Although independent retailers will be excited about the ecommerce opportunity going into 2018, Iain McDougall, UK Manager at Stripe, tells Business Advice why businesses should remain trepidatious about the dangers of online fraud.
Many retailers going into 2018 will be focussed on capturing a slice of the rapidly growing ecommerce pie, yet online fraud is now the most prevalent crime in England and Wales, costing £10bn annually.
Card-not-present fraud (where criminals use stolen card details to make online purchases) has risen dramatically in recent years. The 1.4m known incidents of this kind of fraud in 2016 was double the same figure five years earlier.
Unlike their brick-and-mortar counterparts, online retailers are responsible for paying the associated costs of card-not-present fraud, including reimbursements and chargeback fees to credit card companies.
Companies like Stripe processes billions of pounds a year for hundreds of thousands of businesses around the world, from global ecommerce platforms like Shopify through to up-and-coming UK retailers.
Over recent years, Stripe’s fraud data has revealed a few notable patterns, each with its own lesson for small businesses today. Here are five top tips for protecting against fraud.
(1) Boost after-hours vigilance
While the raw volume of fraud incidents from smaller retailers increase on heavy shopping days like Black Friday or Cyber Monday, online fraud rates as a percentage of overall traffic spike during quieter times –on Christmas Day or in the middle of the night, for example.
To protect against fraudsters looking to strike during these times, consider adding extra scrutiny to purchases made outside of normal business hours, either through manual reviews or other, more stringent automated filters
(2) Test and implement geography-based rules
Fraud rates vary by country. In fact, the country where a given credit card is issued can affect the likelihood that a transaction is legitimate by as much as 300 per cent.
But, while cards from Argentina, Brazil, India, Malaysia, Mexico, and Turkey tend to be more fraud-prone than many other countries, even US, Canadian or French cards are susceptible.
Rather than block all purchases from a given country or region, test different geography-based rules and ask for more information from all customers (like CVV numbers and full addresses).
(3) Look for smaller, more “normal” transactions in the UK, and larger transactions elsewhere
You might assume that fraudsters prefer big-ticket items like televisions or jewellery. And in many countries, you’d be correct. Outside of the US, fraudulent transactions can often be significantly larger than normal transaction sizes, even twice as large in some countries.
However, in the UK fraudulent transaction amounts closely mirror “normal” transaction sizes, and are only slightly larger than regular amounts.
(4) Look out for rapid-fire purchases
Once an online fraudster makes a successful charge on a credit card with a particular merchant, they tend to make additional charges with that same merchant very quickly—up to ten times more quickly than legitimate card holders.
In fact, three-quarters of all fraudulent transactions are not the first fraudulent transaction on a given card. Businesses can address the issue by using automated tools to limit the speed of repeat purchases to a rate that will facilitate legitimate purchases, while deterring fraudsters.
(5) Know the goods or services that are the most likely fraud targets
The online fraud patterns we discovered suggested that a fear of being arrested—not a desire to blend in with normal transactions—can help us understand fraudster behaviour.
Delivery of physical goods, for example, carries obvious risks, so fraudsters tend to buy products that do not need to be delivered, or target online services that can be performed immediately, before the charge has any chance of being detected and invalidated.
Thanks to recent advances in machine learning and AI, modern independent retailers can analyse millions of online transactions and flag potentially problematic charges long before a human analyst would spot a problem.
As more businesses and consumers migrate online, retailers can only assume online fraud strategies and tactics will also continue to increase and evolve.
To avoid racking up millions of pounds in expenses related to online fraud, independent retailers should future-proof their business models by building on the latest technology.
Iain McDougall is UK Manager at Stripe, a software platform for ecommerce businesses.
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