Contrary to the common perception, it's not just cardholders who suffer from e-commerce fraud—online businesses are equally at risk. Such fraudulent schemes can lead to financial losses, damage to customer trust, and tarnished reputations.

Understanding Fraud

E-commerce fraud, often termed payment fraud, encompasses any unauthorized or deceptive transaction.

E-Commerce Fraud Trends

Numerous types of fraud exist, primarily targeting bank card details. As new antifraud measures are developed, fraudsters adapt, creating fresh challenges. Hence, staying alert and familiar with fraud prevention techniques is crucial. Below are some prevalent e-commerce fraud trends.

Classic Fraud: Unsophisticated criminals buy stolen credit card data online, intending to misuse it.

Triangulation Scheme: Involves three players: the buyer, the online store, and the fraudster. The fraudster sets up a fake store, collects payments, and uses stolen card data to order from legitimate stores, shipping to the unsuspecting customers.

Interception Scheme: Criminals intercept packages by changing the shipping address, rerouting deliveries, or simply intercepting packages at delivery points.

Card Testing Fraud: Bots test card numbers to validate them, using them later for fraudulent purchases.

Account Takeover: Fraudsters use stored credit card info with stolen login credentials to make unauthorized purchases.

Identity Theft: Criminals assume another’s identity, create cards in their name, and make fraudulent purchases.

Chargeback Fraud: Often involves dishonest customers who claim their card was stolen after receiving goods, forcing a chargeback.

What is Antifraud?

Antifraud systems monitor and prevent fraudulent transactions. These systems analyze each transaction in real-time, applying a range of filters.

The primary goal is to detect suspicious activities and decide whether to accept or reject a payment.

Typically, antifraud systems combine automated transaction monitoring with customizable filters and manual transaction oversight. Developing such systems is costly and usually the domain of banks, large retailers, and specialized services. Thus, many online businesses opt for third-party solutions for payment processing.

How to Prevent E-Commerce Fraud

Below are examples of e-commerce fraud detection filters typical in processing centers. These filters may vary by provider.

Antifraud Solutions

Filter Validators: For example, card number validation ensures that entered numbers are correct and haven’t been mistyped.

Geographic Filters: Payments from countries with high fraud rates can be flagged for further scrutiny.

Block-Lists: Cards with a history of fraud are block-listed to prevent future fraudulent transactions.

Parameter Matching: Comparing the payer’s IP country with the card issuer’s country to flag suspicious transactions.

Authorization Limits: Limits on transaction amounts or frequency provide extra security.

The more susceptible a business is to fraud, the more filters and fine-tuning are necessary.

Antifraud and Conversion

Balancing security and conversion rates requires careful tuning of antifraud systems. Here are a few strategies:

Custom Solutions: Experts analyze the business and set up appropriate filters based on customer geography and transaction size.

Manual Approval: Staff can manually review and approve suspicious transactions.

Partner Control: Allowing partners to manage some antifraud elements, based on the business’s needs.

In certain cases, relaxing filters might be necessary to maintain conversion rates. This is especially true for:

• High-margin businesses with strong customer verification practices.
• Low-risk services like utilities or government services.

Unfortunately, no system can fully eliminate fraud. The best you can do is minimize risk. Are you using CVC/CVV, AVS, or 3DS? The more layers of security an online store has, the better its chances of preventing fraud, though it might still occur.

Using 3DS or VbV can reduce e-commerce fraud by over 90%.

If fraud occurs despite these measures, liability often shifts from the merchant to the issuer. Proactive management can help reduce long-term fraud losses.

E-Commerce Fraud is Evolving

Fraud and prevention methods are constantly changing. PayStar is here to help with any additional questions. Reach out to our team for support.