Everything You Need to Know About Fraud Prevention Strategies for Your Shopify Store

Learn more about the must-have fraud prevention strategies. 

Stores are getting defrauded everywhere. Methods such as card cloning, fake subscriptions, and email addresses with stolen credit cards have led to an increase in the number of fake orders created online.

Over 47% of companies claim that they had experienced fraud in the past 2 years.

Global payments fraud has shot up from $9.84 billion in 2011 to $32.39 billion in 2020. It is expected to cost a whopping $40.62 billion in 2027— 25% higher than in 2020. 

Put simply, fraud is a business-killing event. It is costly for any eCommerce store and that's why it's important to employ the right kind of fraud prevention strategies in your Shopify store. 

However, it's not just the financial loss that matters — it's also the impact on your customers' trust in you as a brand. If you don't take fraud prevention seriously, then you could lose customers and revenue over time.

As a Shopify store owner, you want your customers to have the best possible experience when they visit your site. That's why it's important to be aware of fraud prevention strategies and how they can help protect your business.

You need to take some steps to protect your business from fraudsters trying to steal from you. We have put together a fraud detection guide for Shopify stores. It lists some of the best tips for fraud detection according to statistics, as well as other general tips for detecting/preventing fraudulent orders in your store.

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In this post, we'll discuss how to prevent fraud and keep your Shopify store safe from attack.

What is eCommerce fraud? 

E-commerce fraud is one of the biggest problems that merchants and retailers face today. While it's easy to assume that it only happens on a large scale, the truth is that even small businesses can be vulnerable to this type of fraud.

So what exactly is eCommerce fraud? 

It's basically any kind of fraudulent activity that takes place online when you're selling your products or services. This could include credit card fraud, identity theft, counterfeit goods, and more.

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Did you know that eCommerce retailers deal with an average of 206,000 web attacks per month?

Types of e-commerce frauds businesses experience

E-commerce fraud can happen in a number of ways. Some of the most common ones include: 

1. Friendly fraud

Friendly fraud is the most common type of eCommerce fraud. It occurs when a customer orders from your store and then later claims that they never received the order, or that the item was defective. The merchant is then required to refund the customer's money. 

This type of fraud accounts for about 40% and 80% of all fraud losses!

This can be frustrating for both you and your customers, but there are ways to avoid it! We will discuss them in the next section.

2. Card testing fraud

Credit card fraud is considered to be the most common type of identity theft (20.33%).

Card testing fraud is when a criminal tests stolen credit card numbers to see if they are active by placing small orders, such as $10 or less, on your eCommerce store. It occurs when a person or group of people make purchases on an online shop with the goal of testing its security systems. 

The criminal then checks to see if the card was accepted or declined. 

If you do not have fraud protection set up for your Shopify store and a customer places an order with a stolen credit card number, you could be held liable for any losses incurred by the credit card company.

3. Refund abuse

When a customer orders an item online and then returns it, the retailer will issue them a refund. The customer can then use that money to buy another product on their own (or someone else's) account. They may do this multiple times until all the money has been used up and they've gotten what they want out of it!

4. Online payment fraud

Online payment fraud is a type of fraud that occurs when a customer makes a purchase using a stolen credit card, or one that has been obtained through fraudulent means. This can happen to both online and brick-and-mortar shops.

5. Account takeover fraud

Account takeover is a type of fraud that happens when scammers break into a customer’s online account and use stored payment cards to make fraudulent purchases.

Accounts are typically compromised when customers reuse their passwords on multiple websites, or if they use weak passwords that can be easily guessed. Account takeovers can also happen when hackers exploit vulnerabilities in the software used by the platform on which your store is hosted.

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6. Promo, affiliate, or loyalty abuse

This is when someone uses a promo code or other offer without actually having any intention of buying anything from your store. They could be using it as a way to get something for free or to test out products without paying for them. 

This type of fraud is difficult to track down because there are no actual goods being shipped out or received by anyone! There are also ways that people can create fake accounts and use these methods even if they do not have access to an existing account on your site.

7. ​​Triangulation fraud

This is when a customer orders from your store, but has the item shipped to a third party. Often, this is done by a customer who has previously made several purchases but wants to return an item for a refund. They may then receive the item and send it on to someone else for sale - perhaps through an auction site or secondhand store.

How can you ensure Shopify fraud prevention in your store?

Fraud prevention is not a one size fits all approach. You'll need to implement a combination of strategies for your Shopify eCommerce store.

1. Manually review risky orders

A good way to start preventing fraud is by manually reviewing your most risky orders. Use your admin dashboard to view the order details and look at each item one by one. 

Is this something that should cost $500? Is it being shipped internationally? Does it come from an unusual location? If so, this may be an indication that someone's trying to take advantage of your business and steal money from you or your customers.

2. Limit order quantities

The limit order quantity (LOQ) is the maximum number of units that can be in order for a particular product. This limits the number of orders that can be placed for a product at any given time.

For example, if you have a LOQ of 10 and a customer places an order for 30 items, then their order will be rejected. The customer will receive an error message that states: "Your order cannot be processed because it contains more than 10 units of this item." This is helpful because it prevents bots from placing thousands of orders at once and draining your inventory.

3. Collect proof of delivery 

This may sound like an obvious step, but many merchants don't take it seriously enough. If your customer has ordered from you and paid for their goods, there should be no reason why they can't provide proof that they received those goods on time. This doesn't just apply to physical goods either — digital products like music and movies require proof of delivery too!

