As online commerce continues to grow, so does the challenge of e-commerce payment fraud. It’s an evolving threat with significant financial implications, as evidenced by alarming statistics: losses due to e-commerce payment fraud are estimated to exceed $48bn in 2023.

It’s a widespread problem too, 71% of organizations in one survey reported being victims of payment fraud attacks. Billions and billions in losses – and the majority of e-commerce businesses are affected. It’s a problem that requires all hands on deck.

In this article, we outline why e-commerce vendors are finding it increasingly difficult to combat payment fraud, and why the solution lies in working with trusted partners including fraud specialists, payment processors, and cybersecurity specialists.

Fraud prevention starts with the merchant, but…

Online sellers have their hands full trying to run a business but are nonetheless required to do what they can to minimise fraud. That includes strong authentication for users, monitoring for suspicious behaviour in transaction patterns, and educating customers and employees – all of which is effective, but only to a degree.

Losses continue to grow: the Global Fraud Trends 2023 study found that fraud surged by 50% in just one year. That’s where the “but” comes in, as despite effective internal measures, merchants find that it’s getting more and more difficult to effectively prevent payment fraud. Reasons include:

• Explosive diversity: E-commerce fraud vectors are diverse, from account takeover (ATO) to triangulation fraud, phishing, friendly fraud/chargebacks, and identity theft. Each fraud vector requires a different approach to detection and prevention, and it’s unreasonable to expect an e-commerce retailer to be a specialist in each and every fraud tactic.
• Sophistication of fraudulent tactics: With technological complexity comes fraud sophistication, as fraudsters exploit complex vulnerabilities in digital commerce and constantly evolve their tactics. Small and medium-sized businesses cannot be expected to combat fraud at this level of complexity.
• Difficulty with reconciliation: With multiple payment methods and the associated multiple payment partners, reconciling payments with financial records is challenging. Any fraud that’s not picked up rapidly can’t be contested, which is especially true for businesses that operate internationally and need to handle currency conversions.
• Managing the customer experience: Fraud can damage a merchant's reputation and erode customer trust – but effective fraud prevention can also obstruct the customer experience. It becomes a difficult balancing act where the savings from fraud prevention can imply losses due to aborted checkouts.

And here’s the rub: e-commerce operators are not in the business of fraud prevention. They’re in the business of selling the goods and services that they’re specialists in. In aggregate, these different threats require merchants to become specialists in every aspect of fraud prevention, which isn’t feasible.

Anti-fraud partners are critical

That’s where strategic partnerships come in, bringing the needed anti-fraud skills to help merchants stem the flood of e-commerce fraud. We suggest there are three core strategic partners that e-commerce operators should work with to create a comprehensive fraud prevention framework.

Specialist e-commerce fraud partner

Some aspects of fraud are sinister, systemic, and hard to detect. That’s where a specialist e-commerce fraud partner steps in.

Injected right into the e-commerce workflow thanks to API integration, specialist fraud detection systems employ a combination of sophisticated techniques, including machine learning algorithms, rule-based systems, and behavioural analysis.

These solutions are tailored to fit the unique needs of each merchant, considering factors like region, industry, and channel. Specialist anti-fraud platforms, including Alphacomm’s Protectmaxx, also offer powerful reporting tools that help merchants identify patterns and trends to stay ahead of the fraud curve.

Recommended reading:
Protectmaxx - Cutting-edge fraud prevention solution

Cybersecurity partners

Fraudsters rely on everyday cybersecurity weaknesses to commit e-commerce fraud – and these vulnerabilities are growing in number. The number of technology solutions in place at any single organisation is also growing. It makes fraud prevention as much a cybersecurity problem as a financial problem.

Working closely with a cybersecurity partner, sellers can identify and fix problems such as broken or vulnerable authentication, misconfigured firewalls, unpatched software, and the like.

A cybersecurity partner will also configure protection against common attack strategies like cross-site scripting, SQL injection and or brute force, all of which can be used to steal account data, data that can later be used to commit e-commerce fraud.

Cybersecurity partners can flag attacks in progress, ensuring that merchants can prevent or mitigate fraud in progress, and identify any possible breaches for action.

Payment processor

The payment processing partner sits at the fraud nexus: right where the payment is taken. It’s a key moment where a fast decision can stop fraud in progress. However, it’s also a point where e-commerce merchants often have little visibility as payment information is exchanged confidentially.

For that reason, payment processors are a key fraud prevention partner, perfectly positioned to detect identity fraud or card skimming. Some payment processors will also block known bad IPs to ensure payments don’t go through.

Top-shelf payment processors use AI to analyse user card and transaction data, applying rules, and automatically making decisions on transactions, such as approval, decline, or manual review.

Finally, a website or app’s payment gateway plays a key role in compliance. Managing compliance with standards such as PCI DSS is an intensive process – and something that is better left to the payment processor.

In support of PCI compliance, Alphacomm’s Vaultmaxx solution offers a PCI-certified card vault for businesses looking to store sensitive customer payment details, while Paymaxx ensures friction-free checkout across the most commonly used payment methods.

Learn more about this topic:
Explained: PCI (level 1) compliance

It’s critical to take a multi-tiered approach

Each anti-fraud strategy is effective on its own, giving merchants some level of protection, but only by layering approaches (and partners) does protection reach anywhere near 100%.

From the entire customer journey, through to technology infrastructure and collaborating with payment processing partners, merchants must partner with experts every step of the way.

Alphacomm's Protectmaxx uses sophisticated detection techniques such as machine learning to help merchants identify fraud patterns and trends: maximizing revenue, while minimising fraud risk.

To learn more about how your organisation can integrate Alphacomm’s Protectmaxx anti-fraud solution right into your e-commerce workflow, speak to one of our Revenue Geeks now.