The eCommerce industry is one of the thriving sectors right now. Even during the first wave of the Coronavirus pandemic, when almost every sector, including retail, was at a standstill, eCommerce continued to be one of the few in function.
eCommerce brings about a whole lot of ease of use for users. This is one of the reasons why the sector has been experiencing enormous growth in recent times. Statistically speaking, around 17.8% of global sales were online purchases just a few years back. However, this figure is expected to cross 20.8% by the end of 2023.
Despite this growth, there is a catch here. Irrespective of how flashy and lucrative the industry is, multiple risks are involved. These eCommerce risks apply to both start-ups as well as decently established brands.
So, with that being the perfect start to describing the current state of the eCommerce industry, let’s discuss the risks it bears.
eCommerce Risks You Should Know of
1. Refund Risk
Refund is among the significant eCommerce risks. It can significantly impact their profitability. A high rate of refunds can indicate that a business is failing to deliver on its promises, damaging its reputation and losing customer trust.
This can lead to a decline in sales and increased costs associated with processing and issuing refunds. Additionally, some eCommerce companies also face the risk of fraudulent returns, which can be difficult to detect and prevent.
To mitigate refund risk, eCommerce companies can take several steps. One is to communicate their return policy and provide detailed information on product descriptions and features.
Companies can also invest in technology to detect and prevent fraudulent returns and implement a fair and transparent return process that makes it easy for customers to request a refund and receive their money back promptly.
Moreover, companies can collect and analyze data on return patterns to identify and address the root cause of high return rates, such as quality issues or product misdescription.
2. DDoS Attack Risk
DDoS (Distributed Denial of Service) attacks are becoming an increasing threat to eCommerce companies. These attacks are carried out by overwhelming a website with a huge amount of traffic, rendering it unavailable to its users.
This can cause serious financial losses to the eCommerce company, as they will be unable to sell their products or services during the attack. Moreover, the company's reputation can also be negatively affected, as customers will likely avoid frequently unavailable websites.
eCommerce companies are at a higher risk of being targeted by DDoS attacks, as their websites are a crucial source of income. In addition, attackers know that they can cause significant harm to the company by disrupting its online sales, making eCommerce companies a prime target.
It is crucial for eCommerce companies to incorporate robust security measures, such as a reliable network infrastructure and a DDoS protection solution, to minimize the risk of a successful attack. Additionally, companies should educate their employees on the dangers of DDoS attacks and the importance of keeping their systems and software up-to-date.
3. Stolen Credit Information
Stolen credit information can be one of the significant eCommerce risks, as it can lead to financial losses and damage their reputation. With the increasing number of online transactions, the risk of credit card fraud is also rising.
Hackers can use various methods to steal credit card information, such as phishing scams, malware attacks, and database breaches. Once the credit card information is obtained, it can be used to make fraudulent purchases, leaving the eCommerce company responsible for the financial losses.
eCommerce companies must take adequate measures to protect their customers' credit card information. This includes using secure payment gateways and encryption technologies and regularly monitoring their systems for suspicious activities.
Companies should also educate their employees on the importance of credit card security and the risks associated with storing sensitive information. In addition, companies should have a plan to respond to a data breach, which should include steps for reporting the incident to law enforcement and communicating with affected customers.
4. Currency Exchange Risk
Currency exchange risk is a common concern for eCommerce companies that operate globally and deal with customers using different currencies. The risk arises due to fluctuations in the exchange rates, which can cause changes in the value of the company's assets and liabilities.
For example, if an eCommerce company receives payment in a foreign currency and the exchange rate drops after the transaction, it will receive less value in its local currency. On the other hand, if the exchange rate increases, the company will receive more value in its local currency, which could result in a windfall.
eCommerce companies can mitigate currency exchange risk by implementing appropriate hedging strategies. One common strategy is to use forward contracts, which allow the company to lock in a specific exchange rate for a future transaction.
Another option is to use currency options, which allow the company to take advantage of favorable exchange rate movements. It is important for eCommerce companies to regularly review their currency exposure and implement effective risk management practices to minimize the impact of currency fluctuations on their business. These steps can reduce currency exchange risk and protect the bottom line for eCommerce companies.
5. Security Breaches
Security breaches are a major eCommerce risk, as they can lose sensitive customer information and financial data. Attackers use various methods, such as hacking and malware, to gain unauthorized access to a company's systems and steal sensitive information.
