Fraud destabilizes the entire economy. Thanks to fraud, all merchants lost roughly 1.3 percent of their revenues in 2015, which is significantly higher than the .6 percent of revenues lost in 2014. Experts expect that fraud will consume more than $6.4 billion in revenue in 2018, robbing entrepreneurs of hard-earned income and cheating consumers of their right to trust those they buy from.
Fortunately, there is a way to check the dramatic rise of fraud, especially in e-commerce, where so many purchasing processes are automated. The first step to prevention is education, so here are the five most common types of fraud found in e-commerce ― and more importantly, what you can do to prevent them in your online store.
Identity Theft
As the most well-known type of fraud, identity theft can happen to anyone at any time. In 2014, more than 17.6 million Americans were the victims of identity theft, and as the internet consumes our lives, it is only becoming easier for fraudsters to gain access to and steal personal information, especially credit card numbers.
Unfortunately, as a merchant, there is little you can do to protect your customers from identity theft, but you can save your business and employees from a similar fate. First, you can partner with a PCI-compliant merchant services provider, who will ensure you remain up-to-date on the most important security standards. Additionally, you can educate your workers (and your customers, for that matter) on handling personal information safely, especially online, to prevent fraudsters from getting ahold of anything valuable.
Clean Fraud
Clean fraud is anything but dirt-free; rather, the crime gets its name because it entails fraudsters using stolen credit card numbers in ways that circumvent typical fraud detection functions. This type of fraud requires criminals to have a profound understanding of your security system as well as some knowledge of the true owners of the stolen cards.
The best way to combat clean fraud is to know your customers better than the criminals do. Encouraging brand loyalty amongst your customers and collecting data on their browsing and purchasing habits will help you pinpoint when purchases aren’t legitimate.
Friendly Fraud
Perhaps the most frustrating type of fraud, friendly fraud is committed not by thieves of credit cards but rather by the rightful owners themselves. This occurs when customers purchase goods or services from your store, but after receiving their order, they initiate a charge-back, claiming the purchase was fraudulent. They are reimbursed, they keep their order, and you pay double for the fraud.
Being especially personal with your payment process is an effective way to cut down on friendly fraud. You should communicate directly with buyers, through email or personalized messages, to dissuade customers from making claims against you. You should also use a delivery service that requires signatures, so you can prove otherwise when fraudulent claims appear.
Affiliate Fraud
Affiliate programs are incredibly effective at attracting audiences and building a loyal customer base, so it makes good marketing sense to have one. Unfortunately, like most good things online, your affiliate program can be manipulated to provide fraudsters with free access to your goods and services. Especially if you outsource your affiliate marketing, your affiliate network could become victims of identity theft ― and worse.
The best way to prevent this is to closely monitor your affiliate program. If you use a third-party, you should observe their website and marketing materials for signs of mismanagement, such as spam, typos, false clicks or referrals, and more. Additionally, you should communicate regularly with members of your program to ensure customers are satisfied with the service.
Merchant Fraud
Merchant fraud is simple: Shady merchants offer products at absurdly low prices, driving up sales and raking in insane revenue. However, these merchants never ship goods to their customers, thus scamming money from legitimate customers.
Though you may not engage in such practices, merchant fraud affects you. First, the low prices set unrealistic expectations among potential customers, who might be disinclined to make purchases from you, despite the fact that your online store is safe and reliable. Second, the mistreatment consumers experience at the hands of fraudulent merchants will sow distrust for all e-commerce options, narrowing your customer pool and making it harder to sell your goods and services.
In this case, you should use your website as a teaching tool to help your audience understand pricing structures within your industry. If your customers understand why costs aren’t rock-bottom-low, they will be less likely to engage with merchants that advertise unreasonable prices, thereby avoiding merchant fraud.
