Financial Risks in eCommerce: How to Handle Them

Identity Verification Solutions for eCommerce Business

You must be aware of the financial dangers involved in the eCommerce sector as an online retailer— you’re exposed to a whole world of financial risks. Knowing the dangers will help you overcome obstacles in online retail with ease, especially if acquiring banks classify you as a high-risk merchant. Due to the nature of eCommerce, criminals could leverage your internet business for their own illegal purposes. By placing digital orders, receiving the service or product, and then purposefully filing a chargeback, fraudsters continue to prey on unwary businesses.

Estimates show that in 2022, an increase from the previous year, the global cost of e-commerce losses due to online payment fraud was estimated at 41 billion US dollars. By 2023, the amount is anticipated to increase even more, reaching 48 billion dollars. If you don’t take preventative measures, you could also run into privacy and security problems in the eCommerce sector, in addition to fraud. Advanced technologies make it possible for cybercriminals to access your website and get past security measures.

Typical eCommerce risks

Identity theft

71% of internet retailers are concerned about identity theft. Phishing scams are used by criminals to steal identities the most. They are able to conduct online purchases using credit card data that has been stolen.

Poor SEO ranking

The algorithms of search engines are always evolving. For instance, Google modifies its search algorithm between 500 and 600 times each year. Your website traffic may still be high today even if you are at the top of the search engine results page.

Intellectual property violation

Although though it is frequently overlooked, intellectual property has the highest value in the eCommerce sector. Be aware that infringement of intellectual property extends beyond the straightforward appropriation of your website’s taglines, trademarks, content, and graphics. Trade secrets are divulged as a result of intellectual property violations, which can result in unfair competition. Without paying the creator for their labor, hard work is stolen. Your internet firm may suffer a significant financial loss as a result.

Poor electronic authentication and transaction techniques

Your website may be vulnerable to a number of cyberattacks if your authentication and transaction processes are poor. To ensure that your system can withstand these assaults, you must use reliable authentication and transaction techniques.

Poor customer service

Poor customer service can harm your eCommerce business, including incorrect deliveries, lengthy turnaround times, and the inability to address a problem right away. 60% of consumers claim to have abandoned a brand and switched to a competing business due to poor customer service.

eCommerce is still considered the future of retail, despite the numerous problems it poses. According to Statista, retail eCommerce sales amounted to approximately 5.2 trillion dollars in 2021. This amount is expected to increase by 56%, totaling roughly 8.1 trillion dollars by 2026. With these figures in mind, giving up on the eCommerce industry might not be the wisest move if you want to flourish.

What businesses are seen as high-risk?

Depending on a number of variables, acquiring banks may classify your business as high-risk. When applying for merchant or financial services, you must go through a substantial Know-Your-Customer (KYC) procedure because you are a high-risk merchant. You won’t be eligible for conventional payment processing as a high-risk merchant. Moreover, the number of transactions each month may be limited, and a minimum cash reserve may be required.

Banks could decline your application if you are classified as a high-risk merchant. Finding a reputable merchant service provider that offers high-risk merchant accounts and can assume accountability for your increased risks is therefore necessary. These payment processing experts might have a focus on the same sector as your business and could actually assist you if certain risks materialize.

The following are some indicators of high-risk online businesses:

Your company’s sector or clientele

Whether you are classified as a high-risk merchant or low-risk merchant may depend on your sector and online customer base. There are greater risks in some businesses than others.

The following are just a few of these industries:

  • Cigarette
  • Drug stores
  • Electronics
  • Financial services
  • Gambling
  • Gaming
  • Legal services
  • Pharmacy
  • Travel and hospitality

Online fraud threats

Online fraud is a possibility if your eCommerce business lacks a high-security infrastructure. Working with eCommerce merchants at risk of rising online fraud events is something that many merchant service providers are reluctant to do.

Countless chargebacks

You will be held responsible for the losses if chargebacks are made. Acquiring banks may classify you as a high-risk merchant if your eCommerce business has a history of receiving many chargebacks. Due to the possibility of fraud, you must determine the source of these chargebacks. It can also indicate that you need to improve your customer service.

Years spent operating a business

The age of your eCommerce company may also affect your reputation as a high-risk merchant. It is clear that new companies in the sector could have to establish themselves before getting the best status designations and rates from merchant service providers.

Large number of transactions

Your company faces a greater financial risk if it conducts hundreds or thousands of transactions every day through its online store. This increases the likelihood that criminals may attempt to steal data and credit card details.

Prolonged delivery period

Long delivery periods may lead to mistakes. On the road, anything might go wrong and cause harm to your products. This then increases the likelihood that your company may suffer losses. Your eCommerce business consequently becomes a risk for the merchant service provider.

