If you sell items online, you’re vulnerable to fraudsters who use various methods to let you think you have sales only to see your money go out the door. It’s been reported that e-commerce fraud is on the rise. Understand how you can be defrauded and the steps you can take to protect yourself.
Types of e-commerce fraud
It’s hard to stay ahead of nefarious activities; fraudsters are endlessly clever. The most popular frauds you’re likely to experience include:
- Fraudulent chargebacks. This is the most common type of fraud, accounting for 40% to 80% of all e-commerce frauds. A buyer says the package wasn’t delivered, the goods were damaged, or some other made-up excuse, and the credit card company reverses the charge; you have to repay the money to the credit card company. Chargebacks cost you 2.4 times the original transaction amount because of fees and penalties (to the credit card processor), and lost inventory (the fraudster keeps the money).
- Fraudulent refunds. Stolen credit cards are used to get illegitimate refunds.
- Fraudulent purchases. The accounts of legitimate customers are hacked and used to buy goods.
- Card testing frauds. Small purchases are made by fraudsters to test out the use of stolen credit cards.
What You Can Do
No matter how vigilant and pro active you are, it’s unlikely you can completely avoid experiencing fraud in your e-commerce activities. But you can take steps to minimize your exposure and greatly limit your losses.
- Use chargeback protection. Mastercard and Visa offer chargeback protection plans.
- Use fraud detection tools. For example, Signifyd has an e-commerce protection platform with “guaranteed fraud protection.” Other protection tools are offered by Kount and Riskified. Note: None of these sites post prices (you have to call for a quote), so it’s not clear whether they are cost effective for small e-commerce businesses.
- Watch for suspicious activity. This can be multiple orders being placed from different locations using the same credit card information. Don’t fulfill these orders.
- Dispute questionable chargebacks. When a customer complains to the credit card company and recoups the money from a sale, you—the merchant—is then informed of this and you have a right to question the chargeback. You must take action in a timely manner and follow procedure. Get help if you need it. For example, Justt offers AI-powered help to recover chargebacks. If you accept payment through PayPal, see if its Seller Protection Program can help you.
- Authenticate payments. Be sure you’re dealing with legitimate credit cards. For example, Stripe has a product to enable startups to test and accept payments with no-code tools.
Final thought
You work hard for your sales, but your bottom line can be disrupted by criminals who fraudulently part you from your goods and your money. Don’t accept the status quo; work to minimize fraud in your e-commerce business.
It’s been my personal experience that large companies may let things go (something I saw when my husband’s credit card was used to make some purchases even though the crooks could readily be located), chalking these things up to the cost of doing business. Small businesses can’t afford this attitude. Weigh the cost of using anti-fraud tools against the potential loss of revenue and remain vigilant for possible fraudulent activities.
