Identity Verification
How eCommerce Retailers Use Identity Verification to Impact Fraud
How eCommerce Retailers Use Identity Verification to Impact Fraud
October 30, 2023
min read

If you’re an eCommerce store, you are probably all too aware of the impact of fraud on your bottom line. Fraud can take many shapes and forms which in many ways, is why it can be hard to address, the reality is nonetheless clear, fraud is costly and it is becoming more sophisticated and difficult to detect until a pattern emerges.

  • Many eCommerce stores feel powerless to impact fraudulent sales because they have insufficient resources to detect fraudulent transactions costing them upwards of $2.40 for every dollar lost
  • Customers will often bypass the merchant and go directly to their credit card issuers to commit friendly fraud
  • Using identity verification will help merchants detect suspicious behaviors and allow for greater scrutiny of potentially fraudulent purchases

As we have discussed before, every business must build their own anatomy of trust, defining the different areas that trust may be easily established--or abused--and create their own methodology around risk, detection, and prevention. Creating this kind of approach to reducing fraud may appear to require a team of experts that will build out systems the flag potential areas of concern but how do smaller players compete? Does a small team have to remain vulnerable to the work of the fraudster? If there’s no ‘one size fits all’ solution, how do the smaller e-tailers compete? Is automated fraud detection something that only large multi-disciplinary teams can support? In short, no, as a smaller niche player, you can easily deploy some automated fraud detection that is not costly or expertise-driven. All it takes is for you to understand your customers and inventory; something you’re already (hopefully) experts in.

We’ve seen remarkable improvements in fraud detection from our eCommerce customers that implement identity verification on all or some of their sales. Here’s how verification can reduce the two most common types of fraud.  Read on.


Identity Theft

Identity theft (often also referred to as classic fraud) can be relatively unsophisticated but extremely costly. A user might make a purchase using a stolen credit card and have inventory shipped to a reshipper for forwarding. The fraudster may even mask their location to show a relevant IP address for a transaction which in some cases, may bypass fraud detection. The seller is often the one hurt most by identity theft: a credit card company usually initiates chargebacks on behalf of the victim, but rarely is the merchandise returned. Even if the retailer manages to get back their products, they’re no longer new. The only way for a retailer to escape the double loss of revenue AND inventory loss is to stop it before it starts. By using even the most basic level of identity verification, a store can flag transactions in the following ways to detect possible fraud:

  • When a shipping and billing address do not match up.
  • Verify the buyer’s authenticity on the purchase of some traditionally high-risk products.
If a purchase were to fall into either of these categories, a seller can simply implement a next-level verification to ensure that the buyer is legitimate. By flagging transactions that might be considered high-risk, a deeper verification can be conducted or, the sale can be evaluated on more criteria to process.

Chargeback Fraud

Chargeback fraud is another bottom-line killer on the fraud front. Not only is chargeback fraud expensive, but it’s also life-threatening. Many credit card acquirers will increase rates, restrict or cancel merchants’ accounts if they are experiencing a 1% chargeback-to-transaction ratio. The worst-case scenario here is that a merchant is blacklisted and will struggle to find a reasonable payment processor moving forward.

Chargeback fraud (also referred to often as friendly fraud) will purchase a product -- frequently an expensive or sought-after item such as designer shoes -- but then cancels the order after it has been shipped. Scammers may cite identity theft or stolen credit card as the culprit. The other version of this is that the customer will claim that they never received the product, insisting that another shipment is sent or, initiating the chargeback process through the payment processor who will likely take them at their word. Thanks to strict customer satisfaction goals, the “card not present” (CNP) nature of eCommerce, and Consumer Protection Regulations, card issuers have been quick to take cardholders at their word. Despite a lack of proof, they mark legitimate transactions as fraudulent, impacting a merchant’s good standing with the payment networks.

Chargeback fraud can be crippling; the merchant loses either product or revenue or both plus some hefty fees for the chargeback. Furthermore, statistically, when a fraudster successfully commits chargeback fraud, there’s a 40% chance that they will repeat this type of transaction within 90 days.

To combat chargeback fraud, we see customers doing two things; firstly, they look for ‘suspicious’ transactions on high-demand products. They may conduct basic verifications on all transactions but for the more ‘high risk’ products they may run a more thorough verification including ID matching. Merchants may also flag any customer that has made a dispute or contacted customer service directly to get a refund or reship and place a higher level of validation on their purchases. Using verification will help you detect this behavior and allow the merchant the opportunity to engage directly with that customer in order to minimize the risk.

BlueCheck’s identity verification services help merchants of any size reduce fraud by helping to identify high-risk transactions and customer behavior. BlueCheck uses a combination of AI, publicly verified records, and analysis to assess the legitimacy of a purchase. Our customers report a significant reduction in fraudulent activity when they use BlueCheck to verify the buyer. The reduction in processor chargeback fees alone makes it easy to validate the cost and savings.
BlueCheck verifies buyers in real-time, in the background, with no added screens or data collection added to the checkout process in 95+% of transactions.


Learn more about the BlueCheck ID verification platform, or feel free to contact us with questions or to have a conversation around identity verification. It’s our passion and we’re always happy to chat.