Today, e-commerce has become a trend of the modern economy with its outstanding platforms. Because it’s a new trend so online store owners can’t avoid risks in transactions. Thus, the management of fraud & risk in e-commerce transactions is considered the most important factor for the long term survival of your business.

These risks may relate to internet fraud, information security, payment methods, or even e-commerce legislation. Once getting into one of those risks, it would be costly for a business to solve and to recover. Each year, it costs e-commerce and direct marketing businesses billions of dollars annually, making it imperative for merchants to understand the risks associated with doing business online. So, business owners should develop an internal policy to address the potential risks and train their staff on implementing it. Implementation of powerful online fraud prevention solutions offers online merchants the ability to reduce and prevent economic e-commerce fraudulent transactions, chargebacks, and unauthorized payments.

What Makes E-Commerce Business to Energize Risks?

Undoubtedly, e-commerce can be a tremendous boon for small businesses, but with it comes the growing risk of e-commerce fraud. Small businesses are at particular risk, as fraudsters know that small merchants often lack the time and resources to implement the most sophisticated and comprehensive fraud detection protocols.

One of the biggest challenges of managing international e-commerce is the need to integrate different payment systems for each country. Because there’s no single standardized approach to international payments, retailers often have to use a different set of tools for every country in which they sell. E-commerce sales are predicted to reach $630+ billion by the end of 2020. Unfortunately, growing sales mean not only higher revenue but also bigger losses due to fraud. And if fraud and risk management in e-commerce transactions doesn’t go through the appropriate measures, the fraud losses can sum up to more than $12 billion by next year.

It’s not just something that you read about in the news, but actually something you might face yourself, even as a small business owner. Therefore, being equipped with the necessary tools is key in everyday fraud and risk management. It’s even more important on holidays. Fraudsters are active when everyone else is sleeping.

Before moving forward on how you (small business owner) can tackle the fraud and risk management in e-commerce transactions, let’s first understand what is e-commerce fraud.

So, What is E-Commerce Fraud?

The term e-commerce fraud, also known as purchase fraud, is pretty self-explanatory. It occurs when a fraudster approaches a merchant and proposes a business transaction using fraudulent means such as a stolen or fake credit card to pay for it. This leaves the merchant without payment for the sale that was just made.

Fraud has always been around in one form or another, so the concept itself isn’t that new. It used to be limited to the physical stealing of a credit card. And although this still happens, online fraud is far more popular now. With the rise of new technologies, payment methods, and data processing systems, online store owners are unwillingly opening their doors to new forms of fraud every day.

Online fraud most commonly takes place when the credit card is lost, or its information isn’t stored securely. And while card-present fraud losses have decreased over the last couple of years, card-not-present fraud continues to grow.

In a world with many companies exist and the rapid growth of technology, there will be a possibility that we will face the e-commerce fraud and risk in the future. Fraud, security breaches, and customer disputes are representing some of the risks that are related when accepting payment in your e-commerce business. One incident that includes a breach of sensitive data could result in negative publicity, loss of trust and credibility of the company to operate.

Each and every merchant must know and understand the risk that they might face as if can affect their business. So, how to reduce fraud and risk in e-commerce transactions? Keep on reading and you’ll get to know!

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Highly Effective Methods to Reduce the Risks in E-Commerce Transactions

Educate and Train Your Employees on e-commerce risks

Everyone within your organization must have an understanding of the security risks or fraud involved in an e-commerce transaction or business. They must also have in-depth knowledge of your organization’s risk management policies and procedures. Your risk exposure usually will depend on the business policies, security control, fraud detection, and prevention tools that your organization has implemented, etc.

Every employee in the management or organization should know and understand the risks associated with online transactions. They also must be able to follow the established risk management procedures in your company.

Find the Right Payment Processor

The right credit card processing company will provide effective risk management support and help you understand the specific e-commerce fraud risk as well as liability. Adequate customer data protection capabilities are also something you will want to consider when making your selection.

You can make a small research or review regarding the processor that you want. Don’t hustle up; take time to get to know more about the payment processor by doing some comparisons or make a few calls to ask questions.

