Think your online store could survive massive chargebacks or fraud attacks?
Go ahead and think again.
Ecommerce businesses face serious threats that can destroy profits overnight. Whether it’s chargebacks, friendly fraudsters, or cyber attacks – the risk is growing every year.
Here’s the thing…
Many ecommerce business owners avoid dealing with risk management altogether.
Until it’s too late.
But risk management doesn’t have to be scary or difficult.
In fact, in this article we’ll show you proven risk management strategies that every online business needs to protect their reputation and revenue.
You’ll Learn:
- The basics of ecommerce risk management
- Why chargebacks are costing merchants billions
- 6 risk management strategies that work
- Tools every ecommerce store needs to protect themselves
What is ecommerce risk management?
Simply put, ecommerce risk management is the process of identifying, evaluating and mitigating risk to your online business.
It’s your businesses safety net.
Without risk management in place your business is vulnerable. Fraudsters, chargebacks, and operational risks are going to cause serious damage to your revenue and reputation.
Things aren’t looking too good for unprotected businesses…
The ecommerce industry continues to grow each year.
Globally we’re expecting ecommerce sales to exceed $7 trillion by the year 2025. That’s almost double what we spent last year alone on online purchases.
But with this increase in volume comes new and ever evolving risks. From AI fraud to growing compliance regulations.
Online businesses need to be prepared for anything.
That’s why it’s important to have a strong risk management framework that will help you:
- Protect profit margins – unchecked risks like chargebacks can devour your revenue.
- Build customer trust – secure payments and reliable service means repeat buyers.
- Avoid legal penalties – non-compliance can cost you unnecessary fees.
Got it? Let’s dig into chargebacks…
Why chargebacks are costing online merchants billions
Chargebacks are one of the most preventable threats to ecommerce revenue.
But that doesn’t stop them from costing merchants billions of dollars each year.
On average merchants lose approximately $4.61 for every $1 of fraud they experience. Fees, dispute costs, and chargebacks really add up.
Fraudsters aren’t slowing down either.
Mastercard is projecting a 41% increase in chargeback volume between 2023 and 2026. Going from 238 million chargebacks to 337 million.
The majority of these chargebacks could be prevented.
Industries that are seen as high risk experience chargebacks at a much higher ratio. Think travel, digital goods, subscriptions.
Merchants in these industries have no choice but to learn how to reduce chargebacks in high-risk industries.
But chargebacks aren’t the only risk merchants face.
6x E-commerce risk management strategies that work
These 6 strategies are how successful ecommerce businesses protect their bottom line. Implement any that you feel will benefit your business model.
Strategy 1: Use Multi-Layer Fraud Detection
Running your business on a single layer fraud deterrent is like playing roulette with your revenue.
Fraudsters are constantly evolving their tactics using new technology. Artificial Intelligence, machine learning – you name it.
Hackers have the upper hand if you don’t evolve with them.
That’s why you need a layered approach to fraud prevention. Include at least:
- Address Verification
- CVV Validation
- IP Geolocation
- Device Fingerprinting
- Behavioural Analysis
Think of every layer as a brick in a wall. The more layers you have the more difficult it is for fraudsters to keep coming back for more.
Strategy 2: Optimise Your Billing Descriptor
Wait… what’s a billing descriptor?
If you aren’t sure then you’re not alone.
Most ecommerce merchants get this one wrong.
When customers see a mysterious charge on their statement they will usually dispute it. This starts a chargeback that you’ll need to fight.
Did you know 1 in 3 merchants don’t know how their billing descriptor appears on customer statements?
Make sure your descriptor contains your business name clearly and visible.
Test how it looks on different card statements and fix it if needed.
Strategy 3: Create Clear Refund And Return Policies
72% of merchants saw an increase in friendly fraud chargebacks in 2024.
That’s according to a new report released by Business Wire.
Easy fixes to payment issues are commonly the reason customers file chargebacks. When the refund process seems too difficult or time-consuming they’ll go straight to their bank.
Make sure your policies are:
- Visible and accessible on your website
- Written in clear concise language
- Easy to process when requested by a customer
Strategy 4: Monitor Transactions In Real-Time
You can catch most fraud attempts by monitoring transactions when they happen.
Fraud detection tools flag suspicious behaviour before orders are shipped. This allows you to manually verify legitimate orders and block fraudulent ones.
Keep an eye out for:
- Large/unusual orders
- Orders from compromised devices
- Shipping and billing addresses that don’t match
- Multiple failed payment attempts
- Orders from risky regions or countries
Strategy 5: Diversify Your Payment Processors
Don’t put all your eggs in one basket.
Putting all your transactions through a single payment processor is risky.
What happens when they experience outages? Or worse, flag your account for high chargeback ratios?
Having additional payment processors as backups can save your business from lengthy downtime.
This strategy can also allow you to diversify your chargeback ratios among processors. Keeping your ratio low on each individual account can help you avoid monitoring programs and account terminations.
Strategy 6: Communicate With Your Customers
Reduce disputes by simply communicating with your customers.
Here’s the truth.
The majority of chargebacks are caused by misunderstandings.
Send customers transactional emails at every stage of the customer journey. Order confirmations, shipping notifications, and delivery updates are musts.
Remove as much friction as possible. Make it easy for customers to contact your business and receive help when they need it.
The easier you make it to request a refund the less likely customers are to file a chargeback.
Ecommerce risk management tools you should be using
Lucky for us there are tools that make managing risk simple. Here are a few that we like:
- Fraud Detection Software
- Chargeback Management
- Customer Verification
- Analytics Dashboards
Wrapping Things Up…
If you run an online business then ecommerce risk management should be top priority.
Chargebacks are on the rise. Fraudsters are getting smarter. And we still haven’t talked about cybersecurity.
Running your ecommerce business without a safety net is like playing with fire.
Remember these tips:
- Implement layered fraud prevention
- Optimise billing descriptors
- Create easy return/refund policies
- Monitor transactions in realtime
- Use more than 1 payment processor
- Build strong customer communication
Start with one or two of the strategies above and grow from there. Effective risk management is how successful ecommerce businesses stay ahead of the competition.
Don’t wait for the next big chargeback dispute to hurt your business. Start protecting yourself today.
