Risk Management for Online Business
Whether your business is partially online, or 100% online, it comes with inherent risks. Taking the time to learn about and understand these risks is critical to implementing a strategy to protect yourself and your customers. An effective risk management strategy could be the difference between a business that fails and one that succeeds.
A comprehensive strategy for mitigating risks should include elements of website security, encrypted payment processing techniques, and diligent monitoring of your merchant account statements. Here, we will discuss the various elements of risk management and how to implement them into your business.
Understand Your Risk
Some businesses are at higher risk than others for certain types of online fraud and require the services of a high risk merchant account. However, all businesses are subject to some level of risk when completing transactions online. The first step to mitigating that risk is understanding your level of risk and what causes it.
There are certain types of online businesses that are considered higher risk than others. Some of the key categories that are considered high risk include, but are not limited to Online Gambling, Online Gaming, Sports Booking, Subscription Services, Travel Supplements, Pharmaceuticals, CBD/Hemp Products.
These are just a few of the many types of businesses that are considered high risk. These merchants generally face greater risks of chargebacks, fraud, and hacks than other types of businesses. If your business falls into one of these categories, keep reading and try to implement as many of these strategies as possible to protect yourself and your customers.
High Ticket Value
If your average ticket price is higher than $500, your risk increases significantly for chargebacks and other consumer fraud. High ticket items tend to be impulse buys for which the customer later feels buyer’s remorse. When this happens, the number of chargebacks increases, which puts your business at risk for losing money or even having your merchant account shutdown.
Subscription-Based Payment Models
If your business offers a subscription or monthly membership, this poses another set of risks. Many merchant account providers automatically consider subscription-based models to be high-risk merchants and therefore charge higher fees for processing. On top of that, these payment models are also more susceptible to chargebacks than one-time purchase models.
Card Not Present
Every business that takes credit or debit card payments online is subject to a level of risk associated with card not present purchases. If the customer is not physically holding the card in their hand and swiping it into a POS system, there is a greater risk that they could be using a stolen card number. Identity theft and hacking are real concerns for online consumers and businesses, so you need to take the proper precautions in these scenarios.
Prepare for eCommerce Fraud
There are a number of ways in which criminals engage in eCommerce fraud. Sometimes the attacks are directed against you as the business, and sometimes they are against the consumers. As an online merchant, you need to be aware of these risks and how to identify them.
Identity theft is one of the most prevalent concerns for today’s online consumers. It can happen in a variety of ways and can be difficult to detect until it’s too late. As a merchant, you can help protect your customers by asking for verified information with each purchase.
Verifying information includes asking for things like the billing address, zip code, or other identifying information. This can be set up through your payment processing portal and integrated into the payment screen on your website. Most payment processors offer this service, and some even require it.
Keeping an eye out for unauthorized purchases is another way to protect your business and your customers. One of the most noticeable red flags for unauthorized purchases is a single customer making or attempting to make, the same purchase multiple times in a short period. Another red flag is if the AVS (address verification) fails, or if the customer enters incorrect information multiple times when trying to complete a purchase.
Many customers will have security features set up through their bank or credit card provider to catch things like this. However, it is wise to also have a security feature in your payment processing system that will flag this type of activity, as well.
This is a computer software application, like WordPress, that is used in the creation and management of digital content. This software gives users the easy opportunity to create, edit, collaborate, publish and store digital content. A CMS has two components: Content Delivery Application (CDA) and Content Management Application (CMA).
The CMA is a graphical user interface that allows users to design, create, modify and remove content from a website even without knowing HTML.
Hackers often use the process of phishing to gain access to sensitive information from customers including banking numbers and passwords. Offering some basic tips and tricks on your website can help consumers feel safe when doing business with you. For example, a reminder that pops up to tell the customer that your site will never call and ask for sensitive information will remind them not to give away this info over the phone.
This is one of the most frustrating practices that online merchants deal with on a daily basis. A chargeback happens when a consumer purchases something and then calls their credit card company and asks for the money back, instead of dealing directly with the merchant. This can happen as a result of poor customer service, but more often than not, it’s a form of fraudulent activity.
Keeping a close eye on your merchant account statement will help you catch this type of fraud very early. If you notice that are particular customer or account is regularly purchasing goods from you and then charging them back, you can bet there is some level of fraud involved. However, you also need to consider some of your own business practices and how you can offer better service to avoid this practice.
You can mitigate some chargebacks by offering a clear, simple return policy on your website to help deter people from simply charging you back without your knowledge. You can also put a process in place that ensures quick shipping and tracking for your customers so they don’t become impatient and request their money back. The name of the game here is customer service – think Amazon!
We would be remiss if we didn’t also touch on website security as a form of risk management. While payment processing systems and customer service are extremely important, it’s also smart to have the best security possible for your site. Some of the things to consider for website security are:
- Having an SSL certificate (sometimes referred to now as TLS)
- Maintaining secure passwords to prevent hacks
- Using AI to identify robots from actual users
In a nutshell, your website should focus on four key elements of website security: protection, detection, verification, and reaction. If you’re not a web developer, be sure to discuss these items with your developer to put together a strong plan. Your site needs to be protected from hackers and also have services enabled that will detect suspicious behavior and react accordingly.
Putting together a comprehensive strategy for risk management is a critical component of protecting and growing your business. The more confident your customers feel in your ability to protect their data, the more they will do business with you. Take the time to write your strategy and then put systems and processes in place to make sure it is executed on a daily basis.
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