Skip to content

What Is E-Commerce Fraud, And How Can Your Business Avoid It?

    With the rise of eCommerce platforms that make it easy to build an online store from scratch and the growing popularity of online shopping, there has never been a better time to sell your goods online. Even though there are bad things about everything, it’s important to know about the risks of online selling. After all, even paradise has its problems.

    If you have an eCommerce store, you should protect your customers from fraud. In the past few years, fraud on the Internet has more than doubled the growth of online sales.

    Fraud is more likely to happen in e-commerce stores than ever before, so they need fraud management systems that can find and stop fraud as well as help them deal with chargeback disputes.

    206,000 hackers try to break into online stores every month. As online shopping gets more popular, cybercriminals and shady customers have more chances to scam online businesses.

    Fraudsters steal from online store owners and operators, ruin their online reputations, drive away customers, hurt their brands, and cut into their profits.

    What is online shopping fraud?

    Before you can protect yourself, you need to know what eCommerce fraud is. First, let’s talk about what we mean.

    eCommerce fraud is when someone lies during a business transaction over the Internet in order to get money or other benefits for themselves at the expense of the merchant. eCommerce fraud is another name for payment fraud.

    When you think about eCommerce fraud, keep in mind that the victim is an online merchant and that the fraud is meant to stay a secret. Due to a lack of time, money, and other resources, it can be hard to find evidence and bring cases to court. This is one reason why eCommerce fraud is so common today and rarely gets punished.

    Since eCommerce fraud prosecutions don’t happen very often, it’s important to set up a fraud detection and prevention management system that will help your business deal with eCommerce fraud as little as possible.

    As eCommerce fraud gets more complicated, scammers use more advanced methods every year. Malicious people only have to be right once, but you have to be right every time. Before we talk about how to stop them, let’s look at the most common types of online fraud.

    Ecommerce Fraud Types

    To make sure your eCommerce site is safe, you need to figure out why fraud happens in the first place and then come up with ways to stop and defend against these attacks. First, you’ll need to figure out what kind of fraud is happening on your platform.

    We’d like to talk about some of the most common ways that people try to steal money through eCommerce. These strategies have been used to target both small and large e-commerce sites. If you know about them now, you won’t fall for them.

    Fraud on credit cards

    Credit card fraud is when someone uses someone else’s card to get money without their permission. Even though credit card fraud happens a lot on eCommerce sites, it is not something that only happens on those sites. There are three types of credit card fraud: “friendly fraud,” “chargeback fraud,” and “real fraud.”

    • Friendly Fraud is when a cardholder disputes a transaction without realizing or remembering that they agreed to it. Since the cardholder thinks they were charged wrongly, this is a case of fraud that wasn’t done on purpose.
    • Chargeback: Fraudulent chargebacks are done in the same way as friendly fraud, but the cardholder disputes a transaction they know they approved on purpose.
    • True: In real credit card fraud, a lost or stolen card is used to make a purchase. Fraud happens when someone uses a lost card before the owner realizes it’s gone or when they use stolen credit card information without having the card itself.

    Account-Taking Scams

    Account takeover fraud is when someone takes over an account on a website or online store. People can use the dark web to steal passwords, security codes, or personal information, or they can use phishing to get information about a specific customer.

    Once a user’s account has been hacked, fraudulent things can be done. They can change a user’s account information, buy things on eCommerce sites, withdraw money, and even log into the user’s other accounts.

    Taking over someone else’s account without their permission is a serious form of identity theft that hurts both the victim and your reputation. Customers are less likely to buy from your website or online store if they think their information could be stolen. They are more likely to think about competitors whose security measures are better.

    Once fraudsters get into an account, they can do anything they want, such as:

    • Changing information about an account
    • Go to the store to buy things.
    • Withdraw money (if you can)
    • User’s other accounts can be viewed.

    Interception Fraud

    Fraudsters commit intercept fraud when they use stolen credit cards to place orders on your eCommerce site that match the shipping address and billing address of the stolen credit card. As soon as the order is placed, their goal is to grab the goods before the package arrives.

    They may ask your customer service to change the address on the order before it is shipped. This makes it possible for them to get the goods without having to pay for them.

    On the other hand, they can ask the shipper to send the package to a different address. In some cases, they may even wait for the package to be sent to them in person, sign for it, and then take it.

