This holiday season, we’re all reminded of the fact that fraud is a persistent trend Even the smallest eCommerce store has probably had some bad experiences with fraud, and busy times of the year, like Thanksgiving and Christmas, are particularly bad. Everybody’s looking for a bargain, but not everybody wants to pay for it.
For just about any merchant, the combination of a high number of orders to fill and limited time to dedicate to manual review is a seriously drain to productivity, and every year it isn’t surprising that fraud is costing businesses a larger and larger chunk of their revenue.
Despite this worrying trend, there’s plenty you can do as a storeowner to protect yourself. All fraud prevention strategies for fighting fraud start with detection, and even the most basic assessment of your users can reveal some pretty glaring red flags for potential fraud.
Indeed, most storeowners know to look for some of the basic threats like suspicious overseas delivery locations, or cases where the user’s origin, billing address, and shipping address all point to three different corners of the globe. But some of the other things to look for a much more subtle. Let’s take a look at some….
Common Red Flags
Does the user’s IP come from a suspicious location? – For example, an order that originates from inside a data center is very unlikely to be genuine. Fraudsters will often proxy their IP through another location to make them harder to track, and this is one of the key warning signs.
Is the user masking their IP/geolocation entirely? – Sometimes instead of originating from somewhere suspicious, fraudsters will hide their location completely using things like TOR. While there are legitimate uses for these types of programs, these users rarely fit the profile of most eCommerce customers, meaning you’ll want to be wary of their activity on your site.
Does the user’s IP originate from a public location? – While not necessarily fraudulent, orders originating from a shared computer (such as a public library or university) are a greater risk for fraud because the user is that much harder to trace.
Does the shipping address correlate with a known reshipping address? – Fraudsters use these services to deliver goods to seemingly innocuous locations (making them less likely to get flagged for fraud) and then have them forwarded overseas so they are hard to track down.
You get the idea. Assessing these red flags is crucial as a business owner because just a few minutes of due diligence on your part can save you potentially hundreds or even thousands of dollars.
Scoring and Quarantine
But once you have some idea of at least some of the bigger warning flags for potential fraud, what do you actually do with these types of orders? At the very least, you will want to quarantine the order to prevent it from being fulfilled, holding it in place until somebody has the chance to conduct a manual review.
The thing is though that this means you’ll need some type of mechanism in place that can look for these fraud markers in a haystack of legitimate orders. This is where automated fraud scoring comes in, assigning warning flags to suspicious users so you have a chance to give the order a second look.
Typically, most businesses conduct this sort of process at the checkout, once the user inputs their credit card or billing information. However, more comprehensive fraud solutions start assessing the user as soon as they even reach the storefront, which is necessary to monitor the types of threats highlighted above that otherwise wouldn’t be detected.
Of course, no matter what kind of fraud system you have in place, you’re always going to want some kind of manual review in place to give you control over the process…
Usually businesses have some kind of manual review process in place to give orders a second look. A good scoring solution will be able to filter out the obviously fraudulent users and your known good customers quickly, leaving you with only a few borderline cases to assess.
Not only does this mean that will you have fewer cases to look at, but an effective fraud prevention system will also help you make more informed decisions about suspicious users and the like. In other words, if something is flagged as risky, you need to know exactly the level of risk they represent and why.
Ultimately manual review is a necessary evil, but it becomes much more effective if a scoring mechanism is added before it. As well as monitoring your suspicious transactions, the other big upside of having fraud scoring before your manual review is that it helps reduce the number of false declines…
False declines (cases where customers are accidentally getting flagged for fraud) are always the other side of the equation with any fraud prevention solution.
A cursory look at Google indicates that false declines have actually begun to outpace fraud losses for many eCommerce businesses, which just goes to show how having the right setup for your fraud prevention measures is absolutely crucial.
If your system is too “aggressive,” you can lose sales and damage your reputation by declining legitimate customers. If your system is too lenient, then you’re opening yourself up to fraudsters, and of course wasting money on the prevention system in the first place. This is why any fraud prevention system requires a very careful balancing act.
As part of this, there are several tools you can use to help you achieve that balance, foremost among them being…
One of the best ways to avoid this problem that many businesses have started to utilize is a verification process. Typically, large businesses use techniques like sending the user a SMS or email and asking them to validate their identity.
While the system obviously isn’t foolproof, it does dramatically cut down on the capacity of bots to plague your storefront, which makes it a popular choice for businesses who want confirmation on their orders without irritating the real customers or unnecessarily holding up the order.
So just to recap then, fraud prevention can actually be fairly straightforward if you follow a few key steps:
- Identify Warning Flags
- Quarantine Suspicious Orders
- Conduct Manual Review
- Send Verification
These are exactly the kinds of abilities that NS8 delivers through our flagship product, NS8 Complete Storefront Protection. If you are interested in a fraud prevention solution that can combine all of the above capabilities with a combination of machine learning and customer analytics, check out the link below.
Otherwise, enjoy the rest of the holiday season, and we wish you the best of luck in the ongoing battle against fraud.