E-commerce Credit Card Fraud Prevention | 6 Proven Measures

Credit card fraud is a very serious issue that can substantially disrupt business operations and erode customer trust. As online transactions continue to grow, along with the customers’ expectations for smoother technologies and experiences, so does the sophistication of fraud techniques. 

These fraudulent activities are a reality of the industry and should be taken into account throughout the entire company lifecycle, if you’re an eCommerce business owner. 

What are the types of eCommerce credit card fraud?

E-commerce businesses face an array of security challenges, including various types of credit card fraud. Understanding these threats is crucial to safeguarding both customer data and business integrity. Here's a closer look at some prevalent forms of eCommerce credit card fraud:

• Identity Theft and Credit Card Fraud 

This type of fraud involves the unauthorized use of someone else's personal or financial information to make transactions. Common techniques include phishing, where fraudsters trick victims into giving away their details; hacking, where they gain unauthorized access to systems to steal card data; and employing stolen data purchased on the dark web. 

As an E-commerce business, you need to stay exceptionally vigilant in securing your customer data to prevent these abuses. Implementing robust encryption methods, secure communication channels, and continuous monitoring of transaction patterns can significantly reduce the incidence of such fraud. On top of the measure you’re implementing on your end, it’s also relevant to educate customers about the risks of sharing their data and the importance of using secure connections while transacting online.

• Chargeback Fraud 

Also known as "friendly fraud", chargeback fraud happens when a customer falsely disputes a charge on their credit card statement. After making a legitimate purchase, the customer claims not to recognize the transaction or asserts that the goods or services were never delivered. This type of fraud impacts revenue and damages your credibility as a merchant with payment processors and banks. 

To mitigate these issues, you should have clear communication and transparent return policies to reduce misunderstandings about purchases that might lead to chargebacks.

In order to improve your chargeback prevention, tools such as VISA’s RDR and MasterCard’s Ethoca represent a solid extra layer of security. On top of this, you can also use chargeback deflection services, whose purpose is to prevent chargebacks by providing more information on your customer - VISA’s Order Insight and MasterCard’s Consumer Clarity. 

source: Verifi.com

• Account Takeover 

This type of fraud involves unauthorized users gaining access to customers' accounts and making unauthorized purchases. It’s often facilitated by the reuse of compromised passwords or credentials obtained from data breaches. 

Strong password policies, two-factor authentication, and monitoring accounts for unusual activities are helpful generally in these situations. Regular security audits and updates can also prevent potential vulnerabilities in eCommerce platforms. But on top of the measures we’re explaining below, it’s relevant to educate customers about the importance of unique passwords and the dangers of phishing schemes.

Six proven measures to implement for eCommerce credit card fraud prevention

To effectively combat credit card fraud, e-commerce businesses must implement a multifaceted approach that addresses both technological solutions and human factors. Below, we explore essential strategies and technologies to bolster your defenses against this pervasive threat:

1. Implement robust authentication processes

There are two types of authentication processes that you can implement on your end: 

Multi-Factor Authentication (MFA) - introducing MFA can significantly reduce unauthorized access. This system requires more than one method of authentication from independent categories of credentials to verify the user's identity for a login or other transaction.

Strong Customer Authentication (SCA) - required under PSD2 regulation in Europe, SCA is a step further from MFA, involving identity verification through two out of three possible elements: something the customer knows (password or PIN), something the customer has (phone or token), and something the customer is (biometrics).

These are standard procedures when it comes to securing your business, and they are even more beneficial when combined with educating your customers, as mentioned above. 

2. Use secure payment gateways

Secure payment gateways are crucial for protecting sensitive transaction information. They encrypt data during transmission, preventing unauthorized interception. Gateways should comply with the Payment Card Industry Data Security Standard (PCI DSS) and provide assurances that they meet high-security measures, reducing the likelihood of data breaches and fraud.

Secure payment gateways are regularly updated to combat the latest cybersecurity threats and can significantly decrease the risk of vulnerabilities. These gateways often include additional layers of security, such as tokenization and fraud detection algorithms, which monitor transactions for suspicious activity and alert merchants and consumers to potential fraud. 

For your eCommerce business, finding a gateway that offers comprehensive security features means focusing from day one on transaction integrity, protecting customer data, and of course ultimately safeguarding your business's reputation. Investing in these technologies means you provide a safer shopping experience, you actively encourage customer loyalty and foster a secure business environment.

3. Fraud detection tools and software

Investing in advanced fraud detection software such as Cybersource, Feedzai, and Kount, can automate the monitoring and evaluation of transactions for signs of fraud. These tools use machine learning algorithms to detect unusual patterns that may indicate fraudulent activity. Examples of these red flags include anomalously high transaction volumes over brief periods or multiple orders placed from the same IP address but charged to different credit cards. This capability not only enhances the accuracy of fraud detection but also significantly reduces the time needed to identify potential threats, allowing your business to act swiftly to mitigate risks.

Modern fraud detection systems can adapt and learn from new patterns of fraud, constantly improving their detection capabilities over time. This is important as the tech industry evolves at a very fast pace, and fraudsters are constantly coming up with new methods to exploit vulnerabilities. By integrating these tools, you can protect your operations from a broad spectrum of fraudulent activities, preserve your reputation, and provide a secure transaction environment for your customers. This proactive approach secures the financial health of your company and reinforces customer trust, a self-explanatory benefit.

4. Educate your team and customers

Let’s address each of these two separately: 

Employee training - regular training sessions can help your team recognize the signs of fraud and understand the protocols to follow when they suspect fraudulent activity. This includes recognizing phishing attempts, secure handling of customer inquiries, and data management practices. These training sessions should also cover the latest trends in cybersecurity threats and the best practices for mitigating them, through which you actively make sure that at an organizational level your staff is always ahead of potential fraudsters. 

On top of this, by establishing a clear protocol for reporting suspected fraudulent activity, you can make sure you have a framework in place to react quickly and minimize the impact on your business and your customers.

Customer Education - informing your customers about the signs of phishing, the importance of secure passwords, and how to secure their accounts can empower them to protect their personal information, reducing the risk of fraud.

You might consider creating easy-to-understand guides, hosting webinars, or even sending out regular security tips through newsletters. This proactive approach helps safeguard your customers' data and improves their overall experience with your brand.

5. Maintain compliance and security standards

On top of the usual industry standards, make sure to carry out regular software updates. Keeping your software updated is a critical defense against new threats. Updates often contain patches for security vulnerabilities that, if unaddressed, could be exploited by fraudsters.

6. Address new and emerging threats

There are different types of focus areas when it comes to threat prevention: 

• Mobile commerce security - as mobile commerce grows, so do the fraud risks associated with it. Make sure that your mobile platforms are as secure as your desktop platforms by implementing app-specific security measures such as biometric data and customized encryption.
• AI & ML - leverage new tech functionalities to improve your fraud detection capabilities by identifying and learning from patterns in data that human analysts might miss.
• Collaborative efforts - participation in broader networks that share information about fraud threats can provide early warnings about new types of fraud and consensus-driven best practices for combating them.

Conclusion

The risk of e-commerce credit card fraud is a significant concern for online businesses, but at the same time implementing these hands-on strategies can help mitigate those risks, especially if you’ve got a solid partnership with your payment service provider. 

At CatalystPay, we’re always here to help you navigate these challenges and to give you expert advice based on the latest trends, as your business security is our first priority. So make sure to reach out if you’ve got any questions or concerns.