8 Best Practices to Detect and Prevent Ecommerce Fraud

Ecommerce fraud erodes customer trust and causes financial loss. Give assurance of your shop's transaction safety with these 8 smart prevention strategies.

Retail theft is far from new, of course, but the exponentially expanding ecommerce industry provides novel opportunities for fraud. When you open a new online business, it's important to shield both your business information and your customers' sensitive financial data from unauthorized access. 

Left unchecked, ecommerce fraud can result in significant financial loss and lack of customer trust. In this guide, we explore various avenues of online fraud and review best practices for protection so you won't be caught off-guard by attempts to steal from your business and your customers.


What Is Ecommerce Fraud and How Does It Happen?

It can be difficult to detect the many forms of online fraud. Becoming familiar with some of the most common tactics can help you keep your business and customer data secure. You should be on the lookout for:

  • Interception fraud: This occurs when someone changes the shipping address for your customer's order. They access the person's account by stealing their credentials, then attempt to resell the stolen items.
  • Triangulation fraud: The creation of a fake store that mirrors yours, but with cheaper prices. After they trick customers into making purchases, the fraudulent website owners conduct the same transaction on your website with the customer's credit card information, causing a chargeback
  • Retail arbitrage fraud: This involves using bots to buy huge quantities of items from your store to sell at a discounted price. This approach takes business from your brand, dramatically reducing potential profit.
  • Coupon fraud: When customers try to use discounts and promo codes multiple times to get cheaper products. These codes are designed to provide a single-purchase discount.
  • Refund fraud: Someone says an item arrives damaged or broken. They might report that it didn't arrive at all. If you issue the refund, you'll lose the money and the customer still has the perfectly fine product they purchased.
  • Account takeover fraud: This involves the use of stolen credentials to access customer accounts. From there, they can steal data including financial information as well as buy products from your store using legitimate customer info.
  • Friendly fraud: This occurs when a customer requests a chargeback for a legitimate purchase. They may not recognize the transaction on their bank statement or they may have the intent to commit fraud and pocket both the money and the order.
  • Payments fraud: Involving the use of stolen credit cards to make purchases. By the time you realize fraud has occurred, you've already sent the goods and end up stuck with the bill as well. 

8 Ways to Detect and Prevent Ecommerce Fraud

A secure online store environment sets you up for ecommerce success. You can start by implementing these 8 strategies to find fraud and respond immediately to reduce the fallout as much as possible.

1. Conduct Regular Site Security Audits

Securing your ecommerce site requires ongoing attention – it's not a one-and-done process. Consider creating a checklist of items to assess every month or quarter depending on the timeframe that works for your business. 

Ideally, you should frequently review these items for possible vulnerabilities:

  • Strength of passwords used for FTP, database, content management, hosting, and admin accounts
  • Frequency of data backups for your ecommerce site
  • Continued compliance with the Payment Card Industry Data Security Standard (PCI DSS)
  • Valid SSL certificate
  • Updated software for shopping carts and other plug-in functions
  • Encryption of all purchases and other transactions
  • Regular scans for malware and viruses

2. Maintain Comprehensive Records

You'll need a detailed paper trail to effectively fight fraud. You should aim to record every customer interaction with documents such as:

  • Purchase receipts with comprehensive descriptions of the products purchased
  • Order shipping and tracking information
  • Signed package receipts for delivery

Providing this information can help your financial institution identify and pursue perpetrators of ecommerce fraud. 

3. Comply With PCI Standards

The Payment Card Industry has established Data Security Standards, commonly called PCI DSS or just PCI for short. These standards are designed to ensure the safety of online data during ecommerce transactions. 

When you work with Pay.com, you'll have access to the highest level of PCI compliance. You can rest assured that every transaction is tokenized to prevent interception along with other measures to improve online security. 

4. Implement 3DS2 Authentication

Pay.com provides another level of security with advanced 3D Secure 2.0 (3DS2) authentication. Our software identifies transactions with elevated risk of fraud and uses this tech to ensure validity before moving forward. Multifactor authentication methods like 3DS2 makes it much safer to shop online compared to sites that only require a single password. 

You've seen this type of tech in action if you've ever been asked for an authentication code from your email or text when making an online purchase. Red flags for a potentially fraudulent transaction may include geographic area where the purchase occurred, the size of the purchase, and other factors.

5. Get To Know Chargeback Codes

Fraudulent transactions can result in costly chargebacks. When you know what the chargeback codes mean, it's easier to dispute these items and recover your financial loss. Review the chargeback reason codes carefully so you can understand why the chargeback occurred and gather the necessary information to set things right. 

