Authenticating cardholder data can help reduce e-commerce fraud

As e-commerce continues to surge, digital payment methods are being used more often and in more contexts. But fraudsters see this as an opportunity to cash in. With e-commerce fraud on the rise, cardholder data authentication is a key to protecting digital transactions.

The U.S. e-commerce market is thriving, but its exciting growth is threatened by the parallel rise of online fraud. Payment fraud began moving online when EMV technology was implemented back in 2015 in the U.S. for in-store purchases. EMV was so successful in decreasing card-present fraud that it pushed payment fraudsters to online transactions. The COVID-19 pandemic further added to the rise of e-commerce fraud when internet traffic surged and more employees began working remotely with fewer security controls in place. With commerce shifting to online environments, digital card-not-present transactions also increased, and many environments were left vulnerable to fraudulent activity.

Since that time, the upward trend of e-commerce payment fraud has shown no signs of slowing. A study from Juniper Research forecasts that the value of e-commerce fraud will rise from $44 billion in 2024 to $107 billion in 2029, representing growth of 141%.

Credit card chargebacks top e-commerce fraud

While fraudsters are developing sophisticated new scams like credential stuffing (mass payment authorization attempts to verify stolen accounts) and streaming potlucks (unauthorized sharing of streaming subscriptions), the most common and concerning type of online fraud is old school. Known as friendly fraud, this is when a cardholder claims a charge is fraudulent when in fact it was a legitimate transaction.

At least three-quarters of chargeback losses, or $132 billion annually, are tied to friendly fraud. It’s quickly becoming a major problem for e-commerce retailers across all industries.

Protecting digital transactions in the new normal

Global e-commerce sales are projected to rise around 7% annually through 2028. Fortunately, businesses can take advantage of the rise in digital sales growth while protecting themselves from all types of transaction fraud, including friendly fraud.

When developing a security strategy for digital transactions, it’s important that any e-commerce fraud protection tools also help to reduce false declines and unnecessary friction that impede a smooth transaction for online customers. This will support a fast, easy and convenient checkout experience that keeps those customers satisfied.

How to prevent e-commerce fraud: data authentication

Thanks to innovations in payment technology, there are many ways businesses can fight fraud and protect cardholder data while offering customers seamless digital payment transactions. One of the best e-commerce fraud protection tools available today is EMV 3-D Secure. Improving upon the older 3-D Secure (commonly known as Verified by Visa or MasterCard SecureCode, among others), the updated version offers a smoother user experience and now adapts to a wide variety of devices, including mobile.

EMV 3-D Secure uses 10 times more assessment data points than the previous version, allowing for risk-based authentication by the card-issuing bank. After the cardholder submits their information on the merchant payment page, it is sent to the issuing bank, which decides if there is adequate data to determine if the purchase is being made by the true cardholder in order to authenticate and then authorize the cardholder’s transaction.

EMV 3-D Secure also relies on enhanced frictionless security such as biometrics, which is easy for cardholders to use and means customers don’t have to remember complicated passwords. These extra security features decrease the overall risk of e-commerce fraud and friendly fraud specifically, since merchants who accept the strongly authenticated transactions are less vulnerable to losing potential chargeback disputes.

By providing customers with simple, secure online checkouts, EMV 3-D Secure allows businesses to better protect against fraud, reduce chargeback liability, increase payment authorization rates and ultimately drive e-commerce revenue.

As payments continue to go digital, businesses will need to use innovative technology to protect themselves from transaction fraud. Contact your U.S. Bank relationship manager to learn more and help your organization stay ahead.