How to Beat E-Commerce Fraud With a KYC Solution
If you run an online business, particularly one that accepts payments, you can’t sit back and hope that fraud doesn’t happen to you.
E-commerce fraud is becoming more and more widespread and sophisticated and is a concern for online retailers around the globe. In a survey by Experian, 63% of businesses reported fraudulent losses in 2018. Even more worrying are reports from, Juniper Research that online retailers are set to lose an estimated $130 billion between 2018 and 2023 in digital card-not-present (CNP) fraud.
While the boom in online shopping has been a boon for small business owners and convenient for consumers alike, the unfortunate reality is that it comes with risks. A study by Javelin Strategy & Research in 2018 showed that CNP fraud is 81% more likely to occur than “card-present” in-store credit card fraud.
This risk exists because it can be difficult to verify the identity of who is using the card in an online setting. While asking for card security codes (the 3-4 digit code features on the back of credit and debit cards) is a good preventative measure, unfortunately, it isn’t always enough.
Without an ongoing fraud prevention strategy and the right tools, the likelihood that it will happen to your e-commerce store is high.
What Exactly Do We Mean by “Fraud”?
E-commerce fraud can happen in a variety of ways. In its most general terms, it refers to a fraudster making a transaction with an online business through illicit means, such as:
- Stolen credit card information
- Stolen account information
- Stolen bank account details
- Stolen ID
- Fake credit card details
In a study of online merchants by WorldPay, their biggest e-commerce fraud concern is identity theft. This is when, in combination with one or more of the means listed above, the fraudster also uses customer’s identifying information to make a purchase, such as name, home address, and email address.
Fraudsters acquire this information through a variety of means, offline and online, from stealing physical credit cards and personal documents to phishing and man-in-the-middle attacks. Unfortunately, these kinds of attacks are becoming more sophisticated. With 7-10% of the US population falling victim to identity theft each year, it’s clear that businesses can’t just depend on consumers being more savvy with their contact information. Businesses need to start taking precautions.
Stopping fraud requires an ongoing, preventative strategy.
It goes without saying that fraudulent transactions are bad for a variety of reasons, for business owners and customers alike. For retailers, there is the threat of chargebacks. A chargeback can occur when a fraudulent charge is made on a consumer’s card and the online retailer is held responsible and must return the money to the consumer. A lot of chargebacks means a lot of lost revenue for a company. For the customers, there is a loss of trust and fear when it comes to online transactions. They may feel wary about making purchases from your online store in the future.
This may sound very gloomy. Fortunately, fraud prevention doesn’t have to be super complicated or interfere significantly with your current transaction flow.
So, what exactly can you do to prevent e-commerce fraud? We recommend a KYC approach.
What is KYC?
KYC is short for Know Your Customer. It is a type of customer verification process that involves confirming the identity of your customers when doing business with them. Many banks, insurance companies, and other types of financial institutions have a KYC procedure in place to ensure that their customers and clients are who they say they are. It also helps these institutions to get to know their customers, and ensure that they’re involved in any untoward or illegal activities, such as money laundering or bribery.
Implementing KYC stops online fraud before it can happen. It typically involves providing one or more documents to the institution that confirms their identity. These documents can include:
- Government ID
- Drivers License
- Utility Bill
- Credit Card
How in-depth a KYC procedure is will depend on the dealings of the company. For instance, a financial services company would need a KYC solution that both verifies customer identities and performs extensive background checks. Some companies opt to do KYC checks manually, while others have automated solutions. Some choose a mixture of the two. An example of a manual KYC check would be to fill out a form in person, while an automated KYC check could involve a form of digital ID verification.
If you’re a small business owner, this might seem like a lot of added complications to your transaction process, especially if you have a small team. However, KYC is becoming more and more of a necessity, particularly if your business deals with transactions of a sensitive nature. Beyond transactions, KYC can also be useful for things like user registration, customer or client onboarding, and reverifying current users. Luckily, these days, there are a number of online KYC options that emphasize easy implementation and as little disruption to your current process as possible, so you’re sure to find the perfect KYC solution for your business.
To prevent fraud in your online business, a KYC solution is the way forward. Whatever solution you go for, by making identity verification a priority, you can be safe in the knowledge that you are protecting your business and safeguarding your customers.
If you’re interested in implementing a simple yet effective KYC into your transaction process, check out Validation.com from Namecheap.
With the patented Validation.com software, you verify customers with your own eyes. Customers can securely submit the ID documents you require by opening a link that you send to their smartphone, tablet, or webcam-enabled laptop. No apps or downloads are required, and it only takes seconds to confirm that your customers are who they say they are. Set-up is painless, with no system integration required. Click here to learn more about Validation.com.
If an online shop asks me for ID I’m canceling my order and never going there again.