Fraudulent ecommerce activity has been on the rise amid the pandemic, so it’s vital that sellers have the right technology in place to combat attacks.

Pat Maguire, director of technology at SUMO Heavy

The arrival of the coronavirus had a dramatic impact on retailers around the globe. Both physical stores that have transitioned online, forcing ecommerce merchants to adapt as they work with fewer employees, strained supply chains, and—in some cases—increased sales. According to data from Adobe’s latest Digital Economy Index, U.S. ecommerce sales grew by 49% in April alone.

While transitioning online has been a lifeline for many retailers, operating in an ecommerce environment comes with several risks, specifically the potential for fraud and other malicious activities. According to a 2019 study, 27% of online sales end up as fraudulent transactions—and concerns regarding fraud have only increased as the virus has spread. With more retail sales moving online, it’s becoming increasingly difficult for many retailers to identify and manage fraudulent transactions.

So, what can you do to protect your ecommerce businesses during a time of so much uncertainty? While you can’t predict the future, you can take measures to prevent fraudulent orders from wreaking havoc on your online sales.

The basics of fraud prevention

Whether you’ve just launched your ecommerce brand or transitioning your business online, understanding why prevention is so important is the first step in avoiding fraud. Typically, the goal of putting together a fraud prevention plan is to put a business in the best possible position to minimize risk, which is especially important in a “card not present” environment

Preventing a fraudulent transaction from taking place at the time of the order, or before a retailer ships it to the warehouse is ideal, as you’ll save time and money in the long run. If retailers catch fraud early, it’s critical that you carefully define potentially fraudulent activity to monitor for. Examples of red flags include a larger than normal order, a large order with the same item, and rush or overnight shipping to an international address. However, depending on the type of items you sell, you may have to adjust what you consider a “red flag” accordingly. For example, if you sell items that people buy in bulk, you might receive large orders for the same item regularly.

Chargebacks: an ecommerce seller’s worst enemy

Of course, some fraudulent orders will slip through the cracks and be shipped. That’s why chargebacks, charges returned to the buyer after successfully disputing an item on their account statement or transcriptions report, are one of the biggest problems ecommerce sellers face. Occurring weeks or even months after an order is placed, chargebacks can add up and lead to a severe loss of revenue for ecommerce merchants—especially since they lose $3.13 for every $1 from a chargeback, on average. The retailers lose revenue from the order and also lose the inventory shipped to the user.

To protect themselves from chargebacks, merchants have access to a variety of automated and non-automated solutions. If, after reviewing the impact chargebacks are having on your business, you feel that a manual process is sufficient, be thorough with your reviews. Having a list of blacklisted customers or countries where your products are shipped will be helpful to have on hand as you review orders for fraudulent activity.

For ecommerce sellers processing many transactions, automated technologies are also available. Many payment providers, such as PayPal and Stripe, have security settings. However, these solutions can lead to mixed results, as there’s a risk of balancing fraud prevention with false rejections. For example, if the address verification service (AVS) or your card verification value (CVV) settings are too strict, you might accidentally reject legitimate orders. 

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What to consider when creating a fraud protection program

If you don’t know how to get started with your fraud prevention plan, a manual process in place where the warehouse or customer service staff can look at orders as they arrive is a good first step. However, once you have additional liability—and responsibility—it’s essential to fine-tune fraud settings, as well as AVS (address verification settings) and CVV (card verification value) settings.

In some cases, third-party fraud technology is the right choice because it can streamline the process of determining whether an order is legitimate. You can submit your orders to this third party, and they will tell you whether to accept or decline the sale based on the data.

If you decide to utilize third-party software, it’s important to choose one with the right capabilities at the right price. While there is an added expense, if you’re able to fulfill more legitimate orders than fraudulent ones, the gain will most likely outweigh the cost. While every ecommerce store is different, there are few different options merchants can consider. For example, Braintree has a built-in suite of integrations called Kount that offers customizable software based on your specific needs. Signifyd will handle liability for any chargebacks you incur.

The future of fraud protection

Whether malicious or accidental, fraud can have a major impact on an ecommerce business and its bottom line. Fraudulent ecommerce activity has been on the rise in the pandemic, so sellers must have the right technology to combat these attacks. While it’s easy to get caught in the daily tasks of running a business, fraud prevention is one thing sellers can’t afford to overlook.

SUMO Heavy is a digital commerce design, development and consulting firm.

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