Merchants new to e-commerce must juggle many as they get established, so properly addressing risk from online fraud can be difficult and distracting, says Souheil Badran, senior vice president and division manager for e-commerce at First Data Corp., a provider of online payments processing services.
According to Javelin Strategy & Research’s 2010 Identity Fraud Report, self‐identified small business owners experienced fraud at a rate of 7.4%, which is more than 50% higher than the rate of 4.8% for all merchants, Badran notes.
“It is crucial for newer online stores to proactively manage fraud as an important piece of the overall puzzle,” he says.
There are several approaches e-commerce newcomers can take to shore up their security, he adds. In addition to working with an outsourced security services provider, a small online retailer could also reduce risk by deploying anti-fraud technology in-house, Badran says.
Either approach could help retailers recognize signs of online fraud. For example, Badran says, a local jeweler with an online store may see an uptick in sales for a few days, but might not have the insight to uncover it if it is due to increased success or if he has become a target of fraud. With the right transaction-monitoring technology in place, such as those that recognize unusually large orders or orders from geographic locations known as sources of cyber-crime, suspicious transactions can be automatically flagged or cancelled without manual intervention.
“Small businesses should look to solutions offering a cost-efficient, multipurpose product that includes live support as needed,” he says.
While the size of an online business is an important consideration in data protection strategy, so is the type of business, whether it is a clothing retailer, airline or an online dating site, Souheil says.
“Online merchants need to look for a tailored, flexible solution for identifying, preventing and managing online fraud,” he says.
Fraud management can be handled by merchants in real-time, or outside of the checkout and authorization process, Badran notes.
“For example, retailers who ship physical products are at risk for not only chargebacks, but lost tangible goods as well,” he says. “Therefore, retailers in the electronics or apparel industry may find it effective to establish communication between their checkout process, fraud management system, and order fulfillment system. This way, if a transaction attempt to buy a luxury handbag is identified as being potentially fraudulent, the package will not leave the warehouse until further confirmation is requested from that shopper. This will prevent the hassle of rerouting a product that is already mid-shipment once fraud is identified.”