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ecommerce fraud

How to Prevent eCommerce Fraud and Protect Your Online Store

By John DiGiacomo

Half of eCommerce businesses fall victim to eCommerce fraud, costing up to hundreds of thousands of dollars. Here’s how to protect your business.

You think your e-commerce business is going well. You watch the sales roll in, your shipping process is running well, and you’re excited to check your bank account. When you do, though, you realize you’ve made far less than you thought you had. As you investigate, you find out that chargebacks from credit card companies are the problem.

This story is all too common among e-commerce businesses. E-commerce fraud takes a chunk out of their profits without them realizing it. On top of your bottom line, a high chargeback rate also discourages credit card companies from working with you.

If you’re ready to step up your business’ protection, get the lowdown on e-commerce fraud here.

What is E-Commerce Fraud?

The term “ecommerce fraud” can describe a few different things.

One type of ecommerce fraud occurs when someone uses a different person’s account or credit card to make a purchase on your site.

Sometimes this happens when the person gets access to the victim’s account on your site so they don’t need to enter credit card information. Another type of e-commerce fraud is a data breach, which is when someone hacks into your database to steal your customers’ data.

In this article, we’re referring to the first type of e-commerce fraud. In many cases, the customer notices the fraudulent charge and alerts their credit card company. The credit card company reverses the charge, and you lose the money they paid you.

Customers often don’t notice fraudulent charges until weeks or months later. If you’ve already shipped a product when the chargeback occurs, you’re out the cost of the product.

Tips to Prevent E-Commerce Fraud

If you aren’t careful, even small e-commerce fraud purchases can add up and cost you a bundle. To protect your business, follow these tips:

1. Adhere to PCI Standards

You should already be doing this, but it’s so important that it’s worth stating. The Payment Card Industry, or PCI, has security standards for every e-commerce company to follow.

These standards will also go a long way toward making your transactions more secure. They also have direct consequences, though. If you don’t adhere to PCI security standards, you’re vulnerable to lawsuits. Credit card companies may also decline to work with you, bringing your business to a fast halt.

2. Use the Address Verification System

The Address Verification System, or AVS, is an existing tool to help you secure your business. The AVS verifies that the customer’s billing address matches the one their credit card company has on file.

Running a customer’s payment information through the AVS is one more safeguard against e-commerce fraud. The system is already in place, so you can give big rewards from the minimal effort it requires.

3. Require CVV Codes for Purchases

A credit card’s three-digit or four-digit CVV code is an important part of e-commerce security. While online databases can store a customer’s credit card number and billing address, they can’t store the CVV code.

If you require the CVV code for online purchases, it’s unlikely that the data is stolen. It seems like a small addition to your payment process and it is, but it goes a long way in preventing fraud.

4. Set Tight Password Requirements

We’ve all set up an online account and become frustrated with restrictive password requirements. At the cost of a small inconvenience, though, you’re cutting down on your risk of e-commerce fraud.

Tightening your password policy protects your customers as well as your business. A smart password policy can require certain types of characters in your customers’ passwords so the passwords are harder to hack.

5. Look for Red Flags

There are certain red flags that a purchase might be fraudulent. Keeping an eye out for these red flags can help you detect fraud and block the transaction. The key signals include:

  • Inconsistent billing or shipping information
  • Unusual spending patterns
  • Purchases from unusual IP addresses (like an IP address in a different country than the customer’s typical location)

It’s not reasonable to comb through every purchase for these risk factors. Instead, set up automated alerts in your system to detect these red flags. You can instruct the system to decline the transaction or to alert you so you can verify the purchase before shipping the merchandise.

6. Don’t Ignore Software Updates

Most e-commerce sites use various types of purchased software instead of a customized system. If you’re using plug-ins or any other type of software, keep up with updates promptly.

In many cases, these updates are how the developer patches security holes. Even if security isn’t noted in the update description, it may be a part of the update, so install it as soon as possible.

7. Monitor for Chargebacks When They Happen

You can’t prevent 100% of ecommerce fraud. You can, however, minimize the damage it can do.

Set up your system to alert you in the case of a chargeback. If the chargeback applies to a purchase you haven’t shipped yet, put a hold on the shipment until you resolve the issue. If the purchase is, in fact, fraudulent, you can cancel the order.

8. Hire a Law Firm That Knows eCommerce

If you’re struggling with ecommerce fraud, it may be time to bring in some professionals. Look for a lawyer who can advise you about preventing fraud and about your options for legal recourse.

Remember that not all lawyers are experienced in the area of e-commerce law, so look for someone with this area of expertise.

Keeping Your E-Commerce Fraud to a Minimum

Running a successful e-commerce business is a complex endeavor, and it gets more complicated when you take criminals into account. Between chargebacks and a damaged reputation, e-commerce fraud takes down even an established online business.

Keeping up with Internet laws can lower your costs and protect you from larger problems down the line. The fraud prevention tips above are a start. For more tips for your e-commerce business, check out our legal tips blog.

If your online store has been a victim of e-commerce fraud, it’s time to talk to attorneys that can advise you about preventing fraud and about your options for legal recourse. Contact Revision Legal’s attorneys with the contact form on this page, or call us at 855-473-8474.

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