68% of consumers say fear of fraud or the safety of personal information has influenced whether they have made an online purchase.

U.S. e-commerce is projected to grow nearly 16% in the third quarter, but consumers still have hesitations regarding the safety of shopping online, according to an exclusive Internet Retailer survey of 2,000 U.S. consumers conducted by Bizrate Insights.

For example, 40% of consumers said they did not complete a purchase on the web because of fears of fraud or concerns about the safety of their personal information. Additionally, 70% are concerned about fraud or their personal information when shopping online.

Nearly 28% of consumers have been a victim of e-commerce-related fraud, the survey finds, and 68% of consumers said fear of fraud or the safety of their personal information has influenced their decision to make a purchase online.

There are tools that are helping retailers stop fraud. Backpacks.com, which launched in August 2016 and generates between $3 million and $5 million in annual sales, has avoided encountering a single chargeback to date, says Daniel Serres, information technology director at the backpack e-retailer. Chargebacks occur when a retailer refunds fraudulent transactions charged to consumers’ credit cards.

Serres attributes the retailer’s perfect fraud prevention score in part to implementing solutions to stop fraud from day one.

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“Fraud is just a fact of life in retail,” he says. “We’ve had to mitigate it from the beginning.” As a startup with about 15 employees, Backpacks.com didn’t have the time to manage fraud internally, so it outsourced that work to fraud prevention technology provider NoFraud. The system flags about 0.5% of orders for further review, which NoFraud staff then investigates as part of its service, a time-saving benefit for the retailer, Serres says.

In those manual reviews, NoFraud staff frequently turn to social networks like LinkedIn and Facebook to investigate, Serres says. For example, if the shipping address a consumer enters doesn’t match the one on file with his credit card, a NoFraud employee might check LinkedIn to see where the individual works. If the package is being shipped to an office address that LinkedIn shows is the consumer’s employer, NoFraud might send the order through, Serres says. Similarly, NoFraud might turn to Facebook to see if the customer is, for example, the spouse of the person tied to a payment card used for a purchase.

With an average order value of $100, fraudulent purchases that lead to chargebacks could easily add up for Backpacks.com. What’s more, chargebacks not only involve the merchant’s direct loss, they also come with interchange fees that merchants pay to credit card issuers. Those fees can rise for merchants with frequent chargebacks because payment card companies deem such businesses more of a risk and may increase their interchange fees.

To stop fraud, retailers must keep a careful eye on the ever-evolving ways criminals try to exploit them and adjust. For example, Serres says he has seen criminals try to game the system by entering a shipping address that matches the address on file with the payment card company and then call the shipping carrier to reroute the order to a different address where the criminal could retrieve it. Backpacks.com has told its shipping carriers to prohibit consumers from changing the original shipping address.

Meanwhile, Micro Electronics Inc., parent company of multichannel electronics retailer Micro Center, found criminals that targeted Micro Center in the past often opted to have online purchases shipped to a store, says Skip Myers, the retailer’s director of loss prevention and risk strategy.

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Buy online, pick up in store services are particularly vulnerable to fraud because they don’t require a residential delivery address. That means criminals can fraudulently pay for an online order and then pick it up in person. That’s increasingly a concern as more merchants offer in-store pickup for online orders. In 2016, 47.7% of Top 1000 retailers that operate stores offered buy online, pick up in store, up from 42.1% a year earlier, according to Internet Retailer’s Top500Guide.com.

Micro Center used to offer buy online, pick up in store with a guarantee that a store would have the order available for pick up in 18 minutes, but it discontinued the offering after it found the feature attracted too many criminals.

Myers says one woman came to the same Micro Center location each Tuesday for multiple weeks to pick up orders she had placed online. After store authorities noticed she used a different credit card and personal information for each purchase, they alerted authorities. Micro Center soon discovered she was working with a criminal she had met on Craigslist and was getting paid to pick up goods ordered online with stolen information and then ship the products to South Africa.

Micro Center has since stopped offering buy online, pick up in store service, but it offers consumers the option to reserve products online that they can then purchase in its stores.

 

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