Small Business Guide to Ecommerce Fraud Protection

Chapter 1:
The State of Ecommerce

In 2020, ecommerce took a giant step forward. In fact, analysts estimate that the industry experienced about five years of growth in a single year—mostly because the pandemic forced people to shop online to the tune of over $3.9 trillion in sales.

And while the incline isn’t as steep in recent months, ecommerce sales continue to grow.

In our original research report, What Consumers Thought About Ecommerce, Fraud & CX in 2021, we discovered that 45% of consumers shop online at least once a week.

And those who were once uncomfortable with the idea of making purchases on their PCs, phones and even social media channels are now embracing it. So much so, nearly 66% of people told us they are more likely to use their mobile phone for purchases.

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2021 Global Ecommerce
Consumer Behavior Analysis

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And what about younger consumers? They’re already online in droves: 55% of millennials are shopping online at least once a week.

Have any of these ecommerce fans been burned by fraud? Sure, but it’s still not stopping them: Although 68% of our study respondents had experienced some form of ecommerce fraud, most said they felt shopping online was as safe or safer than shopping in a store.

That’s good news for small ecommerce businesses.

But there’s a catch: Customers are forgiving of businesses if they’re victims of a fraud experience, but not so if they’re falsely accused of fraud.

As a business owner, your job is to provide a great ecommerce experience … while protecting your online business from fraud … without declining legitimate orders. It’s a lot to juggle, especially considering how rapidly ecommerce fraud is growing.

Ecommerce Fraud Is Growing Worse

Ecommerce Fraud Is Growing Worse

Ecommerce fraud is expected to grow exponentially over the next five years. The Federal Trade Commission received 436,000 fraud reports from consumers between January 2020 and April 2021, equaling $399 million in losses. And the average fraud amount rose 35% in April 2020 — early in the pandemic.

A Juniper Research study entitled “Online Payment Fraud: Emerging Threats, Segment Analysis & Market Forecasts 2021-2025” estimates ecommerce payment fraud will exceed $206 billion cumulatively through 2025. China is projected to be hit the worst with over 40% of global losses equaling over $12 billion by 2025.

The biggest sources of fraud are related to credit cards and account takeovers (ATOs):

  • In 2020, 115 million stolen debit and credit cards were posted for sale on the dark web, and over 75% of them were from U.S. consumers. Those cards and card data are sold to fraudsters who use them to attack retail businesses.
  • The data breaches that have taken place in the last several years, including the massive Capital One, Marriott and Facebook data breaches, have provided fraudsters with a wealth of personal and financial data — increasing account takeovers by over 280%.

Fraudsters also found new areas of opportunity, thanks to the new ways consumers shopped during the pandemic. BOPIS (buy online, pickup in store) fraud increased by 55%, and buy now, pay later fraud schemes have popped up as well.

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Learn how fraudsters mine social media for credit card and account information: How Social Media Hacks Compromise Your Fraud Protection Efforts

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Shopping at Ecommerce with credit card

5 Small Business Costs of Ecommerce Fraud Attacks

The repercussions of fraud for a small business can be serious, leaving you facing:

  • 1.	The cost of lost merchandise

    The cost of lost merchandise

  • 2.	The cost of shipping and handling on fraudulent orders

    The cost of shipping and handling on fraudulent orders

  • 3.	Chargeback fees from the issuing bank

    Chargeback fees from the issuing bank

  • 4.	Negative hits on your company’s reputation

    Negative hits on your company’s reputation

  • 5.	Potential loss of your account

    Potential loss of your account

Every dollar lost to fraud costs businesses $3.36, and that amount continues to increase by over 7% every year.

Fraud can take a large bite out of a company’s bottom line and can even put the future of the company in jeopardy, making it vital to prevent fraud from impacting your business in the first place.

Stopping Fraud Can Boost Business Growth
Stopping Fraud Can Boost Business Growth

Think about the time and resources you allocate to dealing with fraud and the cascading financial impacts. For small businesses, battling fraud can be so time-consuming, it may seem like a line of business in and of itself … except this one depletes your bottom line.

Implementing a fraud prevention solution can solve that problem, allowing you to focus on what’s most important for your business growth. You’ll have less churn, better use of resources and more time to spend on sales and fulfilling orders. Plus, you’ll get to keep more of your hard-earned revenue.

But to successfully fight fraud, you need to start by understanding the types of ecommerce fraud attacks small businesses can face.