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7 Ways Ecommerce Businesses Can Prevent Holiday Fraud An important tip for marketing/production teams: Keep communications open. Amid the holidays' glut of orders, "surprises" let fraudulent transactions creep in.

By Kevin Lee Edited by Dan Bova

Opinions expressed by Entrepreneur contributors are their own.

South_agency | Getty Images

Fraud isn't on anyone's holiday wish list, but it's a reality of this busy season. Since more and more brick-and-mortar business now require chip credit cards to process orders, many fraudsters have decided to shift their attention to online businesses.

Related: The 5 Most Common Fraud Scenarios for Small Businesses

Last year, ecommerce fraud between Thanksgiving and Dec. 31 rose by more than 30 percent over the previous year, according to a study by ACI Worldwide. Approximately 1 in every 97 transactions were found to be fraudulent.

And fraudsters have plenty of opportunity this year: This past Cyber Monday was the busiest ecommerce shopping day in history, with over $6.59 billion in sales, according to Adobe.

While fraudulent transaction rates actually decrease during this time of year due to the massive spike in legitimate traffic, the total dollar amount of fraud loss increases dramatically, because fraudsters know that they can bury their bad order in a pile of good ones.

Is your business ready to separate the "naughty" from the "nice"? Here are several fraud-fighting prevention tips that I can share, gleaned from my work for Square, Google, Facebook and Sift Science.

1. Create and document a plan for the holiday rush.

Online holiday retail spending is expected to increase by 12 percent this year. With more transactions to review and more temporary staff to train, it really pays to document a solid plan for handling the holiday rush.

When I was working at Square, my team would think ahead and try to answer all of the questions that might come up when people were too busy to find the answers. Would we be letting more orders through than usual? Were there new processes for who would get to approve or decline orders? What were the escalation paths? Such moves helped lower the risk posed by the bad guys out there who take advantage of overwhelmed sales staffs.

Related: Study: Online Fraud Is About to Kick Into High Gear

I also personally made sure that all staffers were comfortable using our fraud-prevention tools, and that I was aware of when employees would be taking time off, so I would always have the right amount of coverage.

These actions helped ensure that we were in the best position possible to handle the rush.

2. Coordinate with other teams.

For many marketing teams, the holiday season truly is the most wonderful time of the year! All the deals and promotions are just getting started.

That's why it's important to check in with your marketing team to find out when promotions are starting, so you can be prepared for upticks in traffic, purchases and coupons. Also talk to the product team to find out if anything new is being released, plus what volumes to expect. You don't want to be surprised and falsely attribute a certain pattern to fraud.

Surprises this time of the year, in fact, should be studiously avoided. An example? One year at Google, I failed to reach out to some teams and was caught off guard by an unexpected promotion email. Our systems and teams weren't ready for the increase in volume -- and we ended up angering a lot of customers by delaying their orders.

We eventually auto-accepted all the orders that had been placed over the past six hours, to ensure that customers would get their items in time. But -- and there's a lesson here -- as a side effect, we ended up accepting a bunch of fraudulent orders we would have otherwise caught.

The moral of the story? If you keep lines of communication open, everyone will be prepared.

3. Keep an eye on your metrics in real time.

You're bound to see an increase in overall transactions ahead of the holidays. Make sure you're keeping an eye out for red flags that may signify fraud, like a spike in sales of a particular product or a transaction with an extremely high dollar amount. Last holiday season, marketplace shopping app Wanelo -- our client -- found that much of its fraud was coming from Caracas, Venezuela. Once the company discovered that, it was easy to reject those orders and narrow down the pool for potential fraud.

Companies like Sift Science, Forter, Signifyd, Riskified and Feedzai offer machine-learning solutions that are able to flag suspicious orders automatically, so that massive retailers do not have to do this this work manually. Once the Wanelo team began using these tools to improve the customer experience, its order decline rate fell by 52 percent - meaning it was accepting more good orders. Many companies now are exploring machine learning and other advanced technologies to help mitigate fraud and improve conversion.

4. When it comes to buying patterns, expect the unexpected.

Good customers have odd buying habits during the holidays. Know that a behavior that might have been unusual during the rest of the year (like purchasing an expensive watch and shipping it across the country) may now be "normal." If you have any data from past holiday seasons, take a look at historical patterns to see what you might expect.

5. Don't assume unusual purchases are as bad right off the bat.

There are always some orders that may need some additional authentication. Refer your team to the review and escalation plans you created before the rush began to find out how to handle these cases.

6. Be as nice as possible to customers who get flagged.

Fraud is certainly damaging, but accidentally flagging a good customer as fraudulent can be even more costly. This customer may be so annoyed that he or she won't buy from you again (and even tells friends about the bad experience). That's why 72 percent of online businesses are concerned about preventing fraud without turning away legitimate customers.

Related: 5 Ways to Have Yourself a Secure Little Online Shopping Season

Of all the times I've had to verify a customer's identity, I find that the holidays bring the most stress. Shoppers are trying to get gifts shipped quickly, and the last thing they want is complications.

That's why I tell my teams to always make sure they're as friendly and helpful as possible. Instead of simply asking customers for information, reassure them that you're trying to protect them and make sure their order gets sent to the right spot in time for the holidays.

7. Thank your team.

A a time of the year when most companies are having their holiday party, ecommerce companies are often too busy to relax and enjoy the season. That's why I always make an effort to acknowledge my team's contributions. Yes, this is their job -- but they're also taking time away from their families and loved ones to be there for you and the company.

For those who worked a weekend day, make sure they're able to take a full day off in the new year. People who work Christmas Eve or Christmas Day should get two days off. Employees can then combine those days and take a longer (much deserved) vacation in the new year.

Also, make sure to slot in a get-together once the madness has subsided, so everyone can cut loose. This is something people can look forward to when they're in the thick of seemingly endless order review. Celebrate your accomplishments!

Kevin Lee

Trust and Safety Architect, Sift Science

Kevin Lee, trust and safety architect at Sift Science, is driven by building high performing teams and systems to combat malicious behavior. He has worked for the last 12 years around developing strategies, tools and teams. Prior to Sift Science, Lee worked as a manager at Facebook, Square and Google, where he led various risk, charge-back, collections, spam and trust and safety organizations.

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