5 e–Commerce Fraud Trends to Watch
The beginning of every year is a time for predictions, so here’s one: fraud will continue in 2016. But not all fraud is the same. Knowing what to look for is a big part of identifying and preventing fraud. Here are five major fraud trends to look for in 2016:
With Friends Like These…
Chargeback fraud or “friendly fraud” occurs when a customer places a legitimate order, receives the product or service, and then claims he or she didn’t. When the customer files a chargeback, the burden of proof is on the merchant to show that the customer got what he or she paid for. Proving this takes time and labor, making it a headache for merchants. Friendly fraud is a major burden on merchants, especially in thee–commerce space: A 2014 study from CBS showed that 86% of all chargebacks are fraudulent.
When we think of fraud, we typically imagine a scheme that falls into the category known as “genuine fraud.” In this case, a fraudster has obtained someone else’s credit card information by nefarious means. E–commerce retailers are an attractive target for this brand of thief, because there is no need to present the physical card or risk face–to–face interaction with a store employee.
Choose Your Affiliates Wisely
To attract more website traffic and drive business, many e–commerce storefronts rely on pay–per–click(PPC) advertising through an affiliate network. Pay–per–click and commission–based advertising models create an incentive for the affiliate to do everything possible to maximize clicks. Some affiliates turn to black–hat or fraudulent tactics to raise their revenues. A November 2015 study from the Interactive Advertising Bureau revealed that U.S. businesses pay $4.6 billion per year for fake traffic.
“Wardrobing” or Return Fraud
Every year, merchants report returns of items that are not damaged, not defective, and were exactly what the customer ordered. So why did the customer return the item? In some cases, this is a deliberate act.Customers order an item, enjoy it (even wearing clothes with the tags still attached, according to ABC News), and only then return it to get their money back. For e–commerce storefronts, this is a serious threat.E–commerce businesses are faced with sunken shipping costs, and cannot sell the returned item, especially in the case of apparel that’s been worn.
Merchant Fraud or Merchant Identity Fraud
In “merchant identify fraud,” a more sophisticated form of fraud, a criminal creates a fake merchant account using your businesses identification. Then the new “merchant” posts charges to consumer credit cards, often in small amounts that go unnoticed by the cardholder. Once the revenue is collected and the fraudsters close up shop, the real merchant (whose information was used fraudulently) is left to deal with the headaches and fees of chargebacks, fraud reports, and a tainted reputation.
By knowing what to look for, you can be prepared to identify and prevent fraudulent transactions in 2016.Just because fraud is happening doesn’t mean your business has to become a victim. When you have the right solutions in place, you can prevent these five fraud trends from waylaying your bottom line.