For online merchants and their customers, the growing threat of online theft is a real concern. With every step retailers take to tighten security and prevent malicious activity, scam artists seem to up their game and outwit them. This is especially true as brick-and-mortar retailers prepare to switch to EMV later this year, at which point online merchants become easier targets than traditional POS systems.
As Trulioo recently pointed out, fraud practices follow the money. The always-growing popularity of online shopping has made it a top target for fraudsters across the globe. A recent study found disturbing trends in fraud, including an increase in the susceptibility of mobile devices, which customers are using more than ever to make purchases. This emphasis on mobile and online fraud is even more disturbing as merchants rely on the upcoming switch to EMV to reduce fraud. EMV is primarily designed to protect in-person purchases from fraudulent activity.
Online Fraud Costs Companies
Online fraud cost companies billions of dollars each year, cutting dramatically into earnings. Both online and off, the true cost of dealing with online fraud is growing, with retailers losing $3.08 for every dollar of fraud they incurred in 2014. This is up from $2.79 in 2013. Mobile fraud is driving these costs upward, since the cost of online fraud is higher on mobile platforms than through other forms of payment.
When a customer conducts a fraudulent transaction, a retailer loses the merchandise, as well as the cost to prepare and ship that merchandise. This doesn’t even include the cost to secure systems in order to prevent theft in the first place. As fraud becomes more prevalent, online merchants are tasked with trying to keep up with the latest techniques, forcing them to constantly pour money into fraud detection and prevention.
Friendly Fraud is a Real Problem
Online shopping has brought “friendly fraud” to an all-new level, as customers seem to find it easier than ever to reverse transactions. Chargebacks are designed to protect customers from scams, but in recent years, customers have begun using it in the place of refunds. The perception that “the customer is always right” seems to extend to credit card companies, who put the burden of proof on retailers when making a decision on a dispute.
Unfortunately, an estimated 86 percent of chargebacks are fraudulent, which is bad news both for retailers and customers. With friendly fraud, a customer receives an item and disputes it, getting a full refund while also being able to keep the item. Whether a chargeback claim is decided in a retailer’s favor or not, the retailer is charged a fee and, over time, multiple chargebacks can leave a retailer without a payment processing provider.
Preventing Online Fraud
There are services that work in the favor of retailers, including Authorize.net’s Advanced Fraud Detection Suite, which is sometimes provided as a part of a retailer’s credit card processing package. This fraud protection can be customized to a business’s needs but it generally includes multiple filters that catch fraud before it happens.
Chargeback prevention is generally in the hands of the e-tailer, however. For e-commerce businesses, it’s vital to have generous return policies and communicate those policies clearly to customers. Instead of pushing your policies on every customer who requests a return, try to work with each customer to find an amicable solution to every issue.
Online fraud is an ongoing problem for retailers, but with the right precautions in place, a business can reduce the damage significantly. Companies should learn to spot suspicious transactions and protect against them, preferably through the use of processing software that stops it before it comes through.
This article was written by John Rampton from Forbes and was legally licensed through the NewsCred publisher network.