Whether it’s Netflix, Amazon, or Google’s auto-fill features, we feel uneasy letting corporations store our credit card data. The fear of losing money to fraud might seem irrational and unfounded — but honestly, it’s not.
The truth is, credit card fraud is the most common type of identity theft crime. According to reports, fraudulent cards are used to make over €1.8 billion in transactions. The US, especially, leads the ranks in the number of fraud crimes — these cost the economy $9.4 billion.
Since it’s better to be safe than sorry, we put together a round-up of the most popular types of credit cards and helpful tips to prevent credit card fraud in e-Commerce.
Five Most Common Credit Card Fraud Types: Explained
To get ahold of millions of bank accounts, credit card fraudsters will go pretty far. They have a wide array of schemes — some of them are straightforward, while others are more advanced. The good news is, once you know about the most common types of fraud, you and your online customers are no longer easy prey for a hacker.
So, what is credit card fraud? Let’s break down the most common and devastating credit card fraud types and find out how to detect credit card fraud.
1. Clean fraud
A clean fraud is a scheme where a fraudster gets access to a victim’s credit card data and uses it for shopping. This is one of the hardest-to-detect credit card frauds since, at first glance, it looks as though the cardholder was the one who made a purchase.
How do attackers get their hands on payment data? The most common source is the dark web, where hackers sell personal information.
Note: 80% of card fraud happens after a fraudster gets ahold of a cardholder’s data during a phone call.
Since clean credit card fraud detection is next to impossible, use tried-and-true strategies to protect your e-commerce store from clean fraud:
- Analyze data to pinpoint red flags. For example, if a shopper is buying products that don’t match their interests or shopping history, that’s suspicious.
- Use multi-layer fraud protection plug-ins and tools to double-check payment data.
- Send shoppers confirmation messages before money withdrawal.
2. Identity theft
The most common example of identity theft is when a fraudster uses someone’s personal data to open a bank account in their name. Later, an attacker takes advantage of the credit limit while the original cardholder has to pay the bill.
To make sure you don’t put customers at risk for identity theft, encrypt personal data and implement multi-factor authentication that doesn’t allow hackers to enter user accounts to hijack data.
Phishing is a money-extracting scheme where fraudsters try to copy a store’s brand identity or hijack a business’ email to send misleading messages to customers. Tricked by the visual similarity of the letter to the original organization, a shopper might share their payment data or other sensitive information with the malicious party.
A fraudster then uses the personal information to cash out credit card balances or make purchases.
4. Card testing
Card testing starts out innocently, and most fail to spot it on time. After buying someone’s credit card data, fraudsters start testing its validity by making small purchases. If these are approved, hackers move on to making bigger purchases that balance out the entire account.
How can e-commerce store managers protect customers from card testing frauds? Here are a few helpful tips for credit card fraud protection for small business owners:
- Ask shoppers to verify payments.
- Flag frequent small purchases as suspicious and contact customers directly.
- Use dedicated tools — firewalls, CAPTCHA, and others. Revolut, for example, uses fingerprint recognition to protect cardholders.
5. Friendly fraud
Friendly fraud is a scheme when someone claims a purchase as a fraudulent one despite being aware of the purchase and benefiting from it. This is another hard-to-detect type of card crime since all the data is legitimate. Losses from friendly frauds are stratospheric — they account for 28% of total fraud losses.
Here are the measures e-commerce business owners can use to prevent friendly fraud:
- Adding signed payment agreements to the checkout flow, which prove a customer’s intent to purchase.
- Using device recognition tools to pinpoint shoppers who are associated with a high number of canceled purchases.
- Keeping fraud records and coming up with negative customer lists.
How to Detect and Prevent Credit Card Frauds in e-Commerce
To protect both themselves and their customers, what strategies should business owners rely on? We came up with a list of five helpful e-Commerce credit card fraud prevention tips that’ll make your store invulnerable to the most common schemes.
Be PCI compliant
The key points of PCI assessment are ensuring a secure personal data encryption, eliminating the risks of leaks during data transmission, and using firewalls and other security protection tools. Take a look at the official guidelines to see the full list of requirements.
Use an address verification system (AVS)
An AVS is an automated procedure that determines whether a shipping address a shopper entered during checkout matches the profile of the account holder, as stored by the bank. It helps business owners simplify check-out, avoid shipping errors, and protect customers from fraud attempts.
Monitor transactions to spot unusual patterns
There are three markers that monitoring systems flag as suspicious — large transactions, transaction patterns that haven’t previously appeared in the shopping history, and high frequency of purchases. There’s also a list of high-risk countries associated with the bulk of credit card fraud crimes — purchases from these locations are reported, as well.
Integrate two-factor authentication into customer accounts
This is a standard practice that adds an extra layer of protection to your store’s security infrastructure and one of the main PSD 2 (European payment security regulation) requirements.
There are three types of data you can request from users after they enter their password: things they KNOW (answers to security questions), they HAVE (confirmation via a phone call) and things they ARE (a fingerprint scan).
Adopt predictive analytics and device recognition tools
Cross-device authentication tools use digital data — cookies, IP addresses, and pixels to uncover people behind devices and unmask fraudsters.
While the technology behind credit card fraud is getting more advanced (a lot of fraudsters are using AI to orchestrate extraction schemes), the main culprit continues to be customer and e-Commerce store managers’ lack of awareness in this area.
Keeping a careful eye on transaction patterns and knowing how to detect suspicious behavior is the number-one way to protect shoppers from money-extracting schemes.
Other than offering a secure shopping experience, e-Commerce business owners can provide shoppers with around-the-clock assistance. Webliveview offers e-Commerce companies a video chat option that helps connect and support customers every step of the way.
To give our video chat tool a try — leave us a message!