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Online payment fraud: how to protect your Ecommerce

Online payment fraud: how to protect your Ecommerce

Published: 28 July 2021 • Reading time: 7 minutes

If you are an owner of an Ecommerce business, you must have a burning issue on your hands: effective Ecommerce fraud protection that helps your customers feel secure with functional fraud detection and prevention solutions. Therefore, many times you must have looked up how to prevent payment fraud and, surely, by now you are aware that well-performing fraud prevention solutions in place are an essential element to have for any company that operates online, specifically online retailers, national and especially global ones.

In 2015 Hermes world UK conducted a survey regarding the reasons people don’t purchase online more, where it was revealed that one of the main barriers to purchase online reported by 35% of respondents was the concern regarding credit card fraud, which testified for the lack of confidence of potential customers of large-scale international businesses regarding the company’s adequate tools for effective fraud detection and prevention. We came a long way since then. People are more eager than ever to buy online, this progress was accelerated further by the pandemic, still many risks that scare consumers are in place.

We are living in an era, where cyber-attacks have demonstrated an eightfold increase in the last decade. It is, therefore, essential that companies are able to prevent and manage them, especially considering that in an omnichannel context incorrect fraud management can also result in an increase in “false positives”, genuine transactions identified as fraud, affecting the brand reputation and customer shopping experience, narrowing further the marketing funnel and disrupting customers’ trust and loyalty. The challenge is that of reducing Ecommerce fraud while not affecting customer experience.

To prevent fraud, it must be first detected, which is a multi-step process, whose particular steps depend on the specific Ecommerce fraud prevention companies, their fraud analysis tools and their practices. But what you can find often included in a fraud prevention package are proxy detection, behavioural analytics, device fingerprinting, auto data enrichment, linking; and all of it is reviewed with the help of fraud detection machine learning to further improve and automatise processes, while increasing precision, reducing “false positives” and resulting in instant decisions. This is the “frictionless” fraud review process used by some Ecommerce fraud prevention companies on the market like our partners at Riskified.

Fear of Ecommerce fraud and its consequences

Not only the online payment fraud is a certain peril to any Ecommerce business, but the fear of fraud hurts conversion rate and customer experience just as much, if not more. Ecommerce fraud costs the industry $21 billion per year, of that a total of $15 billion is lost due to a fear of fraud, as reported to us by Riskified, Ecommerce fraud management service provider in 2020. Besides the company’s revenue, the brand reputation is hurt deeply, if there is a history of clients becoming victims of fraud, while purchasing brand’s products. According to Riskified, 81% of consumers say they are very inclined to turn to the competition in the case of negative shopping experiences.

It is revealed by finder.com’s research released in October 2020 that online shopping fraud and scams increased by 37% in the first half of 2020 (41 thousand cases), compared to the first half of 2019, in which there were reported around 30 thousand cases. While the overall amount of consumer fraud reports in the first half of 2020 in the UK was at 62,868, and in the first half of 2019 consumer fraud reports were at around 50 thousand. Almost 13 thousand less, which, besides a significant fraud increase in 2020, testifies for higher awareness and reporting among affected victims, as well as higher level of aggression and harm done by fraudsters through various tools, including harmful fraud bots that have been used widely to harm Ecommerce businesses.

Identity and credit card fraud detection

As for identity fraud, interestingly, Javelin Strategy & Research concludes that identity fraud victims are three times more likely to leave their primary financial institution (bank, insurance companies etc.). While only 9% of consumers that haven’t experienced fraud ever leave their financial institutions. 31% of fraud victims in the U.S.A claim that they will leave their financial institution if they ever become a victim of a fraud even once. Considering that the same percentage – 31% (one in three) American consumers have been victims of identity fraud at least once, the situation for banks and even merchants is alarming, if they don’t know how to prevent payment fraudhow to prevent payment fraud and don’t implement effective fraud prevention solutions, which is why there are more than ever Ecommerce fraud prevention companies present on the market. The most common ways for criminals to use stolen identities are mostly to make purchases online (35%), in person (23%), over the phone/mail (14%) and less so through transfers and digital wallet payments (around 13%).  

As stated before, consumers usually blame the bank if identity fraud occurs, withdrawing responsibility from themselves. While the blame falls on the merchant for the credit card fraud. Therefore, knowing how to prevent credit card fraud as a merchant (as well as Ecommerce fraud) is indispensable for any business that operates online. The annual value of Ecommerce fraud losses on UK-issued debit and credit cards in the UK grew from £28 million in 2002 to £376.5 million in 2020 with the peak in 2018 with £393.4 million. Even though after the Great Recession in 2009 there was a significant drop in Ecommerce fraud losses that lasted 4 years with an average loss of £142 million per year¹.

Here is an example of scammed customers’ mindset in Spain in 2019, where 3,512 households that experienced an Ecommerce fraud, shared if and how their safety habits changed. Over 70% of respondents didn’t change anything regarding their Ecommerce habits, which exposed them to even more potential risks in the future. 12.4% – discontinued Ecommerce use altogether, while reduced Ecommerce use only 1.5%. Almost 15% changed their payment methods². The conscious consumers’ measures taken worldwide (if any) when impacted by Ecommerce fraud are different, but most common actions are closing an account and moving to a competitor and/or stop using the compromised method of payment, as well as avoiding altogether certain merchants. Although few, but some people believe that spending less money online or even in physical stores can help them prevent from being a victim of a fraud. However, most people are scammed out of less than €50 in the EU, since the bigger the sum, the more complex it is for the fraud to go unnoticed fast and many people prefer not to bother reporting to the authorities the monetary fraud if the amount of money is very small³.

Ecommerce fraud prevention: tools and solutions

What are the most often used tools for Ecommerce fraud detection (mobile commerce), especially in credit card fraud detection? According to Cybersource, the top tools used and identified by business are: Card verification number (41% businesses), 3-D Secure (23%), Address verification service (22%), postal address validation services (16%), customer order history (13%), credit history checks (10%). The ones that are used by less than 10% of businesses that participated in the survey are telephone number verification, shared hotlists, whitelists, in-house blacklists, IP geolocation, paid public records services and others. What is worth mentioning is that only 8% of businesses reported the use of a fraud detection model (fraud scoring based on fraud detection machine learning), this makes it clear why the fraud is on its rise instead of a glorious downfall.

All of the reasons and examples above that show how harmful Ecommerce fraud is for all the parties involved (financial institutions, merchants, customers), pose an obvious question: how to stop Ecommerce fraud? It is not feasible to expect any fraud prevention company to be able to guarantee with 100% certainty to stop Ecommerce fraud forever for any bank or merchant even with the use of the latest technology and the most expensive software. Just like there is a non-stop development and evolution on the fraud prevention market, there are also new ways that fraudsters come up with to take advantage of consumers worldwide. However, it doesn’t mean that there is no reliable Ecommerce fraud protection you can provide yourself with thanks to the technology and expertise available on the market and prevent your business from being affected by Ecommerce fraud by reducing the risks to the minimum.

Besides an obvious decision of turning to qualified Ecommerce fraud prevention companies that provide efficient certified fraud prevention solutions, what is important to mention is that businesses should pay attention to the payment processing company, whose services they are using. Nowadays, what gives a merchant full control is the use of a payment orchestration platform – collecting payment data on the same platform with integration of different service providers and fraud detection and prevention solutions already in place, which is what makes payment processing highly secure. And the customers on their end make payments simply and instantly when a payment orchestration platform is in place.

Source
1

UK Finance, 2021

2

Red.es 2020

3

Ipsos, 2020

TagSecurityEcommerce

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