Online shopping presents risks Scams not only for consumers but also for businesses and sellers. With a significant rise in payment fraud attempts on UK businesses—up 71% in 2023 according to Business Wire. It is essential for online vendors to understand these threats and know how to protect themselves.

Dennis Pederson, CEO of PayFasto, outlines five common payment scams and offers strategies to combat them.

Phishing Scams

Phishing scams involve criminals tricking individuals into divulging sensitive information such as credit card details and passwords through fake emails or texts that lead to counterfeit websites. Once users enter their information, it can be exploited for fraudulent purposes.

Phishing not only affects customers but also targets businesses, potentially compromising data and leading to financial loss and reputational damage. Sellers should be aware of red flags such as unexpected requests for personal information, poor spelling and grammar, suspicious senders and messages that create a sense of urgency. Employees should be trained to recognise these signs and avoid unfamiliar links or untrusted attachments.

To mitigate phishing risks, businesses can use advanced email filtering tools to thoroughly vet third-party communications, limit access to sensitive data through multi-factor authentication and keep digital systems updated. 

Chargeback Fraud

Chargeback fraud, also known as friendly fraud, occurs when a customer disputes a legitimate charge after receiving their item, falsely claiming they did not receive it or that the payment was unauthorised. This type of fraud differs from true fraud where a third party uses stolen information to make purchases.

Preventing chargeback fraud requires clear communication with customers. Online businesses should ensure merchant names and transaction details are transparent in banking apps to prevent confusion. Prompt email confirmations and package tracking can help verify deliveries and prevent disputes from arising in the first place.

Implementing two-factor authentication for payments and verifying suspicious orders such as large purchases, before shipping can further protect against this type of fraud. Additionally, businesses should keep detailed records of transactions and communications with customers to provide evidence in case of disputes.

Return Fraud

Return fraud involves customers manipulating the returns process to get a refund they are not entitled to such as returning a different item or claiming the product was defective. For example, a customer might use an expensive item briefly and then return it claiming it is unused.

To combat return fraud sellers should establish clear, non-negotiable return policies and adhere to them strictly. Items returned in poor condition or without labels should not be refunded. Implementing strict checks to ensure returned items are correct and in perfect condition along with delivery tracking can help confirm that orders are not lost. 

Businesses can also employ strategies like restocking fees for certain high-risk items and requiring proof of purchase for returns. Keeping a database of serial numbers and product conditions at the time of sale can further aid in identifying fraudulent returns.

Merchant Fraud

Merchant fraud involves scammers posing as legitimate businesses to deceive customers often through fake online stores. These fraudsters lure consumers with attractive prices but send counterfeit products or nothing at all. While this primarily targets consumers, it can damage a legitimate business’s reputation and result in financial loss through chargebacks and other liabilities.

Businesses can combat merchant fraud by ensuring their company name, logo and transaction details are clearly visible on bank statements helping distinguish legitimate purchases from fraudulent ones. Clear terms and conditions, secure payment methods, and multi-factor authentication can reassure customers of the business’s trustworthiness. Staying updated on fraud prevention measures and maintaining effective software are also crucial.

Ensuring that the company’s website is secure and using SSL certificates can provide an added layer of protection. Businesses should also monitor online reviews and complaints to identify potential fraudulent activities quickly.

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Wire Transfer Fraud

Wire transfer fraud occurs when a scammer deceives someone into transferring money through a bank transfer often by impersonating trusted individuals or organisations. They create fake invoices to prompt the victim to send money urgently, often exploiting the pressure they may be under.

This type of fraud is particularly damaging as the transferred money is difficult to recover. To prevent wire transfer fraud, sellers should avoid unplanned transactions and ensure all transfers are approved by multiple people. 

Ultimately, vigilance is key. Sellers and employees should always verify unexpected invoices and seek a second opinion if in doubt. Training staff to recognise common tactics used by fraudsters and establishing a clear process for verifying invoices and payments can help prevent such scams.

By understanding and implementing these preventive measures businesses can better protect themselves against the rising threat of online payment scams. Regularly updating security measures and staying informed about the latest fraud trends are essential steps in safeguarding online transactions and maintaining customer trust.