Operational loopholes in online small businesses and credit card frauds

Small businesses are more prone to financial risks and fraud. Mostly they invest more in building their product market and miss the loopholes in their system which are utilized by the fraudster. The reason behind this is the lack of planning against unknown/ unpredicted risks. Fraudsters and scammers are always in search of businesses negligent about their customers’ identities.

How fraudsters defraud online businesses:

The most common way how fraudsters defraud the small online businesses is through credit card fraud. Most of the online businesses do not ask for the identity proof of the person buying the goods. Fraudsters exploit this loophole causing huge losses to the businesses. A fraudster steals the credentials of an individual’s credit card and uses those credentials to buy products. These fraudsters can use the same stolen identity to defraud many businesses at a time which initiates a chain of losses involving numerous entities.

Once the victim of stolen identity finds out about his loss he can easily get a refund of his stolen money from that online business through a legal process or through his bank.
The identity theft victim gets a refund, credit card provider bank does not have any stake in this identity theft crime, the only entity which suffers the most is the small online business which bore double loss in the form of sold product and the payback made to the victim of identity theft.

How to secure and online business from identity thieves:

Know Your Customer (KYC):

The small online businesses should comply with the KYC regulations even if they are not entitled to do so by the regulatory requirement. These businesses can know their customer by adding an extra security layer to their system with SaaS (Software as a Solution) products which provide the services of identity verification.

There are many businesses that provide efficient identity verification services to businesses around the world.

These identity verification services can verify:

  • Name of online customer
  • Date of birth of the customer
  • The authenticity of the documents provided by the customers
  • Address of the customer
  • Location of the customer
  • Facial verification, etc.

2.Analyze purchase behavior of the customer:

Businesses should analyze the purchase behavior of the customer. If he shows any unusual behavior like; buying a lot of expensive products, placing an urgent order of expensive products, unusual purchases consisting of various products of different utility, purchases from the same IP address but with multiple credit cards.

3. Report the authorities with any credit card fraud detected:

Once the businesses has established an online system that can detect credit card frauds then they should inform the authorities about every detected fraud.

Small online businesses are in dire need to introduce these risk mitigation layers to their business. It will introduce their business to new growth ventures that are the major success reason for the huge business organizations who were able to thrive in the business world for long.

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