This can result in significant financial losses for the company, as well as damage to its reputation. Moreover, customers may lose trust in the company and take their business elsewhere, which could impact the company's revenue and growth.
To minimize the risk of security breaches, eCommerce companies must implement robust security measures, such as firewalls, encryption technologies, and secure passwords. They should also regularly monitor their systems for suspicious activities and update their software and systems to address known vulnerabilities.
Additionally, companies should educate their employees on the importance of data security and the risks associated with security breaches. Finally, in the event of a security breach, companies should have a plan to respond quickly and effectively, including steps for reporting the incident to law enforcement and communicating with affected customers.
6. Intellectual Property Violation
Intellectual property (IP) violation risk is a major concern for eCommerce companies, as they may unknowingly infringe on someone else's IP rights, such as trademarks, patents, or copyrights.
For example, an eCommerce company may sell counterfeit goods or use someone else's trademark or copyrighted material without permission. Infringing on someone else's IP rights can result in legal action, fines, and damage to the company's reputation. Moreover, it can also lead to loss of revenue, as the company may be required to stop selling infringing products and remove the infringing material from their website.
To minimize the risk of IP violation, eCommerce companies should ensure that the products they sell and the material they use on their website do not infringe on someone else's IP rights. This includes conducting regular searches for trademarks and copyrights and obtaining licenses or permission for any IP they use.
Companies should also have a due diligence process to verify the authenticity of products before they are sold on their website. In addition, companies should educate their employees on the importance of IP rights and the risks associated with IP violations. With these steps, eCommerce companies can reduce the risk of IP violations and protect their business.
7. Inadequate Authentication Method
Inadequate authentication methods can lead to unauthorized access to sensitive information, such as customer data and financial information. This can result in financial losses and damage to the company's reputation. Moreover, customers may lose trust in the company and take their business elsewhere, which could impact its revenue and growth.
To minimize the risk of inadequate authentication, eCommerce companies should implement robust authentication methods, such as multi-factor authentication and secure passwords. Companies should regularly monitor their systems for suspicious activities and update their software and systems to address known vulnerabilities.
Additionally, to avoid such eCommerce risks, companies should educate their employees on the importance of authentication and the risks associated with weak authentication methods.
8. Low SEO Ranking Risk
A low SEO score can negatively impact their visibility and organic traffic. With a low SEO ranking, an eCommerce company may not appear on the first page of search results, making it harder for potential customers to find them. This can lead to decreased sales, as customers are more likely to purchase products from companies that are easily discoverable online.
To minimize the risk of low SEO ranking, eCommerce companies should implement effective SEO strategies, such as keyword optimization, high-quality content creation, and link building. They should also regularly monitor their SEO performance and adjust as needed to maintain a high ranking.
In addition, companies should keep up to date with the latest SEO best practices and changes in search algorithms, as these can affect their ranking.
9. Poor CX Risk
Poor CX, or customer experience, results in decreased sales, negative reviews, and damage to the company's reputation. Customers may have a poor experience for various reasons, such as slow website speed, confusing navigation, or poor product quality. In addition, a poor customer experience can lead to frustration, resulting in customers taking their business elsewhere.
To minimize the risk of poor customer experience, eCommerce companies should focus on providing their customers with a positive and seamless experience. This includes having a fast and user-friendly website, providing clear and accurate product information, and offering excellent customer service.
Companies should also regularly gather customer feedback and use it to improve their customer experience. Additionally, companies should implement technologies like personalization and chatbots to enhance the customer experience and provide a more customized experience.
10. Warehouse & Logistics Risk
Warehousing and logistics are critical components of an eCommerce business, and any disruptions in this area can significantly impact the company's operations and bottom line.
For example, if a company's warehouse is damaged, it could result in the loss or damage of inventory, causing delays in fulfilling orders and decreased customer satisfaction. Similarly, issues with a company's logistics network could result in late or lost deliveries, which can also impact customer satisfaction.
To minimize the risk of warehousing and logistics issues, eCommerce companies should have robust systems to manage their inventory and deliveries. This includes having emergency plans for unexpected events, such as natural disasters or supply chain disruptions.
Companies should also regularly assess and improve their warehousing and logistics processes to ensure they are efficient and cost-effective. In addition, companies should work with reliable and experienced logistics partners to ensure that deliveries are made on time and with minimal disruptions.
