Online fraud is one of the most increasing concerns for businesses of all sizes. Online shopping is undoubtedly easy, but at times, the ease of buying can open doors for malicious actors who look to exploit unsuspecting businesses.
As there are no face-to-face interactions or physical signatures, online businesses need to take extra precautions to safeguard their transactions and ensure authenticity in purchases.
Online fraudulence can cost businesses money lost but also hurt companies’ reputations. A common scenario in dealing with disputed charge cases is where the burden goes to the merchant to settle such a dispute while losing money through the transaction process. Below are three key tips to fight online fraudulence and make your transactions safer.
Where Does the Purchase Originate? (Location-Based Fraud Prevention)
Location is one of the significant identification criteria for suspicious transactions. Advances in fraud detection technology now enable businesses to compare the cardholder’s address to the geographical location from where the purchase is being made. When a purchase is made from a location far from the cardholder’s usual location or billing address, it is considered suspicious.
You may want to flag such a transaction as suspicious when it involves a different country or city, especially a city whose fraud incidence is high. In that case, it does not necessarily mean that the transaction was fraudulent, but rather warrants further scrutiny. There should be verification before shipping out goods in cases where a purchase might have been initiated by a cardholder.
One of the best methods in this regard is to use advanced software for fraud prevention that gauges several aspects of the transaction, such as the user’s IP address, geolocation, and device fingerprinting.
These tools will help identify inconsistencies and pinpoint abnormal activity that requires further verification. If the business is unsure of the legitimacy of the transaction, it should not be afraid to ask for further confirmation from the customer, such as a government-issued ID or verification of the purchase via email or phone.
How Do You Know It’s Real? (Friendly Fraud and Chargebacks)
Friendly fraud is one of the most common types of fraud that online businesses encounter. This is when a legitimate cardholder denies making a purchase or claims that their credit card was used without their knowledge.
In some cases, family members or friends might borrow the card to make a purchase, leaving the cardholder unaware of the transaction. In other instances, the cardholder may forget they made the purchase entirely. Once the charge is contested, the company usually suffers a loss since the merchandise would have been shipped and may not be retrieved anymore.
To counter this, various chargeback defense solutions and payment verification services are designed for businesses to track and verify transactions, therefore ensuring the validity of a claim against chargeback cases. A chargeback solution will provide evidence and paper work that the cardholder indeed initiated the purchase when the customer disputes a charge, thus creating an avenue for settling cases in favor of the business.
Chargeback defense services also provide identity verification solutions at the time of purchase. Solutions like 3D Secure, or 3DS, will ask for additional authentication before the transaction can be processed by the cardholder. This enhances security and makes chargebacks and fraud less probable.
Further, friendly fraud impact can be curtailed with a clear, transparent refund, and return policy of the businesses. This ensures that there will be less chance of misunderstanding among the customers while being aware of their rights and responsibilities.
How Much Is Being Spent? High-Spend Transactions and Red Flags
Spending amount is another significant fraud indicator. Although rare, some legitimate customers may occasionally make very high-ticket purchases. However, the fact is most consumers do not spend large amounts of money on a whim. These transactions are merely a case of unusually large purchases that the cardholder does not usually make.
This would be a purchase that is well above the usual spending of a customer, especially if it is significantly higher than average. The chances of flagging such an order as suspicious increase if other factors are also present, such as an unusual IP address, an unusual email address, or a foreign shipping address. These may indicate that the person making the transaction does not have the cardholder’s consent.
To counter this, companies can set thresholds or limits on high-value transactions and flag them for manual review. Using fraud detection services, companies can be alerted when suspicious activity is detected so that they can take action right away before the transaction is processed and the goods are shipped. These tools usually use machine learning algorithms to continuously monitor and improve fraud detection, providing real-time alerts for unusual spending behaviors.
Further, collaborate with companies like Ethoca or other fraud alert platforms that specialize in fraud detection and prevention. These services will send alerts in real time if a potential fraudster is trying to make a purchase, which gives businesses an early warning and reduces the chances of losses.
The Need for Proactive Fraud Prevention Measures
Fighting online fraud requires a proactive approach. While no system is completely foolproof, by implementing the above strategies, businesses can significantly reduce the risk of fraud and protect both their bottom line and their customers.
- Educate Employees: Make sure your staff members are trained to recognize and address fraud. Regularly update them on the latest fraud tactics and provide them with the tools to handle suspicious transactions.
- Stay updated about the technology: Since fraudsters come up with new methods now and then, it is essential for your business. Invest in some fraud detection software and update your organization on the most current security methods so that it stays safe.
- Build Trust with Customers: Transparency is the key. Let your customers know that their transactions are being monitored for fraud prevention. This helps build trust and prevent misunderstandings in case of a dispute.
Conclusion
Online fraud is a reality that no business wants to face, but with the right strategies in place, you can fight back effectively. By paying attention to the origin of the purchase, verifying authenticity in transactions, monitoring high-spend purchases, and investing in fraud detection tools, you minimize the risk of being a victim of fraudulent activity.
Being proactive in fraud prevention will not only protect your revenue but also help in strengthening trust and loyalty in customers, and this is what would ensure that your business thrives well in the competitive online marketplace.