Published: August 30, 2021
Reading time: 5 minute read
Written by: Forter Team

E-commerce continues to grow in popularity year after year, reaching new heights during the pandemic situation in 2020.

With this increase in popularity comes a harsh reality: More opportunities for fraud.

Many types of e-commerce fraud exist, all of which can cause significant issues for online retailers in any industry. These fraudsters make adequate e-commerce fraud protection necessary for businesses across the board.

But what does e-commerce fraud protection entail?

Our article will help you understand e-commerce fraud protection, why you need it, and some best practices for keeping fraudsters at bay.

What is E-commerce Fraud Protection and How Does it Work?

As the name suggests, e-commerce fraud protection is software that detects and prevents fraud in the e-commerce space.

Because there are so many types of e-commerce return fraud and the tactics used by fraudsters are so vast, fraud protection vendors provide several different services. Some of which include:

  • Payment protection – This is protection surrounding the actual transaction. Payment protection helps reduce false declines while also eliminating e-commerce fraud costs by identifying and preventing fraud before it hits.
  • Policy protection – Policy protection involves preventing fraudsters from abusing specific policies. Return fraud is a typical example of this.
  • Account protection – Account protection services help keep customer accounts protected from different types of fraud such as account takeover and automated attacks.

Types of E-Commerce Fraud

E-commerce businesses are the target of a wide range of different fraud tactics. All of which are different yet equally detrimental to a business’s bottom line.

Here are some of the most common tactics.

Card testing fraud

Card testing has a few different steps to it. First, the fraudster illegally obtains one or more credit card numbers. This could be through theft or through purchasing the card data from certain parts of the internet.

Then, to test if the card can be used for transactions, the fraudster will attempt smaller purchases with each card number. The initial purchases are always smaller, as the only objectives here are to figure out which numbers are valid and what the limits on these credit cards are. The smaller purchases also help avoid detection.

Once limits and validity of the credit cards have been established, the fraudster will then begin making larger purchases.

Chargeback fraud

Chargeback fraud is when someone makes a purchase and later disputes it with their credit card company, resulting in a chargeback. One of two things could have occurred:

  1. The customer legitimately didn’t recognize the purchase on their credit card, resulting in “friendly fraud”. This case is accidental, though it still has a negative impact on the business and the customer relationship.
  2. Customers blatantly attempt to circumvent and abuse company policies to either get money back or keep products for free.

Chargebacks lead to many different costs to the company, including lost merchandise, chargeback fees, and even shipping costs.

Refund fraud

Refund fraud occurs when the fraudster purchases a product or service using a stolen credit card and then has it refunded onto their own. They can often trick the e-commerce merchant by mentioning that the old credit card account is now closed, putting the merchant in a tough spot.

Account takeover fraud

With account takeover fraud, the fraudster gains access to a legitimate customer’s account on an e-commerce website. There are a variety of ways this can be accomplished, including:

  • Purchasing stolen passwords
  • Purchasing security codes
  • Obtaining personal information on certain parts of the web
  • Using phishing schemes on customers to get account information

Account takeover fraud is essentially a form of identity theft. Once into the account, fraudsters can change account information, make purchases, and even withdraw funds depending on the features associated with the e-commerce site.

Account takeover fraud can severely damage the reputation of an e-commerce retailer. Once customers feel as though their account information can’t be properly protected, the chances of them purchasing from you again are slim to none.

E-commerce Fraud Protection Strategies and Best Practices

Protecting yourself from e-commerce fraud should be a top priority. Luckily, there are some strategies and best practices that you can employ to help keep fraudsters at bay.

Here are some of those best practices.

Perform consistent site security audits

Ensuring up-to-date site security is often your first line of defense against e-commerce fraud. Run through this site security checklist when performing the audit:

  • Ensure cart software and plugins are updated
  • Check for a current SSL certificate
  • Check on online store backup frequency
  • Regularly scan for malware throughout the website
  • Set strong passwords for admin accounts, hosting accounts, and other critical password-protected accounts
  • Confirm your store’s PCI-DSS compliance
  • Ensure the encryption of all store-customer communications
  • Deal with inactive plugins

Train your support team to spot signs of e-commerce fraud

Effective customer service isn’t only important in brick-and-mortar stores. A well-trained e-commerce customer service team can help combat e-commerce fraud. Train your staff to watch out for certain e-commerce fraud indicators, such as:

  • Larger-than-average orders
  • Inconsistent order locations
  • Multiple shipping addresses under one billing address
  • Inconsistent order data
  • Multiple declined transactions
  • Multiple transactions taking place in a smaller time window

Keeping your customer service team up to date with these e-commerce fraud identifiers can help prevent e-commerce fraud and protect your bottom line.

Consider using an Address Verification Service (AVS)

An Address Verification Service is a service offered by many banks that can help detect fraudulent and suspicious credit card transactions. This service will automatically check if the billing address provided by the customer matches the billing address on file with the issuing bank. If the addresses don’t match, the system will either flag the transaction or decline it altogether.

How Forter Can Streamline Your E-commerce Fraud Protection Efforts

The best way to protect yourself from e-commerce fraud is with an e-commerce fraud protection service, such as Forter.

Forter allows you to secure the entire purchasing journey using a single platform. You’ll be able to approve more customers using accurate, real-time decisions and breathe easier thanks to an automated platform.

With Forter’s Payment Protection service, real-time fraud decisions can help you reduce false declines by up to 90%. The Account Protection service can help protect all your customer accounts at every touchpoint, from login to logout. Use Forter’s Policy Abuse protection to protect yourself from lost revenue caused by certain activities, such as return abuse, while maintaining a positive customer experience.

We know that the needs of your business are constantly changing. That’s why all of Forter’s services are tailor-made for your business.

Looking for More Information?

Don’t hesitate to contact us for more information on e-commerce fraud protection or Forter’s solutions in particular. We’re always here to help.

5 minute read