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Preventive Measures for combating eCommerce Fraud – Part 1

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Internet has grown beyond anyone’s wildest imagination. A lot of diverse kinds of activities happen on the internet. Primarily, the internet is used to search and consume content. Net surfers want to consume content for various purposes. The second important activity is of eCommerce. Billions of dollars worth of commerce is transacted over the internet every year. Card Payments, Payment Gateways, Net Banking and a host of other payment systems have come into existence to enable eCommerce. Finally, people use the internet to socialize with family/friends and also meet with like-minded folks from other geographical regions.



While fraud is a problem in search and social applications (ad click fraud/bot fans and likes), eCommerce activities are saddled with direct monetary loss due to fraud. Fraud happens on both sides of the transacting parties. Sellers can sell tickets to an event and make off with the cash while the ticket buyers are left with worthless tickets. Alternatively, buyers can order items with a stolen credit card or hijacked payment gateway account and the unsuspecting seller would face chargebacks and reversals when the original account holders complain to their financial institution. However, due to the nature of payment processing rules it is generally the merchant/seller that has to bear and eat up the loss.

We provide some elementary and some technical tips that hopefully would help you to shore up your online business. Implementing these tips would help you save money and guarantee you peace of mind. Many of these techniques are proven techniques used by giant internet companies.

How to keep my money safe in eCommerce transactions? Here goes.

1) Compare Shipping Address and Billing Address
This is the simplest method to check for fraud. If the shipping and billing addresses are not same, then the probability that the transaction is fraudulent increases. Also, the fraud probability grows as the distance between the addresses increases. If they are in different countries, then it becomes extremely likely to be a fraud. This is a simple thumb rule. Yet, this measure is not implemented by majority of online merchants.

2a) Ticket Size (or Transaction size)
The next big fraud indicator is the ticket size (or the size of a transaction). Based on your eCommerce transaction history, you would have gained some insights regarding the transaction volumes and ticket sizes. You can put that knowledge to very good use by coming up with rules for eCommerce orders that do not fit your historical transaction profile. You can automate this by incorporating transaction limits and decide to manually examine transactions that exceed beyond the limits you have set.

2b) Buyer Aggregate Transaction Volume
This is related to the above measure. The previous measure dealt with the ticket size of any single transaction. This measure tries to aggregate ALL the transactions originated by a buyer in a given period (say a week). Similar to the above, you can verify if returning customers’ aggregate orders fit your historical aggregate transaction profile. If they don’t seem to add up, you can always add another layer of checks or decide to not accept that order. If the buyer tries to be smart by spreading out their purchases to avoid the measures in (2a), surely (2b) will at the least point the merchant towards suspicious buyer behaviour for future transactions.

3) Analyze Server Log Files / Access Files / Error logs
When a browser makes a request to a website, that request IS ALWAYS logged by the web-server in some form. The web-server response IS ALSO logged by the web-server. These files are called log files and are plain text files. You can ask your website hosting service provider for these files. Once you have access to these files, you can perform various types of analytics. However, this does involve technical expertise. You would need to hire a competent software developer to run analytics on these log files. You can view what kind of browsers are accessing you website, the IP of the customers, the server responses, the amount of data transferred. All these data attributes provide tremendous amount of information which you can distill into actionable tasks for your business. If you are hitting revenues in the 6+ digit range, then log file analysis will most certainly save you a lot of money.

The main advantage with this is that you are not only trying to save fraud loss, but also understanding your online customer profile which would give you ideas as to how to fine tune your website to reach out to similar customers and increase your topline revenues. Two apples down with one stone.

This is part 1 of a two part series. Stay tuned for additional tips and techniques to be unveiled in the forthcoming part.


One Response to “Preventive Measures for combating eCommerce Fraud – Part 1”
  1. Satya Srinivas

    Nice and informative post. Good-luck to your new blog.

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