How online brands can prevent ecommerce fraud

Ecommerce fraud is a growing problem for online retailers.

£1.2 billion was lost through fraud in 2022, with almost 80% of this fraud happening online or via phone calls.

Fraudulent transactions can impact any ecommerce business, large or small, with serious repercussions, from reputational damage to greater operational costs.

But while ecommerce fraud has its challenges, it’s not impossible to protect yourself against it. In this article, we look at what ecommerce fraud is, what types of fraud are out there and what you can do to prevent them impacting your business.

What is ecommerce fraud?

Ecommerce fraud is the practice by criminals of illegally leveraging or disputing an online purchase with the intent of financial gain. Such fraud is against the law, and can affect the merchant, the shopper themselves, or both parties.

Fraudsters use a range of techniques to evade detection, such as using fake identities or hiding behind virtual private networks (VPNs).

There are various types of ecommerce fraud.

• Card-not-present fraud: one of the most common types of scams in online shopping is card-not-present fraud. This involves the use of stolen credit card information to make online purchases. 
• Account takeover fraud: this type of ecommerce fraud involves gaining access to a customer's account and making purchases on their behalf. 
• Friendly fraud: online brands also face the risk of friendly fraud. This involves a shopper disputing a legitimate charge to receive a refund, even though they received the product or service they paid for.

Risks of ecommerce fraud

Ecommerce fraud offers a variety of risks for online brands, particularly smaller businesses that may not have the resources to challenge chargebacks.

Increased costs

Lost product sales are the most obvious result of ecommerce fraud. But the total costs go beyond this.

Shipping and packaging a product isn’t free. When a brand receives a fraudulent order, these costs are wasted, and need to be absorbed by the business as result.

Merchant fees to banks paid during a transaction are also lost. Including chargeback fees and the expenses of replacing fraudulently obtained merchandise, this only adds to the overall costs of ecommerce fraud.

All these lost costs lead to price hikes for customers, jeopardizing the competitiveness of the ecommerce industry.

Damaged consumer confidence

Fraudulent purchases can also result in a loss of trust in the ecommerce industry.

As customers become wary of making online purchases, this can lead to decreased consumer confidence in online shopping.

This doesn’t just affect one brand either. Ecommerce fraud sends shockwaves through the entire industry, creating a domino effect of economic challenges – including fewer sales.

This reduced trust in the ecommerce sector doesn’t discriminate. Small- and medium-sized businesses suffer equally, sometimes even more as they may lack the resources to invest in high-tech fraud detection.

Reputational damage

One less tangible but no less damaging consequence of ecommerce fraud is reputational damage.

Once a brand suffers a fraudulent incident, it has a responsibility to let its consumers know. In the worst-case scenario, the fraud might be picked up by national press.

In any case, any serious fraudulent incident can lead to significant reputational damage. Consequently, customers may perceive it (whether justifiably or not) as a sign that a brand cannot be trusted with their data or money.

As a result, shoppers may be less likely to purchase from that business in the future, again or at all.

How to prevent ecommerce fraud

Ecommerce brands must take proactive steps to protect themselves from fraud. Thankfully, business have a range of strategies and tools at their disposal.

Partner with financial organizations to fight fraud

Online retailers can also join forces with payment processors and banks to help combat ecommerce fraud.

Dedicated authentication protocols that are used and supported by merchants, banks and payment processors help add an extra layer of security to online transactions.

3D Secure is a good example of this. A virtual shield against fraudulent transactions, it requires customers to enter a one-time passcode sent to their phone before they can make a purchase.

Enhance your customer verification processes

Online brands can also strengthen their ecommerce defenses with stringent customer verification processes. Examples of this include two-factor authentication and biometric identification.

These methods allow ecommerce brands to mitigate fraud by independently verifying a shopper’s identity. Once confirmed, a commercial transaction can proceed, safe in the knowledge a legitimate consumer is making the purchase.

Upgrade your cybersecurity hygiene

Good cybersecurity hygiene is essential in the fight against ecommerce fraud.

Strong password policies are the most obvious example of this. Internal requirements for strong passwords can help protect your shoppers – and yourself – against unscrupulous criminals online.

Beyond this, regular site security audits can help identify any weak spots in your ecommerce infrastructure. Platform security, out-of-date software, Payment Card Industry (PCI) compliance – all this and more can be assessed during frequently reviews of your security protocol.

Embrace innovative technologies

Brands today have a wealth of state-of-the-art tools and technologies at their disposal to fight ecommerce fraud.

Examples include state-of-the-art fraud detection technology, robust customer verification systems and machine learning algorithms.

The increased adoption of artificial intelligence (AI) has also unlocked a new array of tools to combat ecommerce fraud. AI tools can detect behavioral patterns commonly associated with fraudulent online retail, flagging criminal transactions before they’re approved.

This is just one example. AI, along with the innovative technologies mentioned above, will transform the way ecommerce businesses combat and prevent online fraud.

Leverage ecommerce fraud prevention tools, experts and services

For true online security, brands need the support and expertise of experienced ecommerce fraud prevention.

THG Ingenuity's award-winning fraud management platform brings an array of tools to your ecommerce protection.

Spanning machine learning, adaptive behavioural analytics, flexible rules engines, device fingerprinting, known fraud database and identity verification, it's the ultimate protection against ecommerce fraud.

The online fraud landscape is fraught with threats from cybercriminals.

But by investing in advanced detection tech, implementing robust authentication protocols and partnering with ecommerce fraud experts like Ingenuity, online brands can weather the storm.

In doing so, businesses can shield themselves from financial losses foster a robust and thriving ecommerce landscape.

Ready to safeguard your brand against ecommerce fraud? Get in touch and discover how Ingenuity can boost your brand’s defences today.