How to Prevent Fraudulent Online Orders: A Guide for Boutique Wineries and Specialty Food Brands
As more marketplaces take the bulk of their business online, fraudulent orders have become an alarming threat to small businesses. Unfortunately, Wineries and Specialty Food Brands find themselves particularly exposed to this risk.
But don't fret yet! Your friends at BBG have you covered with this easy-to-understand guide to spotting fraudulent orders, reacting accordingly, and hopefully keeping them from derailing your online business.
Understanding the Threat of Fraudulent Online Orders
First, let's define the pesky problems we’re talking about here so you can know what you’re dealing with.
The first and most direct type of fraudulent order is an old classic: the credit card scam. Evil-doers have been using stolen or false credit information to make purchases since the invention of agriculture in ancient Sumeria (for real), but the internet has allowed the practice to blossom like never before.
Unfortunately, niche industries like Wineries and Specialty Food Brands are especially tasty targets for credit card scams due to lower financial expertise and less regulatory oversight.
Identity theft can also be a problem for growing online businesses, especially if you’re already struggling to keep up with orders and don’t have time to properly vet every purchaser. The online marketplace makes it especially easy to simply input someone else’s contact and payment info, leaving you with chargebacks. Always be on your guard and remember: if something doesn’t look right, chances are it isn’t.
The third main type of fraudulent online orders are reshipping scams — bogus partnerships or jobs for which a third-party victim is promised payment for receiving illegally obtained packages at one address, and then shipping them to a different address. These are especially nefarious because they leverage online anonymity to exploit your goodwill to ruin your business. If that sounds scary, good! Reshipping scams have resulted in innocent people serving prison time.
Actionable Measures You Can Take
The threat of fraudulent online orders isn’t going away anytime soon, so here are some ways you can help mitigate your risk and avoid costly mistakes.
Implement Verification Methods:
Utilize address verification services.
Require CVV numbers during checkout.
Use Technology Solutions:
Consider fraud detection software that uses AI to analyze purchasing behavior.
Apply multi-factor authentication for user accounts.
Educate Your Team:
Train staff to recognize signs of fraudulent activity.
Establish clear protocols for handling suspicious orders.
Examples of Fraudulent Online Orders and What Lessons to Learn
Now that we know what to look out for, let’s dig into a few examples of fraudulent online orders, how they affected the businesses involved, and what you can learn from their successes (or failures…).
Please Note: Certain names and locations have been changed to protect the reputations of the fictional people involved with these cases.
Example 1: Fraudulent Credit Card Transaction at a Boutique Winery
Situation: Bloody Mary’s Red Blends, a rising star of the California wine world, received an online order for 10 cases of their premium wine. The payment went through without a hitch, so the winery promptly shipped the order. Business as usual.
However… *ominous music intensifies* A week later, they were notified that the credit card used was stolen, and the payment was reversed. Now Bloody Mary’s is left with no wine, no money, and lots of angry questions.
Impact of the Fraudulent Credit Card Transaction
Financial Loss: The winery suffered a significant financial loss, as they were unable to recover the wine and there was no valid source of repayment.
Operational Challenges: The incident forced the entire Bloody Mary’s team to work overtime dealing with the credit card company — which was, as always, a huge hassle and distraction from their tasks.
Lesson Learned: Implementing a robust verification process, such as requiring additional identity proof or using fraud detection software, could have detected the fraudulent transaction early on and saved Bloody Mary’s some serious headache.
Example 2: A Local Bakery’s Success with Two-Step Verification
Situation: Babycakes Custom Birthday Desserts experienced a boom in orders during the COVID lockdown. Everything was going great until they realized they were also experiencing a boom in fraudulent transactions. Nothing major had slipped through the cracks yet, but it was only a matter of time…
Bradley Bandersnatch, Benefactor and Head Bread Baker of Babycakes Custom Birthday Desserts, knew something serious had to be done. After consulting with BBG, he decided the best course of action was to implement a two-step verification process, requiring customers to verify their identity through a text message code sent to their mobile phone.
Impact of Adding Two-Step Verification
Reduced Fraud: Within six months, Babycakes witnessed a 60% reduction in fraudulent transactions.
Increased Customer Trust: Customers appreciated the additional security, leading to increased loyalty and positive word-of-mouth.
Operational Efficiency: By cutting down on fraud, the company saved time that would have otherwise been spent investigating and disputing orders.
Lesson Learned: Scammers are, by definition, lazy and uncreative people. Even simple measures like two-step verification are highly effective at keeping them away from your business. Of course, cybersecurity isn’t everyone’s forte, so don’t be afraid to reach out to experts for help.
Example 3: The Costs of Ignoring Suspicious Activities
Situation: Birdfeeder Build-Your-Own Seed and Nut Bars is a better-for-you snack brand based in Los Angeles. The operations manager at Birdfeeder noticed repeated suspicious activities, but being an LA native, she knew she’d have to take surface streets to get to the 101 before 3pm to get a jump on traffic so she left the office before digging in further. That meant they never saw it coming when multiple bulk orders from newly created accounts turned out to be big fat frauds.
Impact of Ignoring Suspicious Activities
Multiple Chargebacks: Birdfeeder faced multiple chargebacks from these fraudulent orders, hurting their bottom line and keeping them from expanding their business at their previous pace.
Lost Employees and Opportunities: Such an egregious mistake forced Birdfeeder management to let go of their long-time operations manager and then invest further time and resources in finding the right replacement.
Lesson Learned: Proactive monitoring and a willingness to act on red flags are essential to running a successful online platform. Ignoring early warning signs can (and dare we say will) lead to cascading problems that impact multiple aspects of your business.
Concluding Insights
Harrowing stuff… Really makes you feel for the business owners in these tales. Fortunately for them, they’re all fake. Unlike the threats to your online business, which are very, very real. Let’s recap the top three insights we gained on how to stay safe from fraudulent online orders:
Stay Alert: Recognize the signs of fraud and take immediate action.
Invest in Protection: Consider technology and verification methods tailored to your business.
Educate and Collaborate: Work with your team and share best practices.
Don't let fraud put a cork in your success! Implement online safety measures and educate your team to keep business flowing smoothly. If you need further assistance or personalized guidance, don't hesitate to reach out to BBG and speak with our industry experts.
Cheers to your ongoing vigilance and success! 🍷