Each credit card company maintains its own list of chargeback codes, so you'll want to make sure you're familiar with the most common reasons for returned transactions. These codes fall into four categories, identified by the first digit:

  • 1 indicates an authorization problem
  • 2 indicates a dispute by the customer (if they say the item didn't arrive as described, for example)
  • 3 indicates possible fraud
  • 4 indicates errors during processing

6. Perform Daily Account Reconciliation

To catch suspicious transactions, you'll need to check every day for potentially issues with customer purchases. If you're only reconciling accounts once a week, you're losing substantial time that could be spent on fraud recovery and retribution. 

Red flags to spot include shipping information that doesn't match the billing address on the customer's and repeated transactions for small amounts, which can indicate testing of stolen credit card numbers to see if they work.

7. Confirm the Card Verification Value

The three-digit card verification value (CVV) on customer credit cards provides an added layer of safety. Merchants aren't legally allowed to store these numbers, so requiring this info at checkout can thwart cases of fraud when someone breaks into a customer account, but doesn't have the card in hand to provide the CVV. 

When in doubt, set up your checkout so customers need to enter this number for a successful purchase. 

8. Limit Storage of Sensitive Data

If you don't need a piece of private information to complete an online purchase, don't collect it from your customers. Some ecommerce shops require data like customer birthdays, gender, ethnicity, and even Social Security numbers. 

If you start storing sensitive information, you put your customers at a much greater risk of identity theft. Instead, avoid collecting anything beyond payment method data, contact details, and other basics required for successful authentication.

What's the Most Secure Way for a Business to Accept Payments? 

Pay.com provides an affordable, secure way for your business to accept online payments, with a transparent flat-fee structure that prevents unexpected charges. We maintain Level 1 PCI DSS compliance, the highest tier established by the credit card industry, which means it'd be tough to find stronger security anywhere else. We take the stress out of ecommerce safety by automatically identifying suspicious transactions with 3DS2 authentication

It's fast and easy to set up our full-service platform, which offers multiple ways for your customers to pay, from credit and debit cards to digital wallets and more. We make it simple to keep track of your transactions through our Pay Dashboard, so you can quickly take action when anything's awry.

Click here to get started with Pay.com now.

The Bottom Line: You Can Protect Your Business from Fraud

You won't find a one-size-fits-all method to protect your ecommerce endeavor from people with bad intentions online. However, combining these eight techniques can create a shield to stop common forms of fraud. In addition, try to stay up to date with industry reports about identity theft and similar crimes so you'll know how to stop the latest types of attempts.

Pay.com offers the highest level of PCI DSS compliance, so every transaction benefits from the strongest strategies for fraud prevention. 

When you sign up with us, you can let your customers know that they can trust you with their most sensitive financial data. You'll be ready to safely accept credit card payments shortly after you set up your account, so there's no time like the present to get started!


How can my ecommerce business accept payments securely?

Pay.com provides a fast, easy, affordable path to secure ecommerce transactions. You can choose from several ways to take customer payments, all covered by the highest available level of transaction security. Our system even has 3DS2 authentication to detect possibly suspicious purchases and require more information before moving forward.

What is 3D Secure 2.0?

3D Secure 2.0 lets Pay.com send additional info to process payments when transactions show signs of potential fraud. For example, we can ask the customer for a code sent to their registered phone number or email address so they can prove they're really making the purchase in question. Some 3DS2 systems even support fingerprints and facial recognition.

What's the best way to prevent ecommerce fraud?

Partnering with Pay.com provides powerful protection against ecommerce fraud. When you enroll, you'll automatically get the benefit of our commitment to online transaction security. Every purchase processed through Pay.com is fully tokenized and meets the top tier of PCI DSS compliance requirements.

How can I make sure my ecommerce business is PCI DSS compliant?

Pay.com maintains compliance with PCI DSS that extends to all our merchant transactions, so you'll be able to let your customers know that their data is safe with your business. In fact, you can even add official PCI DSS badges to your checkout page, improving audience trust in safe, secure transactions with your website.

Meet the author
Andrea Miller
Andrea Miller has been a writer and editor for more than two decades. Specializing in business and finance, she has written for some of the major websites in the financial sector. Outside of work, she spends most of her time with her family and enjoys hiking, yoga, and reading.
The Easy Way Protect Your Business from Fraud

With the highest level of PCI DSS compliance, Pay.com provides multiple layers of credit card authentication, including 3D Secure 2.0. We give you the peace of mind you need to focus on running your business. 

Get started now

Ready to boost revenue for your business

Contact sales