The ecommerce landscape is experiencing what feels like exponential global growth, rapidly transforming the way businesses interact with their customers. But it’s not all smooth sailing.
Along with the potential for big sales, there are wide-ranging risks that online businesses need to confront and compounding complexities to navigate. From fraud and security risks to rising consumer demands, it’s vital to know what these risks are and how to handle them.
In this article, we’ll explore the top categories of ecommerce risks and share a solution for managing them effectively.
Ecommerce Fraud Risks
In the digital realm, transactions are—or are supposed to be—swift and seamless. But they’re also ripe for exploitation. The ease of online shopping draws in not just genuine customers but also nefarious entities aiming to capitalize on any vulnerability.
As businesses innovate to offer smoother checkout experiences, they also need to grapple with a rise in potential fraud risks that can jeopardize the health of their business. Common fraud risks include:
- Transaction Fraud: Beyond mere unauthorized use of stolen card details, this can also involve elaborate schemes, such as identity theft where fraudsters use personal details to impersonate genuine customers.
- Chargebacks or Friendly Fraud: This instance of fraud extends from genuine misunderstandings to deliberate abuse. Some customers might genuinely forget about a transaction, while others knowingly engage in deceit, aiming to get both the product and their money back.
- Wardrobing: What may seem innocuous to some shoppers can seriously hurt businesses over time. Wardrobing, or buying an item and wearing it with the intention of returning it, is on the rise. In 2022, one in five shoppers had engaged in the practice, and half of retail businesses affected by fraud had experienced it., Beyond the immediate financial loss, it increases handling costs, reduces product lifespan, and can diminish the value of returned items, impacting resale.
- Return Fraud: This can manifest in multiple ways, beyond wardrobing. Customers might return counterfeit or stolen items, engage in price switching, open-box fraud, or other methods. Return fraud is estimated to cost retailers as much as $24 billion each year.
To manage ecommerce fraud risk, businesses need to deploy advanced authentication systems, continuously monitor transactions, and employ algorithms that detect suspicious activities and minimize chargebacks. Check with your payment solution provider, ecommerce platform vendor, or merchant of record service to understand what sort of protection you’re receiving.
A business’s reputation online isn’t just built on the quality of products but also on the overall shopping experience provided. In the age of instant reviews and social media shares, a small hiccup can significantly dent a brand’s image. Even long before those actions are taken, conversions may be scuttled, and revenues lost due to cart abandonment. Meeting customer expectations is essential to both growth and risk management, which is why businesses must cover these bases:
- Technical and Payment Issues: Beyond mere glitches, if a platform frequently crashes, lacks mobile optimization, or doesn’t offer diverse payment options, it can alienate a vast user base. Plus, a large number of payments may be declined if the payment gateway doesn’t have a multi-acquirer network (i.e., relationships with local banks) in place.
- Lack of Localization: It’s not just about language. Offering local payment methods and currencies, understanding regional festivals for timely sales, and recognizing cultural nuances in marketing can significantly impact sales and brand perception.
- Delivery Delays: While occasional delays are understandable, consistent lapses can be detrimental. In today’s age of instant gratification, prolonged delivery times can turn customers towards competitors that offer faster shipping and better returns policies.
Maintaining constant communication and transparency with customers, using feedback for platform improvement, and ensuring robust tech support are essential to keep satisfaction levels high. But so too is having the right relationships and logistics strategy in place. Without the ability to fulfill orders at lower costs and higher speeds, the risks to your ecommerce business will only increase.
Supply Chain Risks
The supply chain is the backbone of ecommerce. It ensures that products move from manufacturers to warehouses and finally into the hands of customers. But it’s a complex network, sensitive to disruptions both small and large. From global economic shifts to localized disruptions, various factors can jeopardize the smooth flow of operations, including:
- Product Quality Issues: Inconsistent product quality doesn’t just lead to immediate returns. It affects customer trust, leads to negative reviews, and can even result in legal actions in extreme cases.
- Global Economic Conditions: Fluctuating exchange rates, trade embargoes, political unrest—not to mention pandemics—can increase costs, make it challenging to procure essential items, and fulfill customer orders.
- Service Disruption: Beyond obvious challenges like natural calamities, issues such as transport strikes, warehouse mishaps, or vendor disputes can lead to unexpected disruptions.
Building a flexible, responsive fulfilment infrastructure, maintaining transparency in communication, and having contingency plans in place are crucial to navigating supply chain risk. However, once again, the importance of relationships in ecommerce risk management becomes clear. Do you have a logistics partner that can offer custom supply chain solutions?
In the interconnected world of ecommerce, ensuring the safety of both business and customer data is paramount. Every online interaction, from browsing a product catalog to finalizing a purchase, involves data. This data, if unprotected, can be a gold mine for malicious actors looking for vulnerabilities.
- Encryption: While encrypting transactional data is standard, not all payment processing solutions offer the same level of sophistication when it comes to security. What’s more, businesses should consider encrypting all customer interactions, ensuring privacy and building trust.
- Firewalls and Authentication: Beyond keeping threats out, businesses should also monitor for potential insider threats or disgruntled employees who might misuse access.
- Backup and Recovery: While businesses backup data, many lack a rapid recovery plan. Time lost in restoring operations can compound the damage caused by a breach.
Manage these risks with regular cybersecurity training for employees, and by employing a dedicated team—or a dedicated service—to navigate your cybersecurity needs.
Legal and Compliance Risks
Expanding across borders means needing to dive into a maze of local regulations. From data protection rules in one country to unique invoicing requirements in another, the legal landscape for ecommerce is both diverse and dynamic. Staying compliant is not just about avoiding penalties—it’s also about building trust with global customers, as well as keeping costs down. Be sure you’re set to navigate these risks and more:
- International Regulations: As businesses expand, they need to adhere to various regional regulations. Missing out on any can lead to hefty fines and lost business opportunities.
- Tax Liabilities: Different regions have diverse tax structures. Understanding and managing these is crucial.
- Data Handling: With regulations like PCI DSS and GDPR in place, how businesses handle, store, and process customer data becomes a potential legal minefield.
Regular legal consultations, employing dedicated teams for international compliance, and staying updated on international laws and regulations are essential steps. However, when weighing the risks of noncompliance, you may deem it beneficial to let a partner assume some of the liabilities associated with global ecommerce.
How to Manage Ecommerce Risk and Complexity
As the ecommerce landscape—or your expanding enterprise—becomes more convoluted, seeking specialized expertise and protection only becomes more important. A merchant of record service, like Digital River, offers a holistic solution for managing risk and navigating complexity.
By assuming the liability for all transactions processed and any customer data collected on your behalf, Digital River provides businesses with a safety net and financial peace of mind. As merchant of record, we minimize your exposure to risk while maximizing conversions—handling payment processing, managing chargebacks, addressing taxes, and even offering custom supply chain solutions.
This type of partnership not only alleviates the complexities of global ecommerce expansion but paves the way for smooth, sustainable growth. Learn more today about how Digital River can simplify the way you sell and protect your business all the same.