A guide to preventing CNP fraud in your e-commerce business
Over the past several decades, lawmakers and the e-commerce sector have made significant efforts to reduce credit card theft.
Card frauds have virtually been abolished to a large extent, thanks to the introduction of new point of sale (PoS) payment technologies like EMV chips, dynamic data, contactless payments, and thorough encryption.
However, as obvious as it may sound, thieves are continuously discovering new ways to steal. CNP or Card Not Present is the new inclusion in their list of fraud techniques.
According to sources, by the end of 2022, CNP frauds might cost issuers and merchants a whopping $34.66 billion.
A guide to preventing CNP fraud in your e-commerce business
Just like any other fraudulent attempt, CNP fraud can also be minimised. However, for that to happen, e-commerce players must understand what threats they are facing
Online payment frauds can come with a high financial cost. In a CNP transaction, the merchant is typically responsible for a full chargeback amount as well as any other additional costs or assessments related to that chargeback.
In case the chargeback rates continue to rise, the merchant may eventually run the danger of having their account closed entirely. And that’s a massive challenge online retailers face these days.
To help you mitigate such risks, we have prepared a guide to prevent CNP fraud in your e-commerce business. Read on.
1. Understand CNP fraud techniques
As an e-commerce business owner, your ultimate goal should obviously be to completely eradicate instances of fraud. However, even the greatest security measures alone cannot ensure the complete eradication of fraud attempts.
If you are too skeptical about each online transaction on your site, you may end up causing friction with even your truly honest customers, which is not at all desired. Instead, the best way to mitigate such risks is to focus on creating and following an efficient CNP fraud prevention programme.
Your aim should be to thoroughly understand the ins and outs of CNP fraud. If necessary, go ahead and mug up all the resources out there. For instance, Seon.io is an excellent resource for learning more about CNP fraud.
Once you have gathered the required knowledge to detect CNP fraud, it’s time to create and run a program that doesn’t hurt your customer relationships. It’s also worth noting that a fraud prevention program isn’t a static, one time mechanism.
Technology is changing every day and so are fraud techniques and mechanisms. You must be open to changes in your CNP fraud detection programme as per the demands of changing times.
Modifying your programme's parameters in regular intervals to suit the requirements at hand is the greatest way to mitigate risk.
2. Collect your customer data
You should collect as much customer information as you can. This process not only helps you prevent instances of credit card or CNP fraud but also can help boost your marketing and sales processes.
You may now ask, how. Well, the information that enables you to verify user IDs or contest a chargeback can also be helpful in your upselling and cross-selling endeavours.
You may collect user data and build a mailing list from scratch. You may also categorise the contacts based on their purchase behaviour. Such a list can also help you improve your customer service through personalised engagements.
Consider collecting the following information from every customer:
● Email address
● IP address
● Billing address
● Credit card details (including CVV code)
● Device log-in info
● Phone number and other contact details
One of the key reasons for collecting all this information is data enrichment. But what is data enrichment, you may ask. Well, the data enrichment process used single data points to aggregate information from outside sources.
For instance, you can use an account's email address to figure out their social media profiles. Similarly, you can verify a phone number to figure out if it is a cell phone or a landline, along with which country it is registered in.
Collecting and analysing all this information can help you to identify any unusual disparities. The best part of data enrichment practices is that they can be completed almost rapidly and without asking your customer for further verification, minimising friction in the process.
3. Keep an eye on unusual behaviour and small transactions
If you closely follow our previous recommendation, then you will have enough data to track user behaviours.
It will enable you to detect if something fishy is occurring on your site. In order to extract as much money as possible, fraudsters frequently operate at a quick pace and use several stolen card numbers in succession.
While doing so, they end up following specific patterns. If you can detect these patterns, you would be able to figure out if your business is facing a fraud attempt. Remember, not every fraudulent payment attempt immediately impacts your business. Some may take time to negatively affect your business.
For instance, fraudsters may occasionally test a card by typically conducting small purchases.
If the purchase request is successful, the fraudsters may probably use the same stolen card to buy more expensive things in the future, which may eventually harm your company over time. So, keep an eye out for any disparities.
Here are some of the red flags to be aware of:
● Abnormal volumes of chargeback requests
● Multiple modifications to a single account in a short period of time
● Multiple (read hundreds of) login attempts from a single account
● A large number of reward points transfer
● Mass volumes of password change requests
● Suspicious changes in VPN, ISP, and browser traffic
● Change in the shipping address
● Same IP or device but multiple profiles
● Different card users using the same IP address
● Virtual machine or emulator usage
4. Pay attention to security
When operating an online business, you can never overlook the importance of web security.
Online fraudsters have the leverage of attempting fraud from anywhere on the globe. They are on a constant lookout for security loopholes. Therefore, it has become extremely important for e-commerce businesses to secure their sites from all possible aspects.
If you don’t take appropriate precautions, your site might run into a security nightmare. We are sure you don’t want that to happen. The best way to avoid that is to have the necessary tools and infrastructure in place.
For instance, as an online merchant, your goal should be to meet PCI (Payment Card Industry Data Security Standard). If you accept credit card payments on your e-commerce site, ensure following the norms mentioned below:
● Create and maintain a secure network to guard credit card information
● Safeguard cardholder data
● Conduct regular vulnerability scans
● Put in place stringent access control measures
● Periodically check and test networks
● Maintain a policy for information security
● Deploy advanced security tools and frameworks
5. Create risk scoreboards
When seeking to reduce CNP and other frauds, you must first have a clear risk profile at hand.
Calculating risk and establishing your thresholds are the key here. Building a risk model would help you to predict bad customers based on your predetermined thresholds.
Through risk scoreboards, you can group users based on various metrics, including behavior, data, and risk scores.
This process would provide you with adequate information on potential fraudsters. It would help you spot fraud early and minimise potential financial and reputational damage facing your e-commerce business.
These scoreboards are sophisticated. They require users to employ statistical models for complex calculations.
However, conducting such complex calculations doesn’t require everyone to be statistics geniuses. There are computer models that will do the task on your behalf.
6. Detect fake disputes
Okay, so you have taken enough precautions to detect CNP fraud attempts. Now your system should be full-proof and it would track down all the fraud attempts by “professional” digital conmen, right? Well, that’s right but what about ”subtle” frauds?
Sometimes, a customer may purchase something on your site and later change her mind, only to claim it fraudulent and seek chargebacks.
Often, users may use their real card and then complain about having lost their card, claiming their recent purchase to be fraudulent. Unauthorized access to other family members’ credit cards is also a major challenge for an e-commerce business.
These all are examples of “subtle” frauds. In these cases, your customers are at fault. At the end of the day, your profitability is going to get a hitting.
So how can you counter these fake disputes? The answer is “data.” If you have enough data at hand to claim that it was a customer’s fault, authorities like banks may come in your support when such disputes arise.
So, what exact kind of data should you consider gathering? Well, do you remember we talked about data enrichment earlier? In this case, you must hunt down all social media posts using specialised tools based on certain hashtags.
For instance, watch out for posts where your customers show off certain products that match the one that they previously disputed as a fraudulent purchase. If both products are the same, bingo, you have proof.
Final word
Now that you have got a fair bit of knowledge about CNP fraud and various metrics to detect it, we believe your e-commerce business will be much more secure.
Make sure you have the right fraud prevention strategies in place.
Remember, it all boils down to how much data you track and how you analyse it. At the end of the day, how you use this analysis to detect abnormal customer behaviour patterns is all that counts.
Have fun running your e-commerce business. We wish you all the best.