By taking these steps, eCommerce companies can reduce the risk of warehousing and logistics issues and ensure that their customers receive their orders as expected.
11. Non-compliance Risks
Non-compliance with legal and regulatory requirements is a significant risk for eCommerce companies, as it can result in hefty fines, legal actions, and damage to the company's reputation.
For example, if a company fails to comply with data privacy laws, it could result in the unauthorized disclosure of sensitive customer information. Similarly, if a company fails to comply with consumer protection laws, it could result in legal action from customers or government agencies.
To minimize the risk of non-compliance, eCommerce companies should stay updated with the latest legal and regulatory requirements and ensure that their policies and practices align with these requirements.
Companies should also conduct regular assessments of their compliance risks and implement processes to address any identified risks. In addition, companies should work with legal and regulatory experts to ensure that their policies and practices are compliant and to receive guidance on any compliance-related issues.
12. Incompatible Software or Plugin
Incompatible software or plugins causes disruptions to the company's operations and negatively impact the customer experience. For example, suppose an eCommerce website uses software or plugin incompatible with the latest version of its content management system. In that case, it could result in broken links, error messages, and slow page load times. This can cause frustration for customers, who may take their business elsewhere.
To minimize the risk of incompatible software or plugins, eCommerce companies should regularly assess the compatibility of the software and plugins they use and make necessary updates or upgrades.
Companies should also have plans to address any issues that may arise due to software or plugin incompatibility. In addition, companies should work with software vendors and IT experts to ensure that their systems are up-to-date and compatible with the latest technologies.
13. Natural Calamities
Natural calamities, such as hurricanes, earthquakes, and floods, can be a significant risk for eCommerce companies, as they can disrupt the company's operations, damage its infrastructure, and lose revenue.
For example, suppose a natural disaster damages a company's warehouse. In that case, it could result in inventory loss or damage, causing delays in fulfilling orders and decreased customer satisfaction. Similarly, if there are power outages or internet disruptions resulting from a natural calamity, it could impact the company's ability to process orders and provide customer service.
To minimize the risk of natural calamities, eCommerce companies should have contingency plans to address potential disruptions and minimize their impact. This may include having backup power supplies, disaster recovery systems, and remote work capabilities to ensure that the company can continue to operate even if its physical facilities are impacted.
Companies should also regularly assess the risk of natural calamities in their operations and take steps to protect their infrastructure, such as investing in disaster-resistant buildings and systems.
14. Privacy & Data Leak Risks
Privacy and data leaks can result in the unauthorized disclosure of sensitive customer information, such as names, addresses, payment information, and personal details. Such leaks can have severe consequences, including damage to the company's reputation, loss of customer trust, and legal action from customers or government agencies. In addition, customers who have had their personal information exposed may be more susceptible to identity theft and other forms of fraud.
To minimize the risk of privacy and data leaks, eCommerce companies should implement strong security measures to protect customer information, such as encryption, firewalls, and multi-factor authentication.
Companies should also regularly assess and update their security practices to ensure they are in line with the latest threats and risks. In addition, companies should have contingency plans to address potential data breaches and minimize their impact, including incident response plans, regular backups of customer data, and effective communication strategies to inform customers during a data breach.
It is not easy to start and run an eCommerce company without running head-first into the risk. So companies should always have backup plans to mitigate these risks as and when they appear. As far as knowing about the eCommerce risks is concerned, these are most common and can happen with brands of any scale. And as the saying goes, knowing the problem is half the solution.
But fret not; we’ll keep bringing you information and updates on such topics to make you adept with how the industry functions and how you can have a lucrative brand. Keep following this space.
Is eCommerce a high-risk business?
eCommerce is generally a high risk industry, especially for startups. In fact, some eCommerce risks are extremely difficult to overcome, like integrating a securing payment gateway, complying with all legal obligations, financial risks on returns and inventory, etc.
What are the risks of online platforms?
Besides just eCommerce, online platforms as a whole attract a lot of risks. Some of the most problems that businesses face are malware attacks, hacking, data leaks, fraudulent transactions, etc. So, brands need to invest heavily in a secure system to reduce such threats.
What are the risks of eCommerce?
eCommerce industry comes with a lot of risks. Some of the eCommerce risks businesses have to mitigate are data leaks, payment security issues, product returns, compliance problems, and risky warehousing and logistics.