As eCommerce business continues to grow, so does the frequency of fraudulent transactions. You can work to protect your business by using fraud prevention apps and basic protocols. Fraudulent transactions can cause significant losses for eCommerce businesses, making it essential to have measures in place to prevent and detect such transactions. In this blog, we will discuss how fraudulent transactions occur in eCommerce and what the best fraud detections apps are in the Shopify marketplace. We will also identify a basic list of protocols to follow for transactions that have been flagged as potentially fraudulent.
How do fraudulent transactions arise in eCommerce? Fraudulent transactions can occur in various ways, such as when a cybercriminal gains access to someone else’s payment card information, creates fake identities or uses stolen identities, or exploits vulnerabilities in eCommerce systems. Unfortunately, there are many tactics fraudsters can use to cheat eCommerce systems, however some are more impactful than others. The most common types of eCommerce fraud are discussed below.
Identity Theft Fraud: This is one of the most well-known types of eCommerce fraud. Identity theft takes place when a cybercriminal steals someone’s personal information and uses it to makes unauthorized purchases or transactions as the victim. Identity theft is not limited to just credit card information, though. Fraudsters will also steal names, addresses, email accounts, social security numbers and personal devices to pose as the real customer. As a result, the victim is forced to spend the time changing accounts passwords and contacting financial institutions to have the fraudulent charges revoked.
Account Takeover (ATO) Fraud: Fraudsters can gain access to a customer’s or store’s eCommerce account by stealing their login credentials using hacking or phishing techniques. Once the attacker gains access, they can make unauthorized purchases, change passwords, or modify other personal information. ATO fraud is known to have serious negative long-term effects such as ruining the brand’s reputation or opening the customer up to more serious identity theft attacks.
Friendly Fraud: Also known as chargeback fraud, this occurs when a customer makes a legitimate purchase using their own credit card and then disputes the transaction with their bank or credit card company, claiming that the purchase was fraudulent, even though they actually made the purchase.
Refund Fraud: Refund fraud takes places when a fraudster buys an item, requests a refund once they receive it, and then makes a false claim that prevents them from sending the item back to the eCommerce business.
Interception Fraud: This type of fraud occurs when a cybercriminal places an order from an eCommerce store using a valid billing and shipping address that allows the transaction to go through, but then attempts to intercept the package for themselves before it arrives. This can be done in several ways, but the most common ways are by making seemingly legitimate claims to an eCommerce store’s customer service to change the address before the order ships, to contact the shipper directly and request the package is redirected, or to wait for the delivery to arrive and physically intercept the package.
Triangulation Fraud: In triangulation fraud, another, unknowing shopper, is required to enable the fraudster to launch their attack. In this case, the attack involves three parties: the shopper, the fraudster, and the eCommerce store. To execute triangulation fraud, the fraudster first sets up an eCommerce store, like on Shopify, or a storefront on an eCommerce platform such as Amazon. A typical ploy is to sell high-demand products at a low price to generate customers quickly. Once an unknowing customer makes a purchase from the store and enters their payment card information, the fraudster will steal the information and use it to purchase the goods form a different, legitimate eCommerce store. The customer will then receive the goods, believing they received a bargain for the product, but their credit card information has been compromised in the process.
Fraudulent transactions in the eCommerce marketplace are an unfortunate reality for businesses operating online storefronts. While we can’t entirely prevent fraud, we can take measures to defend against attackers. For this reason, many companies have been established to stop attackers in their tracks before fraud can occur.
What are the best fraud prevention apps in the eCommerce marketplace?
FraudLabs Pro: FraudLabs Pro uses machine learning algorithms and rules-based decision making to analyze various data points associated with an order and identify potentially fraudulent activity. Fraudlabs Pro can help eCommerce businesses reduce chargebacks and minimize losses due to fraud by analyzing data points in real-time, including IP addresses, email addresses, geolocation, device information, credit card details, and more to identify patterns and anomalies that may indicate fraudulent activity.
Signifyd: Signifyd is a fraud prevention and protection platform that uses advanced machine learning and data analytics to identify and prevent fraudulent transactions in eCommerce. Signifyd uses a combination of machine learning algorithms and human expertise to detect fraud patterns and identify suspicious behavior. The platform provides a score for each transaction, indicating the likelihood of fraud, and can automatically approve or decline transactions based on customizable risk thresholds set by the merchant. Signifyd provides a 100% financial guarantee against chargebacks, giving eCommerce businesses peace of mind.
ClearSale: ClearSale is an ecommerce fraud prevention solution that uses advanced machine learning and a team of experts to help merchants prevent fraudulent transactions and chargebacks. The platform offers a multi-layered approach to fraud detection, analyzing various data points associated with a transaction, including user behavior, order details, and payment information. ClearSale uses proprietary algorithms and advanced statistical models to detect fraudulent behavior, including synthetic identities, account takeover, and social engineering scams. The platform also boasts a team of over 700 fraud analysts who manually review transactions to ensure maximum accuracy and reliability.
SEON: SEON is a cloud-based fraud prevention solution that uses advanced AI and machine learning to analyze various data points associated with a transaction, including user behavior, order details, and payment information, to identify and prevent fraudulent activity. SEON offers a range of fraud prevention features, including real-time monitoring, fraud scoring, and rule-based decision-making. The platform provides a risk score for each transaction, indicating the likelihood of fraud, and can automatically approve or decline transactions based on customizable risk thresholds set by the merchant. In addition to its fraud prevention features, SEON also offers account takeover protection, email risk scoring, and chargeback prevention, helping merchants protect against a range of fraudulent activities.
All four of the fraud prevention solutions discussed above offer advanced AI and machine learning technology to detect and prevent fraudulent transactions. Each solution has its own unique features and benefits, and the best solution for an eCommerce business will depend on their specific needs and requirements. It is recommended that businesses carefully evaluate each solution and consider factors such as cost, customization options, and the specific features and benefits offered before making a decision.
What are the basic protocols that should be followed for transactions that have been flagged as potentially fraudulent?
If a transaction has been flagged as potentially fraudulent, there are several protocols that you should follow to investigate and determine the legitimacy of the transaction. Here are some general steps you can take:
- Review the Transaction Details: Start by reviewing the transaction details, including the customer’s information, shipping address, and payment details. Look for any inconsistencies or red flags that may indicate fraudulent activity.
- Contact the Customer: If possible, contact the customer to confirm the details of the transaction and verify their identity. Ask them to provide additional information or documentation, such as a photo ID or proof of address, if necessary.
- Use Fraud Prevention Tools: Utilize fraud prevention tools provided by your payment processor or third-party fraud prevention service to help identify potential fraud. These tools may include fraud scoring, IP address verification, and geolocation tracking.
- Delay Shipment or Delivery: If you suspect the transaction may be fraudulent, consider delaying shipment or delivery until you have verified the legitimacy of the transaction.
- Document all Communication: Keep a record of all communication with the customer, including emails, phone calls, and chat transcripts. This documentation may be useful in case of a chargeback or dispute.
- Consult with Fraud Prevention Experts: If you are unsure about how to proceed or suspect that the transaction may be part of a larger fraud scheme, consult with fraud prevention experts or law enforcement authorities for guidance.
By following these protocols, you can help prevent fraudulent transactions and protect your business from financial loss and reputational damage.
In summary, fraudulent transactions can cause significant losses for eCommerce businesses. By using fraud prevention apps and following protocols for handling potentially fraudulent transactions, eCommerce businesses can minimize their risk of falling victim to fraudulent activity. Remember, prevention is always better than firefighting, so take proactive measures to protect your business against fraud.