Online holiday shopping is also big business for fraudsters

Published: December 18, 2012 by bkrenek

According to EMC’s November 2012 fraud report, online holiday shopping is projected to account for 24% of the year’s total  e-commerce sales which is good news for retailers and unfortunately, it can also be good news for online con artists.  If 2012 is anything like 2011, retailers will need to increase their data protection and security measures in order to avoid illegal online activity.  Of the 1.4 billion dollars spent in online sales during 2011’s holiday shopping season (November 1 to December 31), $82 million of those dollars were identified as fraudulent, resulting in a 219% increase from 2010.  Cyber Monday alone accounted for $2.5 million of online fraud.

Most web-based fraud activity is due to stolen credit cards and since identity theft is at an all time high, online merchants of all sizes need to implement fraud protection procedures and be proactive in watching for signs of unscrupulous activity.  Early detection is the key to stopping con artists who like to prey on new, inexperienced online businesses.  However, if they discover a merchant has implemented active data security procedures, fraudsters generally won’t waste their time and will most likely move on to their next victim.  The best way for businesses to protect themselves from fraud is to be diligent in watching out for signs of suspicious activity.  These include bulk orders for items that are not usually bought in bulk, orders for multiple high end items, international orders and several orders placed by the same person within a short time.  Con artists try to make as many purchases as possible before a fraud alert is sent to the real owner so they tend to order as much merchandise as they can.

Although it’s impossible to erase online credit card fraud, here are several strategies to reduce it:

  1. Use an Address Verification Service (AVS) to make sure the billing address entered online matches the cardholder’s billing information. Institute a policy that merchandise will not ship unless the addresses match.
  2. Always ask for the Card Verification Number (CVN) on all credit card orders. The number must be read from the actual card so more than likely the person has the card in his possession. Although it’s not a guarantee that he is its rightful owner, this step provides a small measure of protection.
  3. Send a confirmation email or letter to customers when you send an item telling them their order has shipped and when they can expect it to appear on their bill. This can help flag any illegal activity and enable the customer to report credit fraud to the proper authorities before the perpetrator has a chance to do any further credit damage. It will also help businesses to reduce complaints and chargebacks from people who sometimes simply forget they placed an order.

Retailers should keep in mind that once an order has been sent, it is very difficult to regain any loss so prevention is the number one way to combat online fraud.