The CBD and seeds industries have seen rapid growth in recent years, driven by increasing consumer interest in wellness and sustainable living. However, with higher demand comes a heightened risk of fraud, especially for businesses in high-risk sectors. 

For CBD and seeds businesses, taking proactive steps to prevent fraud is critical to maintaining the integrity of your transactions, protecting your brand reputation and ultimately safeguarding your revenue.

In this article, we’ll outline key fraud prevention strategies tailored to CBD and seeds merchants, explore the challenges associated with high-risk payment processing, and highlight the importance of partnering with a reputable payment processor that specializes in protecting high-risk merchants from fraudulent activities.

The Growing Risk of Fraud for CBD/Seeds Merchants

Fraud in eCommerce has reached alarming levels, with reports estimating that global online payment fraud could cost businesses over $48 billion by 2023. CBD and seeds merchants are particularly vulnerable due to a combination of factors:

• Regulatory Ambiguity: The ever-evolving legal landscape around CBD, hemp and cannabis-related products can lead to loopholes in compliance, creating opportunities for criminals to exploit.
• High-Risk Labeling: Because of the association with cannabis, many traditional payment processors consider CBD and seeds businesses high risk, leading to stricter scrutiny, higher chargeback rates and more frequent fraud alerts.
• High-Value Goods: High quality CBD and seed products often carry a higher price tag, making them an attractive target for fraudsters.

Without effective fraud prevention strategies, your business could face costly chargebacks, account suspensions, and potential reputational damage.

Key Fraud Prevention Strategies for CBD/Seeds Businesses

1. Implement Strong Customer Verification

One of the first lines of defense against fraud is verifying the identity of your customers. This is particularly important for CBD and seeds merchants, as age restrictions and geographic limitations may apply, depending on where your business operates. 

Customer identities can be verified in a number of ways:

• Address Verification Service (AVS): This tool compares the billing address provided by the customer with the one saved on file with their credit card issuer. An AVS mismatch could indicate potential fraud.
  
  
• 3D Secure (3DS) Authentication: By adding an additional layer of verification, such as a one-time password (OTP), 3DS reduces the risk of fraudulent transactions. It requires cardholders to authenticate their identity before completing a purchase, often through a code sent to their mobile phone or email. Using two-step authentication makes it harder to use stolen card details.
  
  
• Know Your Customer (KYC) Protocols: For businesses in regulated industries like CBD, KYC protocols help ensure that the buyer is legitimate and who they say they are (for example, verifying age, identity, and geographical eligibility).

These measures can also help to ensure that your business is compliant with the Anti-Money Laundering (AML) laws in the countries where your company operates.

2. Carefully Monitor Transactions for Suspicious Behavior

Real-time transaction monitoring is crucial for detecting fraud before it impacts your business. Fraud often follows specific patterns that can be spotted through diligent monitoring, such as:

• Unusually large orders: Scammers might place several high-value orders in quick succession, hoping to exploit the time gap before a stolen card is reported.
• Multiple purchases from the same IP address: This could indicate that the buyer is using multiple stolen cards from a single location.
• Inconsistent geographical data: Discrepancies in customer information, like the billing address being in a different country to the shipping address, may also signal fraud.

Some payment processors offer fraud detection tools that flag suspicious activities, enabling you to block the transaction before it’s completed and avoid the hassle (and expense) of doing so later!

3. Set Limits on Transactions

Setting transaction limits is an effective way to minimize your exposure to fraud. For example, you can set a maximum order value that, when exceeded, triggers a manual review. This can help your team to spot fraudulent transactions before they result in chargebacks.

Another common fraud prevention method is implementing velocity limits to control how many transactions a customer can make within a specific timeframe. Geographical limits that restrict sales to regions where your product is legal and regulated can also help prevent fraudulent orders from areas with unclear or strict CBD regulations.

4. Combat “Friendly Fraud”

Chargeback fraud, or “friendly fraud” occurs when a customer disputes a legitimate transaction to receive a refund, while keeping the product. This is a common problem for high-risk merchants, as frequent chargebacks can lead to higher fees or even account termination from well-known payment processors.

Here are our top 3 tips to combat chargeback fraud:

1. Keep Detailed Records: Maintain clear documentation of all transactions, shipping confirmations, and customer communications. This will provide vital evidence if you need to dispute a chargeback.
2. Use Clear Billing Descriptors: Ensure your business name appears clearly and accurately on customers’ bank statements to avoid confusion. If customers don’t recognize the charge, they may initiate a chargeback. 
3. Offer Transparent Return Policies: Make sure your return policies are easy to find and understand. Many chargebacks occur because customers are unsure how to return products or believe they’re entitled to a refund. A clearly communicated return policy can reduce avoidable disputes.
4. Partner with a High-Risk Payment Processor: Working with a payment processor that understands the unique challenges of high-risk industries is essential for CBD and seeds merchants. Traditional processors often have stricter rules and are more likely to freeze accounts or refuse to work with businesses in regulated markets.

Vendo specializes in high-risk payment processing, providing tailored solutions for CBD and seeds merchants. We offer robust AI-based fraud prevention tools, including real-time transaction monitoring and chargeback protection, to help safeguard your business. As fraudulent activities are constantly evolving, our team stays up-to-date with the latest fraud trends and tactics to help businesses stay ahead of potential threats.  

Our payment gateway integrates with your eCommerce platform and provides a seamless, secure checkout experience for your customers, also reducing the risk of abandoned carts and improving customer satisfaction.

The Bottom Line

Fraud prevention is crucial for CBD and seeds businesses operating in high-risk markets. By implementing strong customer verification processes, monitoring transactions for suspicious activity, setting transaction limits, and partnering with a reliable payment processor with experience in this sector, you can safeguard your transactions and reduce the risk of fraud. Taking a proactive approach not only protects your business but also helps build trust with your customers.