E-commerce fraud is a growing threat, and staying ahead of increasingly sophisticated fraudsters is critical for businesses of all sizes. Protecting your bottom line and your customers requires a multi-layered approach. Discover five key strategies to effectively combat fraud, optimize your fraud prevention tools and create a secure, frictionless experience for legitimate customers.
At-a-glance
- Gain insights into the best practices to detect and prevent fraud in the e-commerce industry in 2024 and beyond.
- Learn about the most common types of fraud that e-commerce businesses need to be on the lookout for.
- Discover the best-in-class tools to use for fraud prevention..
Before we outline best practices for preventing costly e-commerce fraud, let’s quickly familiarize ourselves with the common types of e-commerce fraud experienced by businesses of all sizes.
Common types of e-commerce fraud
Payment fraud
In short, payment fraud happens when a fraudster uses stolen credit cards to purchase goods and resell them at profit. The most at-risk transactions in this instance are card-not-present (CNP) transactions.
Account takeover (ATO)
Account takeover happens when a fraudster uses stolen credentials to access customer accounts to get access to a platform/site. Once they’re in, chaos ensures. The bad actor will have free reign to drain funds and/or loyalty points, along with stealing customer data.
Friendly fraud/chargeback abuse
Also known as chargeback abuse, this type of e-commerce fraud occurs when a consumer disputes a legitimate transaction through the issuer or payment processor in an attempt to get a refund. Naturally, the goal is to get a refund and keep the item!
Synthetic identity theft
Synthetic identity theft is an insidious type of fraud in which a real person’s information, such as their date of birth or government identification, is stolen and combined with other falsified personal information to create a new identity.
As detailed in our eBook, synthetic identity theft isn’t just a type of e-commerce fraud, it is the fastest-growing financial crime in the US.
Promotion abuse (promo abuse)
Another topic discussed via eBook, promo abuse is a type of e-commerce fraud that involves a customer taking advantage of a merchant’s promotions. An ever-growing area of concern for merchants big and small, 49% of e-commerce businesses having experienced an increase since 2020.
Affiliate fraud
Affiliate fraud occurs when a bad actor uses dishonest, malicious tactics to earn commission payments via affiliate marketing programs. Although there are often strict terms and conditions in place to prevent this gaming of the system, it still happens. The most common types of affiliate fraud involve cost-per-click campaigns, cost-per-lead campaigns, cost-per-install models and cost-per-sale models.
This type of e-commerce fraud can really be as simple as refreshing a webpage multiple times, sending spam emails or creating a false sense of high traffic with popups. And the amount of fraud within affiliate campaigns does vary depending on the action and payout amount to the affiliate itself. However, at the end of the day, the negative effects are the same – this e-commerce fraud eats into a merchant’s profits and depletes marketing budgets.
Before we get a start on the five industry best practices for e-commerce fraud detection let’s get one thing straight: no merchant should be doing this alone.
Five industry best practices to preventing e-commerce fraud
Automate decisioning with artificial intelligence (AI) and machine learning (ML)
Without a doubt, AI has emerged as a powerful weapon against e-commerce fraud. AI technologies, such as ML algorithms, can analyze a significant amount of data and detect other anomalies that may indicate fraudulent activities. By automating decisioning with AI, merchants can make more confident risk decisions than fraud analysts on a much faster, grander scale.
When it comes to e-commerce fraud, AI-powered fraud management systems can detect and prevent payment fraud, identity theft and regular phishing attacks. Better still, they can adapt and learn over time new fraud patterns and the latest trends, further improving upon detection capabilities.
Partner with a robust data network
Fraudsters don’t work in siloes and neither should merchants. Our Identity Network uses data aggregated from more than millions of monthly anonymized, real-world queries to help decipher fraudulent versus legitimate interactions. It does this by analyzing patterns of how identity elements are being used online.
Partner with a trusted payment processor
To mitigate e-commerce fraud, merchants need to stick to what they are good at – selling and providing exceptional customer service in a crowded digital marketplace. Leave the payment processing to the experts!
By outsourcing e-commerce fraud checks to a third-party payment processor, merchants can better manage customer chargebacks (and friendly fraud attempts), as well as security compliance details and data storage. The latter is particularly vital as customers grow more and more wary of releasing payment details.
Implement step-up authentication according to the risk profile
Deciding upon when, how and where to introduce step-up authentication during a transaction is the ultimate decision. By leveraging model-derived signals such as our Identity Risk Score, Network Score and IP Risk flags into their own risk models, merchants can better predict the riskiness of a customer and mitigate e-commerce fraud. High-risk score? Step up that step-up authentication! Low risk? Roll out that seamless CX red carpet!
Ensure your fraud prevention tools are best-in-class
Detecting and preventing e-commerce fraud, while providing a frictionless customer experience is an ongoing challenge for merchants around the globe. And, while consumers may wish for a seamless experience, they also expect security.
Merchants who take the appropriate steps to integrate security solutions that do not negatively impact their consumers come out on top. The first step, of course, is choosing the right fraud prevention tool.
This enables fraud prevention professionals to do an analysis of their fraud challenge and determine what solution would help them succeed.
With a data-driven approach, we have made it our business to understand what merchants need and how to stay in front of current and emerging e-commerce fraud trends.
By keeping your customer’s experience front of mind, we streamline onboarding and transactions for good users, improving conversion rates and encouraging customer loyalty. And we are with you every step of the way.
