Fraud Prevention Tips Retailers Can Implement Today

By Rodrigo Figueroa, Chief Operating Officer, Chargeback Gurus

With the proliferation of cutting-edge payment methods, AI-infused sales strategies, and the omnipresence of digital wallets, retailers are stepping into an era of unparalleled efficiency. Yet, this very landscape that promises immense growth also harbors pitfalls.

As the e-commerce sector thrives, CNP (Card Not Present) transactions, which have historically been a magnet for fraudsters, are set to surge. As a result, it is imperative for retailers to exercise increased caution. In fact, Juniper Research predicts that the cumulative losses to online payment fraud globally between now and 2027 will exceed $343 billion.

It is also important for retailers to put safeguards into place given the increasing instances of friendly fraud—which is also known as first-party fraud or chargeback abuse—in the retail industry. Friendly fraud occurs when a consumer makes an online purchase only to dispute it with their bank, resulting in costly chargebacks for the retailer.

In addition to the loss of the transaction, chargeback fees cost between $20 and $100, depending on the retailer’s agreement with their acquirer. When you add these fees up with all the other hidden and indirect costs, companies often lose more than twice the transaction amount for each chargeback.

Adding fuel to this fire is the 120-day window granted to cardholders for disputing transactions. This extended timeframe means that the aftermath of peak sales periods often spills over into the following months, prolonging the financial strain on retailers.

Simply put, operating in the retail sector currently presents daunting challenges. So what are merchants supposed to do in the current landscape? At this moment, effective fraud prevention strategies are more important than ever.

Here are the best practices that every retailer should consider implementing:

As CNP transactions become increasingly common, there is a greater need for robust verification systems. Retailers can bolster their defenses by implementing CVV checks, where customers provide the card verification value to ensure legitimate transactions. Two-factor authentication adds another layer of security by sending one-time passwords to customers' phones. Address Verification Service (AVS), which matches the billing address provided by the customer with the card issuer's records, helps prevent the misuse of stolen cards.

As fraudsters become more sophisticated, retailers need to stay one step ahead. Investing in AI and machine learning can be a game-changer. Behavioral analytics monitors shopping behavior and transaction history to identify unusual patterns, while dynamic machine learning models improve with new data, recognizing evolving fraud tactics. Assigning fraud risk scores to each transaction based on historical data, patterns, and behavior provides an added layer of security.

In online sales, clear communication can significantly reduce chargebacks stemming from unmet expectations or misunderstandings. Retailers should provide detailed product descriptions, including high-resolution images, videos, and comprehensive information to help customers know exactly what they're buying. On top of this, transparent pricing, which outlines all costs involved — including taxes and shipping fees — can minimize confusion. Finally, setting realistic delivery timelines and maintaining a hassle-free return policy, visible throughout the purchasing process, ensures a smoother customer experience.

Addressing customer concerns promptly can prevent potential chargebacks. Proactive communication is essential: notifying customers about delays, stock issues, or shipping complications can avoid unnecessary disputes. Additionally, centralizing complaint resolution with access to previous interactions allows customer service teams to offer consistent and informed solutions. Post-sale engagement, such as follow-up emails, ensures customer satisfaction and addresses any lingering concerns.

A knowledgeable customer service team is a retailer’s strongest ally. This is something that every business can focus on without spending significant capital. Specialized training helps teams recognize and handle various chargeback scenarios effectively, and providing representatives with access to transaction history and notes improves dispute resolution.

Retailers can reduce the likelihood of "cancel-recurring” chargebacks by ensuring customers fully understand recurring charges and can easily opt out. Subscription clarity is crucial and avoids future headaches. It’s also important to allow customers to cancel or modify subscriptions without hassle and make return policies easily accessible on product pages, checkout pages, and in confirmation emails.

Real-time fraud monitoring solutions help detect and flag suspicious transactions instantly. Receiving immediate alerts for high-risk transactions allows retailers to respond quickly and decisively. Additionally, automated response systems can flag or decline transactions based on fraud scores, while integrated analytics provide a comprehensive view of potential risks by combining historical and real-time data. By taking these proactive measures, merchants can stay one step ahead of those trying to get the better of them.

Ultimately, with the growth of the digital age comes new challenges. As retail continues to evolve and fraudsters become more sophisticated, a strategic approach is the secret sauce to a retailer's success. Equipping oneself with the right set of tools and practices can make a world of difference, helping retailers minimize losses, safeguard their reputation, and continue thriving in the digital economy.