How Fraud Can Impact Your Business

Chargeback fees can range from $0 - $100, depending on the payment gateway used. If you're able to prove the transaction was legitimate, no chargeback will take place, though additional fees may still be charged. With situations like these, you stand the risk of losing products or services that have already been sold, the payment, the fees incurred for payment processing, chargeback fees, and/or fees associated with currency conversion. In addition, merchant accounts that receive too many chargebacks can be flagged as "high-risk", which can cause your transaction costs to increase.

On average merchants will spend 3-5% of their revenue combating fraud. However, up to 1% of orders are still missed and those often will result in chargebacks. The true cost of fraud comes in many forms, including:

  • shipping and insurance costs
  • loss of inventory
  • investment and operational costs of deploying a fraud detection & prevention solution
  • manual review costs (costs of internal staff to review suspicious transactions)
  • chargeback fees
  • fear to expand internationally
  • false positives (declined orders)
  • canceled orders (manual review)
  • increased friction at checkout
  • brand reputation

When it comes to fraud, not doing anything can be just as costly as investing in a fraud detection & prevention solution. The best way to protect yourself from fraud is to avoid chargebacks at all costs and prepare for when it happens. In combating fraud, don't forget to think about the customer and ensure their experience isn't compromised. Blocking suspicious purchases without detailed evidence can lead to an increase in cart abandonment.

How Do I Tell If an Order is Fraudulent?

While none of the flags below necessarily mean an order is fraudulent, it’s important to be on the lookout for the following:

  • shipping/billing address mismatch
  • first-time shopper
  • suspicious cart (abnormally high order value, large quantities of a single product)
  • suspicious shipping options (rush or overnight shipping)
  • address/IP mismatch (a warning symbol alerting you of a country/IP mismatch will be in the order)
  • an account with multiple credit cards
  • multiple cards from a single IP
  • multiple orders with a single credit card

These are just a few of the big indicators to look out for when scanning for fraudulent orders. In the next chapter, we'll introduce you to a number of tools and best practices you can implement that can further help combat fraud. These include fraud detection solutions, gateway specific fraud tools, and as previously mentioned, AVS and CVV verification methods.

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