To stay competitive in the online retail industry, you must keep customer satisfaction and costs low. This means you can’t afford to lose money due to chargeback or ecommerce friendly fraud.
In this article, we’ll explore different types of online fraud and how they impact your business. We’ll explain how each type of fraud occurs, its financial impact, and how you can prevent it from happening on your WooCommerce store.
The New Reality of Online Business
The shift to an ecommerce-driven economy is a boon for consumers, but it’s also a headache for retailers. As a result, the growth of online retail has made fraud prevention more important than ever. The best way to combat chargeback fraud and other types of ecommerce friendly fraud is by creating a solid fraud prevention strategy that includes customer service.
With the rise of ecommerce, traditional brick-and-mortar stores need help to stay relevant in an increasingly digital world. Shoppers have more options than ever when it comes time to spend their hard-earned cash on products they want or need. They can easily research their options online before making their purchase decisions—and once they’ve made up their minds, they don’t want any obstacles between them and their purchases.
This can be great news for people who want access to all kinds of products without having to leave home (or work), but it can also put pressure on those who sell things online by making life harder for everyone involved when things go wrong with orders or payments, even if there isn’t any wrongdoing involved at all.
You need to have strong security layers around your online store if you are going to capitalize on these consumers. That begins with understanding fraud and how it affects your online business.
What is chargeback fraud?
Chargeback fraud is when a customer disputes a legitimate transaction, either on purpose or by accident. The reasons for this are many and varied, but they all boil down to one thing: the customer wants their money back—even if they have already received the product or service in question.
What is friendly fraud?
Friendly fraud is a type of fraud in which a legitimate customer makes a purchase but then claims that they did not make the purchase, it isn’t as described, or that the item was never delivered. When this happens, the merchant is usually required to refund the cost of the item plus shipping costs. This can be problematic for merchants who rely on low margins to stay competitive in their marketplaces.
Major Differences
- Friendly fraud typically involves a customer that has ordered before and made legitimate purchases, while chargebacks occur when a customer has no relationship with your online store and possibly has a record of previous fraudulent activity.
- Friendly fraud is often unintentional, and chargeback fraud trends to have the intention of obtaining a refund or reversing a charge without a valid reason.
- Friendly fraud can be difficult to prevent due to the genuine reason for the dispute. However, chargeback fraud can often be prevented by implementing strong fraud prevention measures.
How Ecommerce Friendly & Chargeback Fraud Occurs
One of the most common forms of ecommerce friendly fraud is using stolen credit cards. This type of fraud occurs when a criminal steals someone’s credit card information, then uses it to make purchases online.
The most common way this happens is through phishing emails, which are sent to random people to gather as much banking information as possible. Thieves can use that information to make fraudulent charges on victims’ accounts.
Chargebacks are a form of ecommerce fraud that occurs for many reasons, including:
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- Fraudulent claims– The purchaser reports that they did not authorize the purchase or made it without their permission.
- Incorrect information– The purchaser states they did not receive all items included in the original transaction and requests a partial refund.
- Credit limit exceeded – The cardholder disputes having exceeded her credit limit after making purchases online.
- Confusion – The received item isn’t as described or the name of your online store isn’t the same on the receipt/charge customers see on their credit card bill.
- And many more!
Impact of Ecommerce these Fraudulent Transactions on Your Business
If you’re a business owner, then you know that the effects of ecommerce friendly fraud and chargeback fraud go far beyond the financial impact. These two types of fraud have also been shown to impact other areas of your online store that can drastically decrease sales. This can include:
Financial impact
The number one factor that impacts your business’s bottom line is the financial impact of chargebacks. A chargeback can cost your company anywhere from $1 to $25 per transaction, which doesn’t sound like much until you realize that these can compound quickly, ending in thousands of dollars in a single night if you’re not careful.
When it comes to friendly fraud, the financial impact is even more significant. Friendly fraud costs merchants anywhere between $50 and $60 billion annually. In addition to losing money due to these fraudulent transactions, they also have higher attrition rates due to negative customer experiences with their brand.
Reputational impact
Your reputation as a business is built on trust. If you’re not protecting that trust with the proper fraud prevention measures, then you’re putting it at risk. Ecommerce friendly fraud can cause harm to your brand by damaging your credibility with customers and partners. This leads to negative reviews, social media posts, and a general loss of customers.
Customer service impact
Customers may be upset or frustrated that they have been charged for something they did not intentionally purchase or do not remember purchasing. This can lead to negative interactions with your customer service team as the customer tries to resolve the issue.
You may need to devote time and resources to disputing the chargeback, which can be time-consuming and may take attention away from other customers.
Strategies for Preventing Ecommerce Friendly Fraud and Chargeback Fraud
To prevent ecommerce friendly fraud and chargeback fraud, you’ll need to implement strong fraud prevention measures. To reduce friendly fraud, you must provide customers with an excellent shopping experience. You can do this by providing a safe, secure shopping environment and an easy-to-use platform that allows customers to find what they’re looking for quickly and easily.
Luckily, you are already on WooCommerce, which makes most of this much more manageable. Other ideas may include:
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- Verifying the identity of customers
- Using fraud detection tools and analytics
- Reviewing orders for unusual or high-risk behaviour
- Setting spending limits for customers
- Requiring additional verification for large or high-risk orders
- Responding promptly to customer inquiries and complaints
- Providing clear and concise information about products and services
- Being transparent about prices, fees, and policies
- Providing additional customer support options, such as live chat or phone support
This doesn’t mean you should focus on the basics of ecommerce. You need to offer personalized customer service as well. This means providing options that suit everyone’s needs and preferences regarding shipping speed, payment options, order tracking, and other elements of the purchasing process.
Using a Powerful Anti-Fraud Plugin for your WooCommerce Online Store
A powerful anti-fraud plugin is the most effective way to protect your WooCommerce store from fraud and chargebacks. Our team at OPMC has crafted a uniquely automated WooCommerce Anti-Fraud plugin that quickly detects fraudulent transactions on your store.
This tool will pause fraudulent orders, and issue warnings associated with any order it determines may be risky by placing a percentage number on what could be happening.
In addition, you get a simplified dashboard to quickly assess how your store is doing and what protections you need to initiate due to different times of the year, geographic hot spots, or blacklists of specific IPs.
As an ecommerce business ourselves, we understand how necessary having this protection is to your success. Download our WooCommerce Anti-Fraud plugin today and boost the layers of security around your business!
Conclusion
Ecommerce friendly fraud and chargeback fraud are two different types of fraud that can seriously impact your business. It’s essential to understand the differences between these types of fraud to prevent them from happening in the first place. If you do fall victim to one, it’s important to know how to recover from such events by disputing chargebacks when necessary and implementing strong anti-fraud measures like our plugin within your online store.
With some preparation and automation, you can create a safe, reliable, and satisfying shopping experience for your customers. That is a fantastic way to boost sales and ensure you have a competitive advantage over other stores failing to deal with friendly fraud and potential chargeback fraud issues.
Download WooCommerce Anti-Fraud today
WooCommerce Anti-Fraud assigns a score to orders as they are placed. The higher the score, the higher the risk of fraud.
