E-commerce describes the buying and selling of goods over the internet. It is an extremely common form of business, with a majority of retailers offering some means of purchasing items directly from a website.
Many payments accepted by e-commerce sites are categorized as “card not present” transactions. This means that a physical card is not needed in order to pay. CNP transactions may also occur over the phone or through the mail.
CNP transactions on e-commerce sites typically involve the buyer filling out a series of fields, including card number, expiration date, and zip code. You are expected to provide additional supporting details, such as a billing address and shipping address. Other than this self-supplied information, however, there is no other means of verifying that the shopper is an authorized user of the card.
As you might expect, CNP transactions are at an increased risk of fraud versus card present ones. Payments involving the presence of a physical card, such as those at a brick and mortar establishment, have additional security measures to prevent unauthorized use. A debit card, for example, requires a pin; or a credit card might be matched with a photo ID.
When a fraudulent transaction occurs, the responsibility ultimately falls on the business owner. You will need to return the payment, accept the cost of lost merchandise, and may have a chargeback fee incurred by your payment processor.
To avoid such situations, you will want to be aware of warning signs to look for. There are a few common indications of potential fraud, and being able to spot them will spare you a lot of stress and help you avoid bogus sales and chargeback fees.
Signs of E-Commerce Fraud to Watch Out For
- Multiple orders of the same item
Fraudsters will target high ticket items and buy as many of that item as they can before the stolen card is maxed out. They can then resell the item for actual cash.
- Multiple orders to the same address paid for with different cards
Individuals using stolen credit card information will alternate between cards to avoid suspicion. If you are sending multiple shipments to the same home that have been paid for with several different card numbers, take a closer look.
- Large orders with overnight shipping selected
Credit card thieves want to complete their transactions to go through as quickly as possible to avoid detection. They will often make extremely large purchases and pay for expedited or overnight shipping in the hopes they will have the item before the cardholder even notices a fraudulent charge.
- Different shipping and billing addresses
This is not necessarily a cause for concern when it happens once in a while. But if you notice that the same shipping address has a consistently different billing address, it is a red flag.
- Declined transactions
Repeatedly declined transactions are a big sign of fraud. A credit card thief does not know precisely how much is on a card, and he or she may attempt multiple times with different cards that are also declined.
In that same vein, be aware of “card testing.” Scammers will attempt one or two small purchases with a card to see if it works, then make a much larger purchase.
Other Types of E-Commerce Fraud
E-commerce fraud does not always involve a stolen credit card number. Another type of fraud that is on the rise is something known as “return fraud.” This might involve a legitimate purchase but with the malicious intent of returning the item for financial gain. Some examples of return fraud include:
Switch Fraud-a buyer purchases a working item and returns an identical, but damaged, item.
Receipt Fraud-using stolen or forged receipts to return an item for profit. This may also involve purchasing goods on sale or from a different store and returning them to another store where they cost more.
Inventory depletion-buying out a seller’s inventory and re-selling the goods as your own for a higher price. Unsold merchandise is then returned to the original vendor.
How to Avoid E-Commerce Fraud
The first step in avoiding credit card fraud on your e-commerce site is making sure your payment processing system is secure. A qualified merchant services broker will inform you of additional cybersecurity risks and help you find ways of protecting your business from attacks. If you are an e-commerce site and need assistance updating and improving your security, contact Summit Payments to get started.