    Fraud by Triangulation

    Triangulation is a type of fraud that involves the fraudster, the customer, and the eCommerce store. A fraudster sets up a fake storefront, like on Amazon or eBay, that looks like it sells real goods. Once a customer makes a purchase, the fraudster gets the customer’s credit card information and uses it to buy more goods.

    eCommerce fraud can cost businesses a lot of money or even make them go out of business, which is a sad fact for online stores.

    Understanding eCommerce fraud will help businesses come up with ways to protect their online stores from fraud and stop fraud from happening.

    Clean Fraud

    Clean fraud is a fake transaction that looks like it should be legal. This kind of fraud is becoming more of a problem for stores because most of the time, the charges don’t get caught or blocked by blacklisted fraud accounts. When someone steals your credit card information, they use it to act like you.

    Fraudsters can get account holders’ information by getting them to buy things on a fake site, listening in on communications between the people involved in the transaction, or even buying it on the dark web, which only certain browsers can access.

    Affiliate Fraud

    Bad actors can use affiliate traffic and sign-ups to make merchants think they are getting attention from customers when they are not. Affiliate marketing is used by a lot of companies, and a lot of those companies also run affiliate marketing programs. A simple way to give the impression of a lot of traffic is to refresh a website several times or send spam emails and pop-ups.

    How to Spot Online Ecommerce Fraud

    As an online merchant, there are many ways to spot eCommerce fraud. It’s important to keep in mind that fraud in eCommerce depends on how smart and skilled the fraudsters are.

    Online thieves are getting smarter and coming up with new ways to cheat their victims, but merchants are also doing more to stop them. Note these warning signs:

    • Information In The Wrong Order: There is no match between the zip code you entered and the city you chose. The shopper’s IP address and email address don’t match.
    • Order That Is Unusually Big: The order is much bigger than what your customer usually spends. Multiple items of the same SKU in one order and fast shipping could also be a red flag.
    • A Strange Location: You have a customer who always buys from a North American IP address but now orders from a strange IP address.
    • Shipping To More Than One Address: When a buyer makes more than one purchase, the items are shipped to more than one address, but the billing address is only used once.
    • A Lot Of Transactions In A Short Amount Of Time: The fraudster buys more than one thing in a row, and it’s not the holiday season.
    • Multiple Credit Card Orders: A person buys more than one thing with more than one credit card.
    • Several Declined Transactions In A Row: A buyer tries not just once or twice, but four, five, six, seven, eight, or more times before getting the card number, expiration date, or security code right.
    • A Lot of Orders From A New Country: In one week, you get 11 orders from Bhutan, a country you’ve never done business with before.

    How to keep your business safe from eCommerce fraud

    How much credit card fraud happens on your platform affects how much money you make and what your bottom line is.

    Even if it seems like an uphill battle to protect your eCommerce company from growing threats, there are a few easy steps you can take to fight back against eCommerce fraud and reduce fraud risk.

    Use solutions for finding fraud

    It’s one of the best ways to stop all kinds of fraud in eCommerce. An eCommerce fraud detection solution works by finding transactions with red flags and protecting eCommerce merchants from card testing fraud, friendly fraud, and chargeback fraud.

    A fraud detection solution is one of the best ways for an eCommerce business to protect itself against fraud. It is especially helpful for smaller businesses that don’t have the time, money, or skills to put their fraud solutions into action. Before choosing a fraud detection vendor, it is important to do your research.

    Follow the rules set by PCI.

    Payment Card Industry Data Security Standard (PCI DDS) requires businesses that store and process credit card and cardholder information, like eCommerce businesses, to keep a safe environment.

    Because of PCI compliance, you must take basic security measures, such as putting a firewall between your internet connection and any system that stores credit card numbers.

    In the end, PCI compliance is a legal requirement, so you must make sure you follow the relevant PCI guidelines to avoid sanctions or penalties.

    During the holidays, you should be extra careful.

    Since more people shop online, December can be one of the most important months for your business because of Black Friday, Cyber Monday, and other holidays. During these times, customers are also busy and distracted, so they don’t pay as much attention to safety.

    During these months, many fraudsters take advantage of the fact that merchants are busy to hide possible fraud. During the holiday season, be extra careful if you get a lot of orders from other countries, orders that need to be done quickly, or orders for small amounts of money. Fraudsters might do these things to try out plans like card testing fraud.

    Make a “black list.”

    If you use a fraud detection solution (or do it yourself), you may start to see that certain customers are testing credit cards on your eCommerce site. Once you know who they are, you can put them on a blacklist.

