With the rapid growth of online shopping, e-commerce fraud has become a major concern for businesses worldwide. Global losses from e-commerce are rising and are expected to reach $91B by 2028, from $38B in 2023, reflecting the evolving tactics and sophistication of fraudsters. Whether it’s card-not-present transactions, account takeovers, or friendly fraud, the financial and reputational impact on businesses can be devastating. To protect your e-commerce business, implementing a comprehensive fraud prevention strategy is crucial.
This guide explores effective ways to combat e-commerce fraud and how Zumigo solutions can help merchants protect their business while delivering a seamless customer experience.
Understanding the Gaps of Today’s Fraud Prevention Solution
e-Commerce fraud affects businesses of all sizes, costing an average of 2.9% of global revenue each year. chargebacks, often driven by friendly fraud, cost merchants over $100 billion annually. Beyond the direct financial losses, fraud management expenses, and loss of trust as well as brand reputation add up significantly. e-Commerce companies spend approximately 11% of their annual revenue on fraud prevention and management, highlighting the scale of the issue.
Common types of e-commerce fraud include:
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- Card-not-present (CNP) Fraud: Using stolen card details for online purchases.
- Account Takeover (ATO): Hackers gain access to accounts through stolen credentials.
- Chargeback Fraud (Friendly Fraud): Customers dispute legitimate purchases, leading to chargebacks.
Traditional fraud prevention tools often rely on outdated data models and algorithms, slow manual review processes, and reactive approaches that are increasingly ineffective against today’s sophisticated fraud tactics. Many of these methods struggle to keep up with the fast-paced evolution of e-commerce fraud, resulting in high false positive rates that block legitimate customers and create friction in the checkout process. For instance:
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- Delayed Detection: Many solutions only identify fraud after the transaction has occurred, leaving businesses vulnerable to chargebacks and lost revenue.
- Manual Reviews: Manual fraud reviews are time-consuming, costly, and inefficient, with merchants screening up to 19% of orders manually. Yet, only a small fraction of these manually reviewed orders are actually fraudulent, making this approach unsustainable.
- Reactive Rather Than Proactive: Most fraud detection systems react to known fraud patterns instead of adapting in real-time to new threats, allowing many fraudulent transactions to slip through the cracks.
Given these challenges, e-commerce merchants need a more dynamic approach to fraud prevention — one that leverages current data and advanced analytics to accurately assess transaction risk without disrupting the customer experience.
Layering Real-Time, Deterministic Digital Identity Verification
A comprehensive account security and fraud prevention strategy should encompass both the order risk and payment verification process as well as the sign-up/sign-in (or the onboarding and authentication) process. To prevent fraud and protect shoppers, merchants need an accurate, low-friction approach to accurately assess the risk of transactions while offering a more secure way of onboarding and authenticating a shopper. A shopper’s transactions are multi-faceted and consist of different types of information – which means solutions that are one-dimensional – either one aspect of the transaction or a point in time – are inadequate in preventing fraud.
Zumigo layers multiple approaches to evaluate the risk level of each transaction, including:
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- Silent Network Authentication (SNA): Captures the phone number directly from the cellular signal, verifying the shopper’s ownership of the device in real time. This approach not only prevents fraud but also ensures a smooth and secure transaction process, reducing friction at checkout.
- Multi-factor Authentication: Combines with other verification methods, like OTPs and QR codes, to provide step-up, additional security.
- Real-time data from authoritative sources: Using phone and account information direct from the mobile network operators, as well as additional sources including credit bureaus, financial institutions, and other risk signal providers, Zumigo provides highly accurate order risk assessments.
Zumigo’s solution helps merchants prevent financial loss due to chargebacks as a result of fraud:
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- Verify orders by using SMS verification for textable number and voice call for landline to confirm phone possession
- Validate the name and address associated with the phone number and payment instrument; IP address of the customer’s browser client; email address validity; and geodesic distances between billing address, shipping address and customer IP address.
- Provide trust scores based on the above for each transaction so that a merchant can choose to fulfill only the low-risk transactions.
- Provide a dashboard view of the transactions so that merchants can see how their purchase orders are performing at a glance: number of total transactions, high risk orders, high risk customers, fraud orders processed and related value; type of merchandise that is high risk; and location/origins of risky transactions. Merchants can also drill into each transaction for more information.
To preserve the trust between the merchant and the shopper, the Zumigo onboarding and authentication solution is secure, simple, and reduces fraud:
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- Offer passwordless log-in option after completing enrollment to reduce customer friction and increase conversion; and improve security and user experience. Customer can sign-in using a mobile phone number that is authenticated using silent network authentication or one-time passcode (OTP) via SMS. When authenticated, Zumigo can install asymmetrical passkeys (one key on the device and the other on the server) so that subsequent access is seamless.
- Prefill customer shipping and billing information for faster checkout after customer completes enrollment on the store
Enhancing Customer Trust, Improve Conversion with Seamless Protection
Strong fraud prevention doesn’t just protect the merchant’s business; it also builds trust with customers. e-Commerce companies that invest in effective fraud prevention solutions can enhance the customer experience by ensuring safe, secure, and fast transactions. Businesses can reassure customers that their data is protected, enhancing trust and encouraging repeat business.
The evolving nature of e-commerce fraud requires a proactive approach. Zumigo’s use of real-time, authoritative data from over 800 mobile operators worldwide provides businesses with the insights needed to combat fraud effectively. Unlike outdated data models, Zumigo’s solutions deliver current, accurate risk assessments that help prevent fraud without disrupting the customer journey.
Zumigo’s approach helps businesses strike the right balance between security and convenience, ensuring that legitimate customers enjoy a hassle-free shopping experience. It not only reduces fraud losses but also boosts customer loyalty and revenue.
The Zumigo DeRiskify suite of products lets merchants implement a comprehensive fraud prevention strategy with either a simple API-based integration into existing e-commerce platforms, or via apps for Shopify or BigCommerce stores. Visit www.deriskify.com to learn more, or set up a demo today.
Madhu Vudali is Vice President of Product Management at Zumigo. Comment or question? Find him on LinkedIn.