There are plenty of good reasons to start an online commerce business: You can build innovative marketplaces, target prospects with personalized offers, and gain access to customers around the globe. The bad news: Online commerce is also very attractive to fraudsters, who not only drive up merchant costs from fraud losses, but also necessitate investment in fraud prevention tools and staff.
With the move to safer EMV chip cards for in-person payments, the risk of fraud has grown larger for card-not-present (CNP) transactions. CNP transactions are the source of the overwhelming share of losses to merchants from credit card fraud, card industry newsletter The Nilson Report said in October, 2016, adding that the problem is “aggressively worsening.”
"The risk of fraud has grown larger for card-not-present transactions"
If you’re taking credit card payments online, it’s important to guard against fraud. Protect your business and its reputation by:
- Understanding the difference between data security and fraud prevention. Good data security practices protect your customers’ payment information. When you comply with PCI DSS, the Payment Card Industry Data Security Standard, you’re taking care that consumers’ personal information isn’t vulnerable to being stolen. Fraud prevention tactics, in contrast, help you identify and stop fraudulent transactions occurring using payment card data that was already stolen elsewhere. Both security and anti-fraud measures need your attention.
- Using all the tools available to you. Start — but don’t stop — with an address verification system (AVS) and requiring customers to enter their three- or four-digit card security code. Consider adding in automated transactional risk scoring, real-time categorizing and resolution, as well as post-purchase transaction management. Then, continually review and adjust your fraud rules and parameters. Fraudsters are always tweaking their tactics, so don’t have a one-and-done mentality.
- Knowing your customers and their normal purchasing behavior. Where are they located? Where do transactions usually originate from? Create a purchase flow that allows you to analyze transaction data and see deviations without compromising the customer experience. Be wary of expedited shipping when billing and shipping addresses are not the same. Make sure IP locations and credit card addresses align.
- Training your employees, but also being aware of them. Educate your employees to understand the risks of CNP transactions. Develop good internal practices and policies for monitoring, and make sure the team is expert in them. But remember that fraud is often an inside job, so it’s important to use real-time screening that draws on payment information and anti-fraud intelligence from other sources.
- Leveraging the expertise of your payment processor and other service providers. They can connect you to resources such as fraud prevention services. They can also guide you through best practices, including how to use payment and non-payment information for fraud detection and customer insights.
These five steps will go a long way to helping reduce fraud, but ultimately, a merchant must take the initiative to understand the nature of e-commerce fraud broadly, and then customize an adaptive strategy for their unique business. A proactive approach can help limit fraud losses, minimize costs and improve customer satisfaction and confidence – all key drivers to e-commerce profitability.
"A proactive approach can help limit fraud losses"
Your SVB Global Treasury and Payments Advisor can assist you in identifying resources to implement good preventive practices.
Read more in our series on how to optimize your company’s payments tools and processes on SVB’s Payments Trends and Insights page.
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