It may seem like extra work, but collecting proof of delivery will go a long way toward preventing fraud — especially if customers ever claim they didn't get their order.

4. Be PCI compliant

If you're accepting credit cards or other payment methods, then your Shopify store needs to be PCI compliant. This means that you need to follow strict security standards set by the Payment Card Industry Security Standards Council (PCI SSC). These standards safeguard cardholder data and help prevent fraud.

These PCI compliance standards include:

  • Changing the default password for software and systems
  • Encrypting cardholder data across open, public networks
  • Using antivirus software to prevent malware attacks
  • Restricting which employees can access cardholder data
  • Regularly testing online security systems 

5. Show clear policies on your website

Make sure you have clear policies about refunds, exchanges, shipping, and returns that are easy to find on your website. If someone has questions about your policies or wants to return an item, they should be able to find answers quickly and easily without having to call or email the business owner for clarification.

For example, if you have a 30-day return policy, make it clear that returns will not be accepted after 30 days. You should also include information about how long it takes for refunds to be processed and whether or not they can be disputed.

6. Be vigilant around peak shopping seasons

Fraudulent orders spike during the holidays, so make sure to increase your fraud prevention efforts during this time.

Fraudsters know that holiday shopping periods are their best chance to steal from unsuspecting consumers and businesses alike. They'll do everything they can to take advantage of these times by using stolen credit cards, gift cards, and other payment methods to purchase products from major retailers around the world — including your Shopify store!

7. Use verification software 

If your store is selling physical products, fraudsters have a harder time trying to steal from you. However, there are some types of fraud that can still happen, like chargebacks and refund fraud. Verification software can help stop these types of fraudulent purchases from happening in the first place.

8. Build a blocklist

The most basic way to prevent fraud is by blocking known fraudsters from accessing your store.

This can be done by analyzing historical transactions or by looking at those that have been declined for suspicious activity in the past. You can then use that data to automatically block these customers from making future purchases on your site.

A blocklist is simply a list of IP addresses, email addresses, and phone numbers that you know are associated with fraudulent activity.

9. Use IP fraud scoring tools

IP addresses can be used to identify fraudulent activity and block users from accessing your site. IP fraud scoring tools help you identify suspicious activity associated with an IP address, such as a sudden spike in orders from a new or unfamiliar location, or the use of multiple devices from the same IP address. 

Fraud scoring tools analyze user behavior to determine the likelihood that they're acting maliciously, such as creating multiple accounts or making purchases with stolen credit cards. If you use this type of tool, you'll be able to block those users before they cause any damage to your business.

5 Best Fraud Protection Apps For Shopify

Shop Pay now offers fraud protection as well. It is the highest converting, accelerated checkout on the internet. Shopify Pay has multiple security features that can help protect you from fraudsters trying to steal your customer's information. These include 3D Secure and Verified by Visa and Mastercard Secure Code.

In addition to using Shop Pay, you can use the following apps too -

1. SEON

SEON is one of the best fraud protection apps on the market today. It's a full-service solution that helps prevent chargebacks and other types of fraudulent activity. The app works with all major payment gateways, including Stripe, PayPal, and Square.

Key features:

  • Prevent fraud, chargebacks, and inventory losses by shipping to genuine customers only.
  • Automated order checks with 50+ social network scans.
  • Robust system with customization

2. Signifyd

Shopify merchants can use Signifyd to maximize revenue by preventing fraud orders and customer abuse. Signifyd is a third-party fraud prevention service that uses behavioral and transactional data to detect fraudulent activity before it happens.

Key features:

  • Boost conversion rates by reducing friction during the buying process.
  • Automate customer experience and Streamline order fulfillment efficiently.
  • Eliminate fraud and abuse by approving more good orders and automatically recovering lost revenue from chargebacks.

3. NoFraud

NoFraud is a fraud protection and chargeback management app for Shopify stores.

The NoFraud platform uses machine learning algorithms to detect fraudulent orders. It also offers real-time alerts when you receive a suspicious order, which means that you can act before they become chargebacks.

Key features:

  • Offers Chargeback reimbursement which eliminates the overhead costs.
  • Eliminates manual review and decreases customer friction by providing instant decisions.

4. Conekta Antifraud

Conekta Antifraud is a fraud prevention solution that automatically checks the validity of transactions and blocks suspicious transactions. It has a built-in blacklist, which contains information about fraudulent IP addresses, countries, and devices.

Key features:

  • Provides seamless workflow.
  • No impact on your online store speed.

5. Extra Verification

Extra Verification is one of the most popular fraud protection apps for Shopify. It provides additional security by verifying customer details before they place an order. This ensures that only real people are making purchases in your store and eliminates fraudulent orders right away!

Key features:

  • An accurate source for verifying and analyzing fraudulent orders.
  • Easily manage the text and appearance of email templates to match your brand.
  • Recognizes previously verified customers; no re-verifying needed.

Conclusion

Fraud costs the global economy $5.127 trillion each year.

If you haven't already, it is time to start considering online fraud prevention strategies for your Shopify store. Fortunately, there are many different options available to make you and your customers safer from fraudsters trying to steal your hard-earned money or sell fake items. With the growth of your business and products, you will want to be sure that you are doing everything in your power to protect yourself and your customers.

By following the steps above, you'll be well on your way to establishing fraud prevention strategies that will help your Shopify store to continue successfully into 2022, and beyond.

Not sure where to begin? Reach out to our Shopify experts today