Don’t Let Fraud Spoil Your Customer Experience

Remember Robin Ramirez, the mastermind behind a $40 million coupon fraud scheme that duped major brands like Procter & Gamble and Unilever? Her clever scam, which involved selling fake coupons online, seemed like a victimless crime until she was caught and sentenced to 12 years in prison. But the truth is, fraud is never victimless. It costs businesses billions annually and can damage their reputation and customer trust.

via GIPHY

People often justify fraudulent behavior by thinking they’re just one person taking advantage of a loophole, and it won’t hurt the brand.

Lisa Washington

Lisa Washington, a fraud prevention expert and Customer Success Manager at NoFraud — who has worked with 500+ merchants — has witnessed the devastating impact of fraud on eCommerce businesses. “People often justify fraudulent behavior by thinking they’re just one person taking advantage of a loophole, and it won’t hurt the brand; they have plenty of money to spare,” Lisa notes. “But the reality is that fraud is a vicious cycle that can quickly spiral out of control. It’s like a domino effect, where one fraudulent transaction leads to another, and before you know it, you’re dealing with a full-blown fraud attack that can bring your business to its knees. And it’s not just the devastating financial losses — it’s also the damage to your reputation.” When fraudsters target your business, they’re not just stealing from you; they’re also undermining the trust and loyalty of your customers. And once that trust is broken, it’s tough to regain.

In this blog post, we’ll delve into the latest insights from Lisa as she shares:

• The hidden costs of fraud on loyal customers
• Eight fraud trends she’s noticing this year
• Proactive fraud prevention strategies to fortify your business against current and emerging threats
• How pre-gateway prevention and AI-powered detection are game-changers

Fraud can have far-reaching consequences that extend beyond the initial financial loss. When a merchant is targeted by a fraud ring or experiences a one-off instance of fraud, such as policy abuse, it can impact good customers in unexpected ways.

• False declines: Merchants may implement more aggressive fraud detection measures, which can lead to an increase in false declines, causing frustration and inconvenience to good customers whose transactions are mistakenly flagged as fraudulent.
• Delays or cancellations: If there’s a fraud trend that’s spiraled out of control, transactions from good customers may temporarily be suspended or canceled while the merchant investigates and resolves the fraud issue. This is why it’s crucial to stay ahead of emerging threats so your team isn’t caught off guard by new patterns.
• Reputation damage: Publicized fraud incidents can damage the merchant’s reputation, potentially leading to a loss of customer trust and confidence among good customers.
• Increased prices or fees: Merchants may need to increase prices or implement additional fees to offset the costs of fraud prevention and mitigation, affecting good customers. They may also be wary of offering coupons or discounts.
• Lost future sales: Good customers whose transactions are impacted by fraud prevention measures or experience delays/cancellations may take their business elsewhere, resulting in lost revenue from potential repeat business.
• Eroded customer trust: Repeated fraud incidents can lead to a loss of customer confidence, causing good customers to question the security of their transactions.
• Legal and regulatory issues: Fraud can lead to legal and regulatory problems, potentially impacting good customers if the merchant is forced to shut down temporarily or faces legal action.

When fraud happens, it’s not just the transaction that’s affected; it’s the whole customer relationship.

Lisa Washington

As Lisa Washington notes, “When fraud happens, it’s not just the transaction that’s affected; it’s the whole customer relationship.” By understanding the indirect consequences of fraud, merchants can better appreciate the importance of effective fraud prevention and mitigation strategies that protect both their business and their good customers.

via GIPHY

Ecommerce fraud is a shapeshifter, constantly changing its form and adapting to evade detection. It can strike at any moment, leaving mayhem in its wake. To stay ahead of this cunning foe, it’s crucial to remain vigilant and informed about the latest fraud trends and schemes. While this list is not exhaustive, Lisa Washington, our fraud prevention expert, has noticed the following types of fraud occurring regularly or increasingly in the last few months:

• Stolen credit cards: Fraudsters use stolen credit card information to make unauthorized purchases.
• Coupon abuse: Fraudsters exploit coupon codes or promotions to gain unauthorized discounts.
• Returns fraud: Fraudsters return items that were never purchased or that they wore and are not in their original condition.
• Item Not Received (INR) fraud: Fraudsters claim they never received an item, when, in fact, they did.
• Card testing fraud: Fraudsters test stolen credit card numbers to verify their validity.
• Account Takeover (ATO) fraud: Fraudsters gain unauthorized access to customer accounts to make purchases or steal sensitive information.
• Gift card fraud: Fraudsters use stolen gift card information (often obtained on the dark web or in encrypted chat apps) to make online purchases.
• Reshipping scams/fraud: Fraudsters use stolen credit cards to purchase items, then reship them to a different address.

While the fight against fraud is vital, the pendulum can swing too far, with processes that unintentionally create friction for good customers. Delays, extra steps, and longer checkouts can frustrate loyal patrons and hurt sales. It’s important to implement smarter solutions that target fraud without hindering legitimate purchases, so your business is protected and loyal customers remain happy.

via GIPHY

So what can merchants do to protect themselves? Here are some practical tips:

• Use a fraud prevention service like NoFraud that offers pre-gateway integration to catch fraudulent orders before they are processed.
• Implement velocity rules to limit the number of orders that can be placed from a single IP address or credit card.
• Use multi-factor authentication (MFA) or 2FA to verify customer identities.
• Monitor orders for suspicious activity, such as multiple orders from the same IP address or credit card.
• Use a fraud prevention expert to help identify and prevent fraud (check out advice from our Anti-Fraud Squad).

The Power of Pre-Gateway: A Fraud Prevention Game-Changer 

A pre-gateway integration [allows us] to reject suspicious orders before they’re even created.

Lisa Washington

Pre-gateway fraud prevention is a vital weapon in the war against eCommerce fraud. By implementing a pre-gateway integration, merchants can intercept and prevent fraudulent activity in real-time before orders are processed. Lisa emphasizes, “With a pre-gateway integration, we can alert the gateway and instruct [the merchant’s] platform to reject suspicious orders before they’re even created in their system.” This proactive approach enables merchants to reclaim control, freeing them to focus on driving business growth and expanding their customer base to reach new shoppers confidently.

Reduce Fraudulent Transactions by 40% with AI-Powered Detection

Artificial intelligence (AI) is transforming the fraud prevention landscape. AI-powered fraud detection can reduce fraudulent transactions by up to 40%, saving businesses millions in potential losses. By harnessing the power of AI, merchants can strengthen their fraud prevention strategies, protect their customers, and safeguard their reputation. Here’s what AI algorithms can do:

• Detect subtle patterns and anomalies in customer behavior, identifying potential fraud with unprecedented accuracy
• Analyze vast amounts of data in real-time, enabling swift and effective fraud detection and prevention
• Adapt to emerging threats and evolving fraud patterns, ensuring staying ahead of sophisticated fraudsters
• Automate fraud detection and prevention processes, reducing manual review time and minimizing false positives
• Provide actionable insights for fraud investigators, enabling them to focus on high-priority cases

Outsmart fraud, while elevating the customer experience. Traditional fraud prevention often creates friction for legitimate customers. With pre-gateway solutions and AI-powered detection, you can stay a step ahead of fraudsters, stopping them before they disrupt your customers’ journeys. This proactive approach safeguards your business while ensuring a seamless checkout experience. With it, you can continue to focus on building trust and loyalty with every satisfied customer.