The Challenges of Fighting E-Commerce Fraud

Businesses have found it difficult to combat e-commerce fraud, especially as e-commerce took prominence during the Covid-19 pandemic.

According to a Stripe Inc survey, this is because: 

• Frauds are becoming more complex (56%), 

• There have been significantly more frauds than before the pandemic (41%), and 

• Fraudsters are becoming more sophisticated.

The most popular e-commerce fraud trends

Stripe stated that as more people shop online, the rate of fraud cases has increased, making it difficult to monitor all transactions manually. The analysis surveyed 2,500 business leaders worldwide and found that product-related claims and card-testing attacks were the most prevalent fraud trends.

Product-related disputes increased by twice as much this year as they did in 2019, with a brief spike of 156%, including "product not received" and "product not acceptable." Customers frequently request chargebacks when sellers take weeks or even months to ship products due to supply chain disruptions.

Meanwhile, in 2019, 40% of businesses reported attempted card testing attacks. This happens when fraudsters try to determine whether stolen card info may be used to make purchases.

The negative effect of card testing attacks includes increased transaction volume, leading to increased payment processing fees and the risk of downtime. It also has a negative impact on the global financial ecosystem.

As a result, businesses may face penalties from issuers and card networks for enabling card testing attacks.

Singapore has half the fraud rate in the Asia Pacific

In a separate study, charities were shown to be more vulnerable to card testing attacks (11%), owing to smaller teams that lack the capacity to block transactions.

According to the study, Singapore recorded half the fraud rate in the Asia Pacific. From a regional standpoint, the difference in fraud among countries can make combating fraud even more challenging for multinational businesses.

"As a result, there is never a one-size-fits-all approach to fraud management," Stripe stated.

Business leaders with sizable fraud teams are more likely to experience higher fraud losses, depending on the organisation's size and business model.

Enterprises (80%) intend to spend more resources on fraud prevention this year, trailed by scaleups (73%) and start-ups (69%). Similarly, 59% of people surveyed predict their organisations to lose more revenue to fraud this year than last.

The effects of e-commerce fraud

According to the report, the business impact of e-commerce fraud extends beyond financial losses, with 72% of global business leaders having to shift product or engineering resources to combat fraud and 58%percent having to postpone expansion or investment plans due to fraud.

The study found that the impact of fraud on businesses includes poorer payment conversion rates; the more fraud a company tries to prevent, the more likely it is to block legitimate charges as well.

Businesses suffer a loss in both gross profit and reputation as a result of this (33% of consumers don't want to shop again at a business after a false decline).

According to a fraud professional at a Canadian software-as-a-service firm, even a single fraud issue can cause huge problems and perhaps cause them to miss a legitimate customer due to additional security checks.

He said that companies also experience operational overhead that is labour intensive. A group of fraud analysts is required by businesses to assess the risks based on a range of factors such as transaction data and customer history.

"It's incredibly annoying because it means we have to redirect resources to accommodate it, or else we fear the situation may worsen," he said.

The situation shows that bigger businesses are more likely to use manual reviews, although the percentage of transactions they review decreases as they grow bigger.

While major organisations have the resources to evaluate transactions manually, they reserve those manual reviews for higher-stakes transactions.

Stripe expected a few outcomes for the fraud sector based on the report: 

• Richer data sources will enable businesses to make faster and more accurate judgments; 

• Issuers and businesses will work together more to simplify disputes and eliminate false declines; and 

• Consumer payment will continue to evolve, transforming the fraud industry.

Source: The Malaysian Reserve