your business goals and effectively addresses your unique challenges. Consider objectives like reducing false positives, chargebacks and so on.
Scalability and Adaptability
Choose a fraud prevention solution that can scale and integrate into your business. Look for a solution that can handle increasing transaction volumes especially during peak seasons. As your business grows, integrated fraud prevention systems can easily scale with your needs, adding new features or expanding into new markets without requiring significant changes to your infrastructure. On top of that, consider the solution that adapts to evolving fraud tactics through machine learning to detect and prevent fraud effectively.
Features and Functionality
Look for features like real-time transaction monitoring, device fingerprinting, address verification, velocity checks, and so on. It helps to detect fraud by identifying suspicious device usage patterns, such as a single device making multiple transactions with different payment methods and so on. Also, choose the solutions that employ sophisticated machine learning techniques are better at identifying evolving fraud patterns.
Real-time Processing
Solution must be able to process transaction data and generate alerts in real-time. It allows the system to analyze transactions as they occur, flagging suspicious activities immediately. This will prevent fraudulent transactions from being completed by identifying unusual patterns or behaviors in real-time. For example, monitoring for transactions that deviate from typical purchase amounts or locations. Any delay in identifying and responding to suspicious activity can result in substantial financial losses.
Ease of Use
A user-friendly interface simplifies management and reduces the learning curve for your team. For example, look for a solution with an intuitive dashboard that doesn’t require extensive training. Consider whether the system can operate effectively with minimal manual intervention.
Cost
Evaluate the upfront and ongoing costs against the expected return on investment. Consider total cost of ownership, including implementation, maintenance, and support.
Customer Experience
Prioritize solutions that minimize friction for legitimate customers. False positives can lead to lost sales and customer dissatisfaction. For example, instead of applying the same security checks to every transaction, risk-based authentication dynamically adjusts the level of scrutiny based on the assessed risk level.
Integration
Ensure seamless integration with your e-commerce platform, payment gateway, and other relevant systems. Prioritize platforms that offer API or SDK integration to seamlessly incorporate fraud prevention into your existing business operations with minimal disruption. Using pre-built APIs and SDKs reduces the time and cost involved in integrating new technology, enabling quicker deployment and faster time to value.
Customer Support
Reliable customer support is essential for troubleshooting issues and resolving disputes promptly.
How FraudLabs Pro Can Help in Fraud Prevention
FraudLabs Pro is a comprehensive payment fraud detection solution that is designed to protect merchants from the fraud losses and chargebacks. It achieves this through a combination of advanced features:
Comprehensive fraud validation
- It examines multiple data points such as IP geolocation, email, billing and shipping information, credit card details, and transaction velocity to detect anomalies.
Real-time risk assessment
- FraudLabs Pro provides instant risk scores for each transaction, allowing businesses to make quick decisions like approve, review or reject.
Customizable fraud rules
- Users can create specific rules based on their business needs to identify and block suspicious orders.
Global merchant network
- By leveraging data shared by a vast network of merchants, FraudLabs Pro can easily identify emerging fraud trends and patterns.
Machine learning
- The platform continuously learns from transaction data to improve fraud detection accuracy.
Easy to Integrate
- For merchants, FraudLabs Pro has more than 22 ready-made plugins for the major e-commerce platforms.
- For developers, FraudLabs Pro offers a ready and easy-to-use REST API for integration.
Free to use
- It is free to validate up to 500 orders per month.
- Great for small and medium businesses.
Conclusion
By carefully selecting and implementing a robust fraud prevention solution, e-commerce businesses can significantly reduce the risk of financial losses and protect their customers’ trust. Remember, fraud prevention is an ongoing process that requires continuous evaluation and adaptation.
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