Combatting Fraud in the E-commerce Sector: A Multi-layered Approach
E-commerce Fraud and Money Laundering Prevention Through Identity Verification (2024 Guide)
In the rapidly growing e-commerce industry, fraud remains a significant concern, with an estimated loss of $41 billion in 2022 alone. To tackle this issue, e-commerce platforms employ a combination of automated fraud detection tools, verification systems, and strategic transaction management.
Automated Anti-fraud Solutions
Many platforms use advanced software integrated with payment gateways or hosted solutions. These tools analyse transactions for suspicious activity using machine learning and behavioural analytics. For example, Stripe Radar detects and blocks fraudulent transactions, while 3D Secure adds an authentication step during checkout for added security.
Purchase Limits and Manual Reviews
Setting limits on quantities or total purchase amounts from new or unverified customers can flag potential fraud and trigger manual reviews, deterring criminals from mass card testing or friendly fraud via inflated orders.
Address Verification System (AVS)
AVS checks if the billing address matches the credit card records. A mismatch can generate alerts, helping to uncover stolen card usage across different regions.
Third-Party Fraud Detection Services
Platforms like NoFraud or Signifyd analyse each transaction in real time, combining proprietary data, machine learning, and behavioural analytics, sometimes offering chargeback guarantees. These services reduce false positives and automate fraud review.
Identity Verification & Onboarding Controls
To combat identity theft, advanced KYC incorporates government-issued ID verification (with OCR and biometric facial matching), liveness checks to prevent spoofing, and sanctions or PEP list screening to mitigate compliance risk.
Behavioural and Transaction Monitoring (KYT)
Real-time monitoring of transactions with rule-based alerts for suspicious behaviour helps spot fraud early. Custom risk scoring models tailored by customer type improve fraud accuracy and reduce false positives.
Authentication & Access Security
Implementing multi-factor authentication (MFA), session timeout, IP monitoring, and anomaly detection on logins further secures user accounts and internal systems from fraudulent access attempts.
Best KYC, KYT, and KYB Solutions for Fraud Prevention in Online Stores
Effective KYC, KYT, and KYB solutions play critical roles in preventing fraud. Examples of such solutions include automated digital ID verification platforms like Ares by Cynopsis Solutions, transaction monitoring systems integrated with payment gateways, and business verification services that assess the legitimacy of business entities during account creation.
Additional Best Practices
Other best practices for combating fraud in e-commerce include chargeback management, rule-based alert systems, and integration with payment gateways. By adopting these technologies and strategies, e-commerce stores build multi-layered defences that reduce the impact of fraud.
As e-commerce sales continue to grow, reaching an estimated $8.1 trillion by 2026, it is crucial for online stores to stay vigilant against fraud. Adopting the best KYC, KYT, and KYB solutions ensures a safer online shopping environment and compliance with regulatory requirements.
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