Dropshipping is when merchants sell a third-party product on their site, that is fulfilled and shipped directly to the customer by the manufacturer (or another third-party vendor). In this approach, the merchant doesn’t physically stock any of these products and instead relies on the manufacturer to fulfill the order directly to the customer when an order is placed on the merchant's site.
How Fraudsters Abuse Drop Shipping
Fraudsters see drop shipping as an opportunity to take advantage of cardholders by circumventing the fraud protections that many merchants have in place that few drop shippers do. For example, a fraudster may know that a certain merchant would never allow them to reroute an order, so they specifically order drop shipped items in an attempt to circumvent the merchant's rules.
Furthermore, fraudsters target merchants by falsely presenting as drop shipping retailers themselves. They use this tactic as another method to circumvent many merchants' customer verification policies, by simply claiming that they are drop shippers which is why the payment and identity information may not match.
Merchants engaged in dropshipping will likely have to deal with unique fraud cases, in addition to dealing with occasional customer dissatisfaction caused by shipping problems and supplier errors.
Common characteristics of a fraudulent dropship order may include:
- Deliberately mismatching the billing & shipping address to circumvent fraud filters
- Using a suspicious email address from a free provider (e.g. the name in the email address is not associated with the name on the order or is fully numeric)
- Requesting rush shipping on big-ticket orders
- Attempting to reroute the package directly with the manufacturer
- Unusually large order total for an individual order
How To Avoid Dropship Complications
- Know Your Vendor: When selecting a third-party manufacturer to sell their drop shipped goods, or when an order is placed on your site by an individual claiming to be a dropship retailer, make sure their business is searchable online, lists a valid warehouse address, and offers easy-to-contact customer support etc. Furthermore, perform some basic KYB ("know your business") background research on the vendor to confirm their details check out (e.g. confirm their address is located in an industrial park or warehouse district, not a P.O. box or residential neighborhood etc.). These basic checks can help you determine the legitimacy of a third-party manufacturer/vendor and ensures you have the resources to resolve any issues that may arise with a drop shipped order.
- Offer Superior Customer Service: It will always be preferable to issue a refund vs. handle a chargeback, particularly with drop shipped goods, so be lenient with refund policies as they relate to any delays that your customer may experience with drop shipped orders. Furthermore, transparency is always key, so be sure to provide clear and frequent updates with order tracking to your customers to reduce the chances of issues or escalation with drop shipped orders.
- Improve Product Descriptions: The quality of your product listing makes a huge difference, from the picture quality to the description of the item. Avoid copying the manufacturer’s product descriptions and photos and it is preferable to write your own detailed description and use your own unique photos. When the product listing is unclear or leaves room for interpretation, it may give issuing banks more weight to you lean on in the event of a dispute with your customer.
- Keep NoFraud In The Loop: If you have list of dropship vendors, retailers, or manufacturers, make sure to let our team know. Additionally, always require a phone number & other order details during checkout for additional verification if needed by the NoFraud Analyst team.