Online shopping can be very safe for both businesses and consumers, as long as merchants take the necessary steps to fortify their online stores against fraud. Unfortunately though, many businesses are still behind when it comes to their fraud prevention strategies, with global losses of $48 billion to fraud in 2023.
This post aims to educate both merchants and shoppers on the fundamentals of online fraud, highlighting the preventative measures merchants should implement and the role of a reliable payment processor in keeping transactions secure.
By understanding how fraud occurs and which practices protect against it, you’ll be better equipped to trust—or build—an e-commerce experience that’s both convenient and safe.
Criminals use stolen payment credentials (like hacked card data) to make unauthorized purchases, leaving the real cardholder unaware until after the transaction completes.
A legitimate cardholder disputes or denies a charge they themselves (or a family member) made, often to obtain a refund or free product. This was the most common type of fraud in 2024, experienced by 48% of merchants worldwide.
Hackers gain unauthorized access to a real user’s account, placing orders or changing details while impersonating the rightful owner.
Fraudsters use real personal information (e.g., name, Social Security number) to open new accounts or access existing ones under someone else’s identity.
Criminals mix valid data (like a genuine SSN) with invented details to create a “new” identity that slips past standard verification checks.
Attackers have all correct cardholder data (including CVV and billing info), enabling them to pass normal security filters and make fraudulent purchases.
A fake online storefront sells items to unsuspecting buyers, then uses stolen card data from a separate victim to buy and ship the goods.
Proper protection from fraud involves a combination of technical and operational tactics and strategies.
Tokenization & Encryption: This is when sensitive card data is converted into random tokens and scrambled in transit. This way, if cybercriminals intercept your data, it’s effectively useless.
Machine Learning Fraud Detection: AI can Analyze customer behavior (location, device, order size) in real time to spot anomalies and block suspicious transactions. This flags unauthorized card use (True Fraud) and suspicious patterns that might indicate Account Takeover (ATO) or Clean Fraud.
3D Secure or Multi-Factor Authentication: This adds an extra step to the payment process such as a password, SMS code, or biometric. This makes it far harder for criminals to pass themselves off as legitimate cardholders, targeting both True Fraud and ATO.
Clear Refund & Return Policies: This is critical to help prevent Friendly (First-Party) Fraud. When customers understand the process (and know you track purchases thoroughly), they’re less likely to find the opportunity to file baseless chargebacks.
Transaction Thresholds & Velocity Checks: Limits on order sizes, transaction frequency, or repeated attempts from the same card can catch fraudulent bulk orders before shipping them out (especially handy for Synthetic Identity Fraud or Triangulation Fraud).
Proactive Chargeback Management: Tracking disputes closely, gathering evidence, and responding quickly are essential to reducing chargebacks. Merchants who can prove shipping confirmation, customer sign-offs, or usage logs stand a better chance of winning disputes.
Customer Communication: Why It’s Important: Friendly fraud often stems from misunderstandings or unauthorized family purchases. Simple reminders—like shipping confirmations or subscription notices—can reduce accidental chargebacks.
Staff Training: Human error is a leading cause of data breaches and fraudulent approvals. Train staff to recognize phishing attempts, verify large or overseas orders with additional checks, and report anomalies.
Data Analytics & Reporting: Use real-time dashboards to see unusual spikes in orders, repeated failed payments, or unexpected refund requests. Early detection of suspicious activity can prevent large-scale losses.
Security Checks & Updates: Keeping software patched and up to date shuts down vulnerabilities criminals exploit such outdated plugins or compromised shopping cart modules. Schedule routine reviews (monthly or quarterly) for all payment-related systems.
A processor that offers advanced fraud filters, tokenization, and chargeback support is a game-changer, letting you catch suspicious transactions before they drain your resources. Look for robust reporting tools and proactive alerts that notify you when orders deviate from typical patterns.
JJS Global is here to help you fine-tune your fraud defenses and optimize your payment processes. Whether you need advanced risk scoring, compliance consulting, or day-to-day chargeback management, our team has the expertise to keep your store safer—and your customers happier.
Contact us today to discuss customized strategies for tackling fraud head-on, so you can focus on growing your online business with confidence.