Achieve and Maintain PCI Compliance

The Payment Card Industry’s Data Security Standard (PCI DSS) is a set of standards and requirements to help ensure that all online merchants and their customers are protected from fraud and data breaches. Achieving and maintaining your compliance via the PCI Compliance Guide is a critical first step to protecting your e-commerce business. In fact, failing to maintain compliance could result in hefty fines – and could ultimately result in loss of services from reputable e-commerce vendors.

Keep Your Shopping Cart Software Updated

Most small businesses partner with a third-party e-commerce shopping cart vendor to help ensure a great online shopping experience. These e-commerce specialists also work to protect their software from fraudsters, whose evolving tactics require constant software updates. Make the most of your vendor partnership by making sure you consistently update your shopping cart software. In some cases, it may be necessary to purchase additional features or upgrades to ensure maximal fraud protection.

Always require Address Verification (AVS) Card Code Verification (CVV) in your payment gateway

AVS is standard in most e-commerce platforms. It checks the entered billing address with the billing address currently on file, and tally it with the credit card company. CVV is an additional security feature aimed at reducing card-not-present fraud, and goes by several names:

  • VISA – CVV2
  • MasterCard – CVC2
  • Discover – CID
  • American Express – 4 digits above card number – CID

Recognize Signs of Suspicious Activity

  • Unusually large orders or high-priced orders
  • Expedited shipping on large quantities or high-priced orders
  • Expedited shipping when billing and shipping addresses differ
  • Orders where the purchaser asks to pick up the order at your location
  • Fake phone numbers
  • Suspect email addresses
  • Inconsistent address information

Make sure the billing address matches the IP location

Keep an eye out for IP addresses from overseas that don’t match the billing address. Sites like allow you to manually research an IP address. One common strategy is to simply prevent online transactions from IP addresses, which originate in countries to which you don’t ship. Many e-commerce platforms offer security functionality which will automatically recognize suspicious IP addresses or discrepancies.

Limit the number of declined transactions

One easy way to spot fraud attempts are repeated declined transactions, where the fraudster is guessing (or using a malicious software script to generate) credit card numbers and hoping for a match. Beyond preventing fraud, you will likely incur a small fee for each declined transaction, so it’s in your best interest to create a limit on attempted transactions. When the limit is hit, the customer should be locked out of your shopping cart and directed to contact customer service by phone for assistance placing an order.

Keep a list of confirmed fraudulent attempts

  • If a fraudulent order has been linked to an email address, a shipping location, a phone number or any other customer information, make sure you keep that information on file. Any future order attempts relating to the same customer information is a major red flag.

Require strong passwords from your customers

If your e-commerce platform requires or allows customers to create an online customer profile with saved information, make sure you require strong passwords that meet best practices for fraud prevention.

  • Set the minimum number of character for that
  • Allow customers to use a combination of capital letters, numbers and symbols
  • Many e-commerce vendors offer their own automatic password strength checkers – take advantage of it

Know Your Customer

For many small businesses, the vast majority of orders come from a very specific customer demographic and follow a recognizable pattern. Orders from customers that notably don’t fit this profile are easy to spot and worth checking into. For example, if you sell an item for which most customers only require a single unit, an order for two-dozen units is suspicious. If your product is a regional specialty, and an order comes in from a foreign country, you have reason to investigate further.

Create and Display Effective Policies

Your website must list your privacy, shipping, return, and refund policies on each page. Customers shouldn’t be forced to search for them. This will also create satisfaction and convenience for customers to visit your page more often.

Use Collection Efforts to Minimize Losses

You have control over most types of charge-backs and especially the ones resulting from processing errors. A well-designed collection system can help recover unwarranted chargeback losses.

When in Doubt; Check it Out

All of these warning signs, unto themselves, aren’t proof of fraud – and shutting down a transaction based on just one warning sign could be disastrous for customer relations. But when a red flag goes up, it’s always worth giving the order a closer look. One strategy for investigating is to find an excuse to call the customer directly using the given phone number, and ask to speak with the cardholder. You might note that your online store has been experiencing recent issues, and request that the customer confirm a few details of the order. Fraudsters using stolen credit cards rarely provide a real phone number.

So, all these methods mentioned above are just some of a lot of methods to limit risks in e-commerce transactions. You should follow these suggestions to develop your online store more effectively.

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