Credit Card Payment Fraud Risks and Precautions for E-commerce Sellers
You may have already heard of credit payment fraud. Globally speaking, it causes more than $20 billion in losses every year. You might wonder if it could happen to you. Well, it's hard to deem it as a low-probability event. Prevent it in advance rather than waiting until you're caught up in trouble. This article will walk you through the potential risks you may face when your customers pay via credit cards. You'll also be told about how to prevent and deal with them. Furthermore, even these countermeasures could bring challenges themselves.
What Might Fraudsters Do? And How Can I Respond?
Typically, hackers will get users' login details with phishing emails or malicious software and make fraudulent purchases through the stolen accounts. So, what are the typical fraud tactics used for credit card payment fraud? And how to respond effectively against them?
Fraudulent Orders
Fraudsters may place fake orders in your store. However, they don't mean to purchase but get a free ride on your services and products. You might receive a fake payment confirmation (which has not been made and won't be made) and have the products shipped.
How to Respond:
· Use a secure payment gateway with fraud detection features.
· Enable 3D Secure authentication and AVS (Address Verification System).
· Verify details of the first and abnormally large orders in person.
Friendly Fraud
Compared with bank transfers or other payment methods, credit card companies have developed a more consumer-friendly refund review process, which makes it easier for consumers to get their refund requests approved. Besides, tracing and holding accountable will also get harder due to the anonymity mechanism.
Fraudsters may request a refund, falsely claiming the items didn't arrive or have something wrong with them. Oftentimes, they get the refund successfully, and you end up losing both shipping costs and the product.
How to Respond
· Keep all the detailed records of shipment proof, tracking information, and customer communication records.
· Ask for signature confirmation for large orders upon delivery.
Card Testing Fraud
Fraudsters would place multiple small orders to check if the card is valid. This type of fraud is generally known as “card testing”. These small-amount bills won't raise immediate red flags. However, once they are successfully placed, the account information will be used for larger fraudulent transactions.
How to Respond
· Pay extra attention to frequent small orders under the same user account.
· Set maximum order limits.
· Apply anti-fraud tools to block suspicious transactions.
Cross-Border Fraud
If your store serves international markets, you will be much more likely to be exposed to credit card payment fraud. The cross-border transactions lack timely location verification and usually take longer to process, and fraudsters may take advantage of this weakness to bypass security checks.
How to Respond
· Check if the IP address, shipping address, and billing address for international orders match.
· Ask for additional identity verification when necessary.
Build a Systematic Anti-Fraud Mechanism
Utilize Smart Payment Gateways and Risk Detection Tools
Use Intelligent payment gateways and tools provided by payment platforms to detect abnormal billing information, payment sources, and order volumes. They help identify suspicious transactions in real-time, you are thus allowed to relieve your nerves in your daily store management.
Apply 3D Secure Authentication
3D secure authentication, such as Visa Secure and Mastercard Identity Check, adds an extra layer of identity verification to transactions. It requires your customers to enter an additional code during the payment, greatly reducing the likelihood of fraudulent payment.
Enable Address Verification System (AVS)
AVS helps compare the billing address provided by the customer with the card-issuing bank's records. For example, you may get a bill said to be from place A but actually paid in B. In such cases, AVS could help identify similar red flags during such cases.
Require Card Verification Value (CVV)
In this way, your customers will have to provide the CVV code (the three digits on the back of the card) to ensure the transaction is initiated by the cardholder themselves.
Keep Detailed Records During Order Fulfillment
It's particularly necessary for high-value products. During order fulfillment, ensure all related records are saved, including order details, product records before shipment, shipping information, proof of delivery, and communication records with customers, so that strong evidence is available in case of refund disputes.
Utilize Third-Party Anti-Fraud Services
You are suggested to make use of third-party platforms, such as Signifyd and Chargeback Gurus for refund protection services. The investment in the services will eventually be worth it.
Monitor Unusual Transaction Activity Yourself
There is something you can do without the third-party services mentioned above. If you spot abnormal behaviors like frequent account changes, mismatched shipping and billing addresses, or sudden increases in large orders, ask your customers for extra verification, or temporarily suspend the order until it's secured.
Regularly Remind Your Customers to Strengthen Credit Card Security
Your customers are supposed to enable 2FA authentication, set strong passwords, update them on a regular basis, and prevent leakage. Particularly, they should stay alert to unusual purchase records and suspicious emails.
Set Single Order Amount Limit
As a precaution against risks brought by large orders, you can choose to set maximum limits for each order, particularly for first-time customers. Large orders from a new account could be a sweet trap.
Is It Forever Safe Once Anti-Fraud Measures Are Set Up?
A strong fraud prevention system does help protect your store, however, it may still end up hurting your business. Be fully aware of the drawbacks to keep a reasonable balance.
User Experience May Be Affected
Maybe you implemented numerous measures for security or accidentally set overly strict audit requirements, however, these could make the shopping experience feel cumbersome. That is to say, customers may thus abandon their purchases or even leave your store.
You May Miss Legitimate Transactions
You do not want to believe this, but this is the truth. Especially when the fraud detection is too sensitive, fraudulent transactions are identified for sure, but even legitimate accounts could be mistakenly banned. You will thus suffer unnecessary trouble and customer loss. Imagine a legitimate customer places a large order, uses a different payment source, or temporarily changes their billing address, the system will take these signs as red flags, and orders might not even reach your store.
Cross-Border Transactions May Be Blocked
Mainstream anti-fraud verification systems are not universally applicable. Many verification measures, such as AVS and 3D Secure, are commonly used in Europe and the U.S., but may not be fully supported in payment processing systems in other countries or regions. International customers may struggle to complete payments, and that's your loss.
Higher Costs Involved
The additional security measures usually come at a high cost. For small sellers, it could be a burden. They need to balance enhanced security with cost control.
The Limited Applicability of AVS and CVV
Though AVS and CVV are common payment verification tools, they are not universally supported worldwide. For customers outside of Europe and America, you may be unable to verify the payments effectively. That said, transactions from the regions not covered by AVS and CVV carry risks that remain hard to avoid.
Conclusion
Credit card fraud is one of the most common types of payment fraud, but you probably have no choice but to coexist with credit cards as a payment method. Hence, fully understand its potential risks so that you know how to respond when it happens to minimize your losses.
FAQ
Q: Compared to third-party sellers, what anti-fraud support can independent store owners get from platforms?
A: Platforms secure transactions with strict review mechanisms. Effective measures include transaction monitoring, refund protection, and customer identity verification. Payment methods with higher risk will not be supported — they usually partner with reputable gateways like PayPal and Stripe. Furthermore, third-party sellers will have access to dedicated customer service and dispute resolution systems in case of payment and refund disputes.
Q: Are e-wallets and bank transfers safer than paying with credit card?
A: Generally yes.
Q: How do credit card payments compare to e-wallet payments in the U.S. and Europe?
A: Credit card payments dominate the U.S. e-commerce market while in Europe major payment choices vary by country.