    If you put a customer on a “blacklist,” they won’t be able to buy anything from your website in the future. Blacklists aren’t a complete solution because fraudsters can still use new stolen identities. You can, however, use a blacklist to catch transactions that might be fake before they happen.

    Check the security of the site often.

    Would you like to find security holes before thieves or con artists do? Audits should be done regularly. Here are some things to think about:

    • How are our shopping cart software and add-ons coming along?
    • Do we have an SSL certificate that is up to date and works?
    • Do we follow the Payment Card Industry Data Security Standard (PCI-DSS) in our store?
    • How often do we make copies of our online store?
    • Do our admin accounts, hosting dashboards, CMS, databases, and FTP access have strong passwords?
    • Does our website get scanned for malware on a regular basis?
    • Do we use encryption when talking with our customers and suppliers?
    • Do we get rid of plugins that aren’t being used?

    Keep an eye out on your site for good things to happen.

    Shops with real locations hire people to keep an eye out for shoplifters. Keeping an eye out for strange things going on in your store can help you stop fraud.

    Pay attention to red flags in your accounts and transactions, like billing and shipping information that doesn’t match up and where your customers are located. Use tools that track customer IP addresses to find any IP addresses from countries where fraudsters are known to live.

    Use a service that checks your address.

    Address Verification, also called Address Validation, is a service that checks to see if the person who says they own a credit card really does. Address Verification services are tools that a number of credit card processors offer to check the address on a credit card.

    If you get an order and aren’t sure if the customer is real, the AVS system checks to see if the billing address on file matches the address of the customer.

    Based on how the verification went, AVS makes a response code, such as “match” or “no match.” If the customer gives the wrong address, the merchant decides whether to cancel the order and give the customer a refund or whether to ship the item.

    Make sure that HTTPS is turned on.

    The HTTPS protocol lets you send secure information between your online store and a customer’s web browser, such as Google. HTTPS encrypts the data to protect sensitive information like the names, addresses, and credit card numbers of customers.

    If you use HTTPS, hackers, cybercriminals, and fraudsters won’t be able to easily see your online store’s transactions. For HTTPS, you need an SSL certificate.

    Don’t ask for too much sensitive information about your customers.

    You should collect and store as little customer information as possible to protect your store from a data breach or hack. Hackers can’t steal data they don’t already have.

    So, only get the information you need to finish a transaction and send the product. Don’t ask for private information like Social Security numbers, dates of birth, etc.

    Don’t send packages to places that don’t exist.

    Scammers often hide their real address by using a post office box or another anonymous location so they don’t get caught. At the end of the day, the police can’t show up if there’s no door to knock on.

    If you sell things online, don’t send packages to PO boxes or virtual addresses like those of freight forwarders. The addresses of freight forwarders include container numbers, so you can find them.

    Future Trends in eCommerce Fraud

    Online shopping keeps getting better, and so does online fraud. Fraudsters will likely take advantage of a number of upcoming trends, such as card testing fraud, friendly fraud, and chargeback fraud.

    In the past two years, there have been a lot more account takeover attacks and fraud because of several well-known data breaches. Fraudsters can steal customer information and use it to shop on your site as real customers. Bots are often used to carry out these types of fraud, so your business needs to be ready.

    Even though there is bad news, there is good news as well. With the help of algorithmic and behavioral approaches to spotting fraud, eCommerce companies will be better able to fight it. Today, machine learning is used to power behavioral and predictive models that help eCommerce companies fight fraud.

    At the same time, false positives have become a new problem in eCommerce fraud. On the market today, there are a number of fraud-detection tools that rely on broken fraud-flagging systems that mistakenly turn away good customers.

    False positives, which often have a bigger effect than actual fraud losses, hurt a company’s overall revenue bottom line. By using a solution like Bolt, in which the online retailer’s interests are aligned with those of the people who approve orders, false positives will go down.

    Bottom Line

    E-Commerce fraud shouldn’t keep you up at night, but you should take it seriously when you’re running your business. To keep yourself and your customers safe, you should be aware of all the possible dangers and, most importantly, use your common sense. If you have a feeling that something is wrong, trust your gut and check every strange thing that happens in your store right away.

    Fraudsters are getting smarter about how they attack online businesses. As the number of people who shop online grows, so does the number of attacks on web stores. Online fraud is also getting harder to find and stop as ecommerce merchants get smarter.

    You can stop fraud on your online store if you know what eCommerce fraud is and why it’s so common, as well as how to spot online fraud.

    Leave a Reply

    Your email address will not be published. Required fields are marked *