11 July 2023
2 min read
Reduce Payment Fraud in your e-Commerce
Payment fraud in e-commerce is a significant concern for businesses worldwide. With varying fraud rates across industries and regions, it’s crucial to understand the risks involved.
How common is fraud?
The prevalence of payment fraud can vary depending on several factors, including the industry, geographic location, and the size of the business. Let’s deep into a few statistics that will provide you with an overview of the issue:
- Global Fraud Losses: According to a report by LexisNexis Risk Solutions, the total global e-commerce fraud losses amounted to 1.58% of online revenue in 2020.
- Chargeback Fraud: Chargeback fraud, where a customer disputes a legitimate transaction, is a common form of payment fraud. The LexisNexis report mentioned earlier found that merchants experienced an average of 1.5% of their total revenue as chargeback losses in 2020.
- Mobile Commerce Fraud: As mobile commerce continues to grow, so does the risk of fraud in this sector. A report by RSA Security stated that in Q1 2021, mobile transactions had a 2.82% fraud rate, significantly higher than the overall e-commerce fraud rate of 1.58%.
- Geographic Variations: Fraud rates can vary by region. For example, the LexisNexis report highlighted that merchants in the Asia-Pacific region experienced higher fraud rates compared to other regions, with losses amounting to 2.82% of their revenue.
- Card-Not-Present (CNP) Fraud: CNP fraud, which includes online and phone transactions, is a major concern in e-commerce. The Nilson Report estimated that global losses due to CNP fraud reached $27.85 billion in 2020.
How to mitigate payment fraud
Reducing fraud is vital to keeping your business and customers safe. The good news is that there are effective strategies and best practices that you can put in place to strengthen your defences:
- Use a secure payment gateway: Ensure that you use a reputable and secure payment gateway that complies with the latest security standards. Popular payment gateways often have built-in fraud prevention measures.
- Employ address verification systems (AVS): AVS verifies the billing address provided by the customer with the address on file with the credit card issuer. If there’s a mismatch, it could indicate potential fraud.
- Implement card verification codes (CVV): CVV codes are the three or four-digit numbers on the back (or front for Amex) of credit cards. Requiring customers to provide this code adds an extra layer of security.
- Monitor suspicious activities: Implement fraud detection tools that analyze customer behavior, transaction patterns, and other factors to identify suspicious activities. Unusual order amounts, multiple failed attempts, or rapid purchases from the same IP address could be red flags.
- Implement geolocation verification: Verify the customer’s location during the transaction to check for any inconsistencies, such as the IP address not matching the billing or shipping address.
- Require strong customer authentication: Implement multi-factor authentication (MFA) methods, such as sending a verification code to the customer’s registered email or mobile number, to ensure the identity of the buyer.
- Keep software up to date: Ensure that your e-commerce platform, plugins, and any other software used for payment processing are regularly updated with the latest security patches to address vulnerabilities.
- Maintain strong data security: Protect customer data by implementing robust security measures such as data encryption, secure socket layers (SSL), and regular security audits.
But, remember that no solution can guarantee 100% protection against payment fraud. It’s important to find a balance between fraud prevention measures and providing a smooth shopping experience for your customers.