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Preventing online fraud: your need-to-know guide

Your questions about preventing online fraud answered

Online fraud is a growing concern amongst e-tailers and can be costly for business. Fortunately, there are a number of ways to help protect your business and consumers from fraud.

What do I need to know about online fraud?

According to Sage Pay's E-business Benchmark Report (a survey of 2000 UK online businesses) the average cost of fraud per year is £500, but some online businesses can lose as much as £25,000.

E-tailers selling high-value or luxury goods can be particularly at risk. However, all online businesses are potential targets for fraud so it's important to do what you can to prevent it.

Why should I be aware of online fraud?

If you don't take action against fraud and do become a frequent target, your merchant bank will need to cover the risk. They do this by issuing a bank chargeback (the return of funds to a consumer) which can be expensive for you. Too many chargebacks could increase your merchant account rates or could even mean that your merchant bank can no longer support your business.

Consumers are also more aware of the risks of shopping online. Normal signs of a secure website (like a security policy, full contact details, and securely connected payment pages) can provide reassurance for shoppers to stay on your website.

How do I protect myself from online fraud?

There are a range of fraud screening tools designed to stop people purchasing goods on your website with fraudulent or stolen cards. A standard set of tools are normally available with your payment gateway, and include AVS (Address Verification Service), CV2 (also known as CVV/security number) and 3D Secure checks. Depending on which payment service provider you're with, you may be charged extra to use these standard tools.

AVS and CV2 fraud checks

  • AVS and CV2 were introduced by the banking industry to provide businesses with additional information about each transaction.
  • Checks are carried out in real time and can catch fraud early on in the transaction process.

3D Secure authentication

  • Around 70% of online businesses now use 3D Secure checks, a scheme developed by Visa and MasterCard.
  • Also known as Verified by Visa and MasterCard Secure Code, 3D Secure helps to minimise chargebacks by passing liability on to the the card-issuing bank.
  • This shift in liability is dependent on your agreement with your merchant bank.
  • During an online purchase, the shopper will be asked to supply a password which they have previously set up with the scheme.
  • Successfully authenticated 3D Secure transactions can give some level of guarantee that the card holder is who they say they are.

Top tips for reducing fraud

  • Check the results provided by the fraud tools set up on your account.
  • Check the telephone number and delivery address against the billing address.
  • Look out for a low cost transaction followed by several high cost transactions.
  • Be wary of orders from ‘high risk’ countries.
  • Check the address postcode against the area code at the start of the telephone number provided.
  • If you’re still suspicious, simply void the transaction.

What else do I need to know about preventing online fraud?