How susceptible is your ecommerce business to risks like card fraud, cyberattacks, and data breaches? To protect your customers and their data from these threats, you need smart risk management strategies.
Is credit card fraud common?
Projections show that the cost of credit card fraud in the U.S. could reach $8.45 million in 2020. Card-not-present transactions — like ecommerce purchases — could account for $7.2 million of that total.
Fraud risk awareness is critical if your business model includes online sales. Card fraud is often the result of security vulnerabilities or data breaches and can put you at risk of losing as much as 5% of your gross revenue. Every time a fraudulent charge occurs, you lose money on merchandise, shipping fees, and chargeback fees. This results in an average loss of $3.13 for every $1 in fraudulent purchases.
With global fraud losses expected to double from $22.8 billion in 2016 to just under $50 billion in 2025, unauthorized card use has the very real potential to negatively impact your business. Guard against fraud — and the security risks that cause it — with these seven risk management best practices.
1. Know your risk level.
Several factors can put your ecommerce business at a higher risk of credit card fraud, including:
- Operating in a specialty category with higher risks, such as jewelry, gaming, electronics, travel, hospitality, or health and wellness.
- Processing a high volume of transactions or averaging large dollar amounts per order.
- Offering subscription services with recurring payments.
Assessing your risk levels helps you hone in on areas where stronger security is required to protect business systems and cardholder data.
2. Improve ecommerce risk awareness.
You and your team should be familiar with the most common types of fraud and cyberattacks, including:
- So-called “clean” fraud, in which an unauthorized purchase appears legitimate.
- Account takeover, which involves a hacker taking control of a customer’s account.
- Identity theft, which allows hackers to use stolen credentials for unauthorized purchases.
- Phishing and pharming, which are tactics designed to steal credentials through fraudulent emails or fake websites.
You can avoid most of these risks by following proper security procedures. Bring your employees up to speed with training in compliance, cybersecurity, and risk management, and educate your customers about steps they can take to shield their own information from hackers.
3. Evaluate the security of potential payment processing solutions.
When choosing ecommerce tools and platforms, include security evaluation as a key part of your decision-making process. Your payment processor should use every security measure possible to prevent unauthorized access to your business network and customer data.
Ask your processor the same questions you use when assessing your own company’s security. Evaluate data backup and disaster recovery plans. If you’re not satisfied with a processor’s approach to security, look for another partner with better protocols.
4. Look for fraud detection and prevention solutions.
Filtering potentially fraudulent transactions using address verification, CVV verification, velocity filters, and purchase amount filters can help minimize unauthorized purchases. However, the limitations of these options can cause false declines, which make for bad customer experiences. Automated fraud detection has the same potential problem, but manual fraud monitoring takes a significant amount of time and lacks the precision to catch the nuances of sophisticated cyberattacks.
A combination of automated and manual fraud detection provides the best balance. The right payments partner will offer fraud management services that offload the work to a third party to prevent your IT team from getting bogged down with reviewing flagged transactions.
5. Prioritize cybersecurity.
Credit card data theft and identity theft are two of the main drivers of online fraud. Making cybersecurity a top priority reduces the risk of your company becoming a source for hackers to obtain cardholder data. If you don’t already have cybersecurity protocols in place, work with your IT team or hire a cybersecurity expert to evaluate your network and create a security plan.
Your plan should include access control, network monitoring, endpoint security, and multi-factor authentication to prevent unauthorized access. Many of these policies and procedures are necessary for PCI DSS compliance (more commonly known as PCI compliance) which all businesses handling credit card information are required to maintain.
6. Improve website security.
Securing your website against malicious activity is a vital part of ecommerce risk management. Whether you handle checkout on your own site or have a hosted checkout solution, SSL certificates are a must for properly encrypting data and shielding it from hackers. Make sure your provider has a certificate in place if you’re using a hosted checkout. This not only protects data but also acts as a trust signal for customers, assuring them that their card information is safe when they make their purchases.
Other tools, such as security plugins, are important if a content management system like WordPress is the basis for your site. Security plugins address common CMS weaknesses to prevent malicious activity from leading to cardholder data loss. Be sure to keep all plugins and security solutions updated to provide ongoing protection.
7. Monitor and minimize chargebacks.
Chargeback fraud may occur when a customer requests a chargeback on a legitimate order to get items for “free” or attempts to lower his or her credit card bill by eliminating a charge. In cases where items are never received or an actual fraudulent purchase takes place, you have to return the money to the cardholder.
If you have too many chargebacks, you could lose your merchant account. Minimize your chargeback risk by:
- Not charging customers’ cards until items are shipped.
- Checking unusual purchasing behaviors against customers’ regular habits before authorizing transactions.
- Offering alternative resolutions to chargeback requests, such as replacing faulty items or issuing refunds.
Implementing risk management strategies protects your customers and reduces the likelihood of data theft, data loss, and credit card fraud for your business. Knowing the risks involved with online sales and payment processing makes you better prepared to respond if the malicious activity occurs. Make your business safer and increase customer trust with a comprehensive risk management plan.