The digital world is a convenient place to live in, however, as, like the real one, there are no 100% safety guarantees. Especially if you don’t care about the data-trace you are leaving every day or about the protection of financial and personal data of your customers. The first question is a question of awareness, and the second is a question of technical protection of your online store from fraudulent attacks. In this article, we will explain how e-commerce fraud detection solutions work and why you should integrate them into your business processes in 2020.
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How to Define Fraud in E-Commerce?
Fraud itself is a fairly well-known phenomenon that dates back to the dawn of civilizations. However, digitalization has had a strong impact on the development of fraud, since attackers have received a variety of technologies for communication, deception, and blackmail. According to Nielson’s report, since 1933, the number of fraudulent cases has increased globally every year.
Regarding the definition of fraud in the field of e-commerce, the legislation of different countries has not yet developed a uniform approach to define the concept. In simple words, fraud can be defined as any action aimed at taking possession of goods, money, and/or information committed without the knowledge of the victim, and sometimes even with their consent. The inability to track the fraudulent chain and see the commission of this action with the naked eye opens up new opportunities for fraudsters and puts the business at risk at the same time.
What Is E-Commerce Fraud Risk?
Unfortunately, the risks are also quite high. What is more, the recent pandemic has created ideal conditions for fraud to flourish. More and more transactions began to be made online, through online shopping sites, marketplaces, and social networks. In addition, the attention of humankind was drawn to a much more serious, global problem, and fraudsters were not slow to take advantage of this perfect coincidence of circumstances.
According to the Experian research:
- 63% of business experience the same or more losses because of the fraud year by year
- 27% of customers will abandon an online transaction if there are no visible security measures
- 66% of customers like it when the online company follow all the necessary security protocols since it makes them feel safe on the website
- 54% of businesses are “not so confident” in their ability to detect and prevent fraudulent activities. However, AI and ML-powered eCommerce fraud prevention tools are quite capable of it.
What Are the Different Types of Frauds?
What is more, there are several types of eCommerce fraud businesses are forced ti to fight with.
- Friendly fraud. Friendly fraud is the situation when the seemingly honest customer asks the bank to make a refund but he is not going to return the goods to the merchant. Sometimes, a customer claims that he hasn’t received his shipment, and asks for a refund as well. This is a very widespread scheme, and what is more, sometimes there are no fraudulent intentions in it, for example, if the parcel is really lost.
- Clean fraud. This is a case when a fraudster uses a stolen credit card, however, he should use the victim’s smartphone to confirm the transaction and enter other credentials to cheat the eCommerce fraud detection system.
- Card testing fraud. In this case, a fraudster makes minor purchases to test the stolen card or randomly-generated card number. The latter case is quite dangerous since there are all the chances that the randomly generated card number will coincide with one of yours or your customer’s. Here is how the AI and ML expertise for credit card fraud detection is especially needed since in the latter case, it is impossible to find out that the credit card was stolen.
- Triangulation fraud. In this case, a fraudster created an analog of a famous online store, motivates customers to leave their financial data, and then order the goods from a real merchant (using stolen credentials). In this case, the customer pays twice, however, sometimes it goes unnoticed, especially if there was a minor purchase.
- Identity theft. This is one of the most popular types of fraud nowadays since it is very easy to gather the necessary data about a person from public domains, for example, social media. The stolen identity allows making any financial transactions on behalf of the identity owner. By the way. Millennials are the most frequent victims of this type of fraud.
- Phishing. This type of fraud is as old as the web itself. The essence is to create a fake website that will be similar to a website of a leading brand, lure the customers to it and force them to leave their personal and financial data that will be reused at a will of a fraudster.
What Are the Common Factors That Provide Opportunities for Fraud?
There are two basic factors that make fraudulent attempts not so difficult to implement.
No Proper Protection
Not all eCommerce store owners pay proper attention to the fraud detection and prevention issues, thereby putting themselves and their customers at risk. As we’ve stated, more than half of businesses are not sure about their security measures. What is more, it is very difficult to predict where a security loophole will be found, and what consequences the store will face.
According to Juniper’s research, “Mobile devices face the same security risks as PCs and laptops, including viruses and other types of malware. Although the threat from mobile malware has increased significantly over the past few years, smartphone security does not yet match traditional computer security. For instance, security software is less common in smartphones, OSs (operating systems) are updated less frequently and mobile social networking applications sometimes lack detailed privacy safeguards. ”
Lack of Prosecution
Protecting yourself and your customers yourself using e-commerce fraud prevention technology is the only way out for online store owners and their buyers because most countries do not have a single algorithm for detecting online fraud, as well as resources to combat it. Online scams are hard to track, there are too many opportunities to get rid of responsibility or to do it by the wrong hands. Therefore, this is the case when it is more prudent to prevent such attempts than to deal with their consequences.
How to Stop Payment Fraud – Ecommerce Fraud Prevention Best Practices
So, how to protect your online business with the help of eCommerce fraud prevention best practices?
- Enable secure login credentials for customers. For example, this approach is already implemented by PayPal. After getting registered, the system offers to generate random, and strong passwords that will be securely stored by Google, if the customer allows.
- Use geolocation by IP address detection and Address Verification System. With the help of this system, it will be possible to prevent shipping fraud since you will be able to compare the IP address geolocation with the physical address user has specified in his profile and /or asks to ship to.
- Use fraud detection tools and combine them with human intervention too. AI and ML-powered eCommerce fraud solutions will be even more useful for business if to combine their usage with human intervention and analysis. This will help to train the system in the most specific way that will perfectly fit your business needs.
How Is Payment Fraud Detected With the Help of Ecommerce Fraud Solutions?
To date, AI-powered eCommerce merchant payment fraud prevention tools are the most efficient tools for combating online fraud. The way they work is very easy. As it is depicted above, the system firstly needs some data to study and learn to distinguish between the proper user behavior and a suspicious one. In the process of detection, the system updates its understanding, learns to make more careful conclusions and suggestions, thereby, preventing fraudulent attempts at the moment they are only going to happen.
Conclusion
Summing up, the necessity to utilize eCommerce fraud prevention tools for your business becomes obvious. Responding to the rise of the online transaction amount, the number of fraudulent attempts will also increase. Protecting your users with the help of AI systems is an efficient way to make their stay on your website safe, secure their personal data, and support your business reputation.
Author: Helen Kovalenko
Helen Kovalenko is a Project Manager in R&D Data Science department. She works with a team of professionals who conduct research, analysis and development of innovative, state-of-art solutions for businesses at a low to large scale. Her team consults clients on complex tasks of diverse nature, such as in Retail, Banking or Logistics industry and develops relevant solutions for them. They usually elaborate NLP, Computer Vision and Anomaly detection related challenges. She’s very enthusiastic to advance the future of Machine Learning through persistent work with talented and motivated people united by the same goal and interests.