How can fraud prevention make your online store lose money?

Online stores often go far when it comes to fraud prevention and security measures. Besides credit card history check, a lot of major online stores introduce sophisticated systems to verify IP addresses. Most likely it does pay off – one ecommerce fraud attack can damage business and drive away many customers.

But can fancy fraud prevention system also reduce number of customers? Very easily. Often trustworthy customers with reliable credit card history cannot go past IP verification when placing orders, because IP addresses resolve to “not-so-trustworthy” domain names.

I personally have come across several stories of people unsuccessfully trying to place orders while out of the country, in stores like L.L.Bean, Nokia, or even Flowers.com (the guy was trying to have flowers delivered for his wife’s birthday while being away on business). In most cases, a customer receives an email saying his credit card did not go thru. I was lucky with L.L Bean – I called them up and the same credit card worked just fine over the phone. But the shopper at Nokia wasn’t lucky at all; he was calling credit card bank and Nokia customer service back and forth answering security questionnaire, just to find out that his name has been permanently placed on an “IP-suspicious” list, simply because he had placed his order in Russia.

In my mind, online merchant need to find the “perfect balance” between security and site usability. You definitely need security measures in place; however they should not drive away reliable customers from shopping in your store.