How Fraudulent Transactions Are Making Online Businesses Suffer

2 min


Fraudulent transactions are one of the biggest challenges online merchants have to face. The growing threat on online fraud is causing huge loses for online sales.

While retailers take major daily major steps to update and strengthen their security and prevent malicious activity, scammers become more malicious and a group of predators who find merchants to be the easiest prey to feast on.

The growing popularity of online shopping made it an irresistible top target for fraudsters across the world. According to LexisNexis study, a troubling development showed that mobile payments are more susceptible to fraud than they have been since 2010 and this is draining merchants money with the very expensive costs of online fraud prevention.

According to the data, online fraudulent transactions costs companies billions of dollars!

Online fraudulent transactions costs companies billions of dollars

Annual fraud costs reached $32 billion in 2014, cutting dramatically into merchants earnings. Retailers lose 3.08 dollars for every dollar of fraud according to the study. Fraudulent payments account for 0.68 percent of retail revenue, due to yearly increases in retail sales as well as the greater impact of mobile payment software due to the cost of online fraud being higher on mobile platforms in comparison to other forms of payment.

When customers make a fraudulent transaction, retailers end up losing the merchandise. In addition to the cost of preparing and shipping that merchandise. Let alone the cost of security systems that are supposed to prevent theft in the first place. As fraud becomes increasingly prevalent online merchants are challenged to stay up to date with the latest scammers’ techniques, thus making them spend lots of money on fraudulent acts’ prevention and detection.

Friendly fraud?

The rise of e-commerce has brought what’s called “friendly fraud” which is anything but friendly.

It happens when a customer makes a purchase online for a product service with their credit card and then contact their credit card issuer to dispute the charge. Some of the examples are:

  • The customer claims that the item purchased doesn’t match the online description and say that they no longer want it.
  • Customers lie and tell their credit issuer that they returned the item but the refund was not processed.
  • The customer reports that the item wasn’t delivered.
  • The customer says that they didn’t make the purchase and that their credit card was compromised.

If this happened in a brick and a mortar shop it would be called theft or shoplifting. But in the online jungle, it’s a different story.

Reports said that 86% of Chargebacks are fraudulent. Although they are designed to protect customers from scams, in recent years, they began using it in the place of refunds. The perception that “the customer is always right” seems to extend to credit card companies, who put the burden of proof on retailers when making a decision on a dispute.

For e-commerce businesses, having generous policies is vital to the success of the business and Imposing strict policies on customers in a no-no.

E-commerce businesses should have generous policies to protect customers from fraudulence

While this increases the chances of online fraudulent transactions for e-tailers, good precautions, such as spotting suspicious transactions through the use of processing software can prevent it.


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