Shop Insurance Tips – How To Handle E-Commerce Risk

Many traditional high street stores are embracing the online world, not only to see goods online, but also to enhance customer relationships, attract new customers and increase overall sales revenue.

However, if you are considering growing, or starting to trade your business online, it is important to understand what is required to maximise information security and minimise credit and debit card payment risks.


No Planning can Lead to Chargebacks

Without adequate planning, many online stores have little or no fraud controls in place, which can lead to a chargeback rate in excess of 10, turning a new revenue stream into a potential nightmare. It is important to understand the basics of credit fraud before opening up to online trading.

Typical Risks for E-Commerce Merchants

Those handling transactions online should consider the following common risks:

• Fraud

• Theft of Account information by hackers

• Account information theft on site

• Chargebacks and Customer disputes

Authentication Processes and Systems

To avoid chargebacks, it is up to you, the online retailer, to implement the right level of controls and validation tools to verify the cardholder’s identity and the validity of the transaction. When used effectively, these systems can reduce the level of fraudulent transactions, as well as reducing the potential for customer disputes.

Useful Validation Controls

The following validation processes can be simple to implement, but may make a significant difference to your business outcomes as fraudster will actively seek out sites without adequate protection:

• Address Verification Service checks - Which review a credit card holder’s billing address with the issuer, providing an indicator of the validity of the transaction. Many online payment providers will include this process as standard.

• Card Verification Value (CCV) numbers are printed on the back of credit cards which help ensure that the customer has a genuine card, rather than card details which may have been purchased fraudulently online.

• Fraud Screening – examines each transaction and looks at trends to calculate the level of risk associated with each payment. This provides a risk score which will highlight potentially fraudulent transactions.



Chargebacks are the bane of any merchants’ life. When transactions are highlighted as a “chargeback”, they are returned to the selling retailer as your financial liability. If goods or services have already been provided, then you may suffer significant loss of revenue, in addition to added processing time.

There are several reasons why chargebacks typically occur, including:

• Customer-disputed transactions

• Fraud

• Authorisation issues

• Inaccurate or incomplete transaction information

• Errors on Processing or orders

When a cardholder disputes a transaction on their statement, they will usually ask for a copy of their transaction receipt. You should provide the receipt together with any supporting information to your merchant bank as soon as possible to avoid loss.

Train Your Team

A common problem for high street retailers looking to move into online shopping is the lack of staff awareness and training. Fraudsters may also try to phone through an order to avoid some of the validation processes and without appropriate vigilance problems can occur.

Ensure that all your staff are aware of the risks of credit fraud and chargebacks. They should know the chargeback rules and regulations that your provider uses and be well-versed in your risk management policies and procedures.

Shop Insurance and Cyber Insurance

Another area often omitted by retailers moving into the “clicks and mortar” space is their business cover. You should carry out a detailed review of your shop insurance, to ensure that sums insured remain adequate – are you carrying additional stock? Have you purchased computer equipment to manage the online sale process?

In addition, other emerging risks exist in the world of online trading. Customer data can be hacked or lost, leading to reputation damage and potential compensation payments. Your website could become hacked or taken off-line leading to reinstatement costs and loss of income, or even ransom demands. These type of risks can be covered via a specialist cyber insurance policy.

Speak to one of our expert advisors today on 0330 1240730 for a complete review of your current insurance arrangements.