High-risk merchant account: saving your business

Any payment processing accounts for businesses that are thought of as high-risk or prone to suffering losses are considered high-risk merchant accounts. There is a requirement to pay higher prices for merchant services when using these high-risk merchant accounts. Your merchant account may have a rolling reserve added by the acquiring bank if your eCommerce company is deemed to be high-risk. With the help of this rolling reserve, you can be guaranteed that your account will always have enough available cash or liquidity in the event that one of your customers or the credit card holders requests a significant chargeback amount. The money might be used to pay for potential fraud.

High-risk merchant accounts benefits

Higher processing costs are a drawback of having a merchant account for a high-risk business, but there are also some benefits. Due to the advantages that typical payment processors lack, some eCommerce business owners actually favor high-risk payment processors. These benefits consist of the following:

PCI compliance

The Payment Card Industry Data Security Standard (PCI) is adhered to by high-risk merchant accounts. In order to safeguard the data created during each processing transaction, the supplier complies with operational and technical standards.

Tremendous support

Your high-risk merchant account might offer your company a ton of help that might even exceed the level of your future needs if you happen to find a reputable provider. The company might even offer technical assistance to ensure that your business runs smoothly. Also, they might help with the technicalities of payment transactions.

Security standards that are advanced

Of course, if your eCommerce company falls under the category of a high-risk industry, providers won’t readily agree to collaborate with you. To ensure that every card used for payments is genuine, these providers will utilize higher security and privacy requirements. Using these security precautions is essential if you have a high-risk merchant account and want to prevent substantial losses. The owner of the card is likewise shielded against fraud by this sophisticated security system.

Additional benefits of a high-risk merchant account include the following:

  • A boost in sales volume allowances
  • Multi-currency options
  • Recurring billing

Prior to using a high-risk merchant account, make sure you only partner with reputable service providers. The secret to safeguarding your eCommerce business is partnering with a trusted provider. The majority of these service providers possess the needed expertise in the field and are aware of the significance of maintaining compliance with all laws and regulations.

Using techniques for chargeback prevention

One of the most dreaded forms of eCommerce fraud is the chargeback. Even though it’s referred to as “friendly fraud,” it can result in huge losses for online retailers. For every $1 in chargeback revenue, ecommerce companies lose $3.94. Statistics show that because it’s simpler, 80% of customers choose to file a chargeback rather than request a refund from the merchant directly. When cardholders challenge charges on their credit cards, the acquiring bank is then forced to process a refund since they believe the online retailer made a mistake. This may help to explain why so many disputes are unnecessary. Almost 78.6% of chargeback processing problems were unintentional. Chargebacks are a growing issue for the eCommerce sector; therefore, you should learn how to handle them so you can save money over time.

To avoid them in the future, you can take the following actions:

Purchases are shipped promptly

The majority of chargebacks are caused by delayed deliveries. Your customers might believe they were conned if their orders don’t arrive on schedule. If your eCommerce company is relatively new to the market, this can be the case. Because you are essentially unknown to most people, they might believe that you overcharged them for late shipping. Given that 43% of customers prefer far quicker delivery times from enterprises, you could choose to collaborate with reputable delivery service providers.

Deliver excellent customer service

At companies with top-notch customer service, 93% of customers were more likely to make another purchase. You might choose to make an investment in first-rate customer care to prevent customer loss and unreasonable chargebacks. Customers won’t need to contact credit card companies with their problems if you have a readily available customer service team.

Look for a payment processor that offers top-notch merchant support

You are not required to pick the least expensive processor. Choose a processor with the greatest merchant assistance if you want to make a wise investment. You should file a dispute after receiving unauthorized chargebacks in the thousands of dollars. In these circumstances, you’ll want to make sure that everything goes as smoothly as possible. Fortunately, you can confirm the validity of these chargebacks with the help of a trustworthy payment or credit card processor. Even better, for convenience, use mobile processing apps.

Build fraud monitoring processes

As an online retailer, you would be making a serious error if you assumed that every transaction on your eCommerce platform was legitimate. Always use caution, and if necessary, implement fraud detection methods.

The following actions can be taken to prevent fraudulent transactions:

  • Have your payment gateway require Card Code Verification (CVV) and Address Verification (AVS)
  • Always update your shopping cart software
  • Verify that your customers’ billing addresses correspond to their IP addresses
  • To prevent future fraud attempts, compile a list of past ones
  • Provide training for staff on recognizing fraud risk


Although there are a number of financial risks associated with eCommerce, don’t let that stop you from launching your online business. There are risks in running a business, but that’s part of forging your own path. You’ll be able to prevent fraud whenever it arises if the proper security measures are put in place and you have the top payment processors on your side.

FTx Identity offers intriguing new opportunities—are you ready to explore them? Set up a consultation with one of our specialists and take a demo to discover its untapped potential and the beneficial improvements it can bring.

  • age verification technology
  • Identity Verification
  • Know-Your-Customer Procedure