Protect Your E-commerce Business From Theft and Fraud

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5 Fraud Detection Strategies:

  1. Conduct regular security audits on your website
  2. Require Card Verification Value (CVV) Numbers
  3. Use Hypertext Transfer Protocol Secure (HTTPS)
  4. Set Limits on Purchases
  5. Check that IP Address matches Shipping Address

Sales from online businesses absolutely soared last year as a result of lockdowns from the pandemic.

Sadly, fraudsters followed the online trends in 2020, upping their methods to defraud businesses and harm both the business’s profits and customer base for their personal gain.

New e-commerce entrepreneurs are especially susceptible to fraud because they’re busy getting their business off the ground and don’t always know what signs to look for. To help remedy this and protect you and your business, we’ve developed this short guide to help you to recognize the signs of fraud and take proactive measures to prevent fraudulent activity.

Types of E-commerce Fraud

Online fraud is easier for criminals to commit because they can do so remotely, often without revealing their face, their true name, or their location. And because committing fraud is easier online than it is in person, there are many different ways fraudsters can steal from your business, including but not limited to:

  • Credit card fraud (also known as card-not-present fraud)
  • Affiliate fraud
  • Chargeback fraud
  • Phishing or pharming schemes

Of course, there are more ways criminals can defraud your business, but these are four of the most common types; thus, these are the ones you want to be on the lookout for in your business operations.

How Do You Safeguard Against Fraud?

Of course, you’ll want to be proactive and safeguard against fraud rather than become an expert in spotting red flags after the fact. Following are 5 steps you can take to help prevent fraud and theft from occurring in your e-commerce business:

1. Conduct Site Security Audits Monthly (or more often!)

Auditing your site frequently for security breaches is one of the most effective ways to prevent future fraud from being committed against your business. Ongoing audits will also help you increase your skills in spotting fraudulent activity.

Ensuring that your software and plug-ins are up to date will increase your chances of avoiding fraudulent activity, as the security functions of the software will also be up to date. Running frequent malware scans helps you identify malicious attacks before they get out of hand, and regularly updating your login information with secure, unique passwords lessens the chance that fraudsters can gain control of your accounts.

2. Require Card Verification Value (CVV) Numbers

Requiring the CVV number from credit cards in all purchases helps protect against credit card fraud, which is one of the most common types of fraud e-commerce businesses experience. Stolen credit card information is sold on the dark web without the physical card present, but the CVV number ensures the customer has the card in their possession when making a purchase.

3. Use Hypertext Transfer Protocol Secure (HTTPS)

The primary method used to transmit data between a customer’s web browser and your online platform is called Hypertext Transfer Protocol (HTTP). HTTPS is the secure version of this protocol. It encrypts data and sensitive information to protect it from hackers.

To use HTTPS, you can purchase an SSL certificate, which digitally binds a cryptographic key to a specific organization. SSL certificates can be purchased through a trusted certificate authority, such as Comodo SSL, Sectigo SSL, or GeoTrust SSL.

4. Set Limits on Purchases

Setting limits on the number of purchases a single customer can make can help protect your business from high levels of fraud occurring in a single day. Setting a reasonable limit, based on the average number of products a single customer orders, minimizes your losses and provides you with the time you need to spot a red flag.

5. Check That the IP Address and Shipping Address Match

Finally, you should check that the IP address matches the shipping address entered by the customer. Of course, these won’t always match. Customers may be purchasing gifts for friends and family members in other states or even countries. But being aware of mismatches can help you spot fraud more quickly.

Additionally, you may want to consider disallowing shipments to P.O. Boxes or other types of virtual shipping addresses. Only allowing customers to input physical addresses provides you more protection and follow-up options if you need to contact law enforcement or take legal action.

6. Use Available Tools

The technology and tools around e-commerce are changing quickly. Try to stay up-to-date on what is available to help secure your business.

You may want to consider Clearsale or Signifyd to help prevent Credit Card fraud. They will screen and insure online transactions. Although they take a small percentage of each sale for this protection, it may make sense for you if you sell high-ticket items. Other tools like Ekata’s Pro Insight have robust screening capabilities but do not offer insurance.

How We Help

As your e-commerce business grows, you may become more and more susceptible to online fraud and theft. Part of your prevention strategy must include keeping track of your accounting books and implementing procedures to address fraud directly when it happens.

At Tree Street Advisory, we help e-commerce business owners with all their financial needs, including the need to limit and address online fraud. Please reach out to us by calling (615) 219-9802 or simply schedule a free 30-minute introductory appointment here.

Disclaimer: This article is provided for educational, general information, and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Allan Phillips, and all rights are reserved.

Allan PhillipsAllan Phillips is a Certified Financial Advisor (CFP®) and founder of Tree Street Advisory. He works with E-commerce business owners and Physicians who are concerned with issues such as cash flow management, high-earner retirement planning, debt repayment approaches, tax strategies, and business planning.


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