Common Types of E-Commerce Fraud And How to Prevent Them

E-commerce fraud is an umbrella term for any type of online fraud that is attempted against an e-commerce business. This can include anything from using stolen credit cards to creating fake accounts to intercepting shipments. 

E-commerce fraud is a growing problem, as it is becoming increasingly easy for criminals to target online businesses. In this article, we shall be examining in detail the common types of e-commerce fraud and how to prevent them.

The Importance Of Understanding And Preventing E-commerce Fraud

There are several reasons why it is important for e-commerce businesses to understand and prevent fraud. First, fraud can cause significant financial losses. In 2021, e-commerce businesses in the United States lost an estimated $31.84 billion to fraud. 

Second, fraud can damage a business's reputation. If a business is known for having a high rate of fraud, customers may be hesitant to shop there. Third, fraud can lead to increased costs for businesses. Businesses that are frequently targeted by fraud may have to pay higher insurance premiums and invest in more security measures.
 

What Are The Common Types Of E-Commerce Fraud?

The following are some of the most common types of e-commerce fraud people fall prey to online: 
 

1. Payment Fraud

This is the unauthorized use of credit cards or other payment methods to make online purchases without the cardholder's consent.
 

Methods Of Payment Fraud

The following are the various methods used by cybercriminals in payment fraud:

• Stolen credit cards: Criminals obtain credit card information through various means, such as phishing scams, data breaches, or skimming devices. They then use this information to make fraudulent purchases online.
• Phishing: Criminals send fake emails or text messages that appear to be from legitimate organizations, such as banks or credit card companies. These emails or messages often contain links that redirect users to fake websites that look like the real ones. Once users enter their personal information, such as credit card numbers, on these fake websites, criminals can steal it.
• Social engineering: Criminals use social manipulation techniques to trick users into revealing their personal information, including credit card numbers. This can be done through phone calls, emails, or in-person interactions.
   

2. Account Takeover (ATO) Fraud

This type of fraud has criminals gain unauthorized access to an e-commerce account, either by obtaining the user's login credentials or by exploiting vulnerabilities in the website's security.
 

Methods Used In Account Takeover (ATO) Fraud

The following methods are used by criminals to perpetrate Account Takeover (ATO) Fraud:

• Phishing: As mentioned earlier, phishing can be used to steal user login credentials.
• Malware: Criminals can install malware on a user's device that can capture their login credentials when they log in to their e-commerce account.
• Weak passwords: If users use weak passwords for their e-commerce accounts, it can be easier for criminals to crack them and gain access to the accounts.
   

3. Refund Fraud

This type of fraud entails falsely claiming a refund for a purchase to obtain money or goods without paying for them.
 

Methods Of Perpetrating Refund Fraud

The following are ways criminals perpetrate refund fraud on their unsuspecting victims.

• Returning damaged or used items: Criminals purchase items, damage them or use them, and then return them to the store, claiming they were damaged or used when they received them.
• Claiming non-receipt: Criminals claim they never received an item they ordered, even though they did receive it.
   

4. Return Fraud

This type of fraud has criminals returning items to a store that were not originally purchased from that store.
 

Methods Of Perpetrating Return Fraud

The following are some of the methods used by criminals to perpetrate return fraud:

• Buying items from multiple stores and returning them to one store: Criminals purchase items from multiple stores and then return them to one store, claiming they received them in error.
• Returning stolen goods: Criminals steal goods and then return them to a store for a refund.

5. Interception Fraud

This type of fraud has criminals intercept shipping information and redirect packages to themselves, stealing the goods in transit.
 

Methods Employed In Interception Fraud

The following are the methods used by criminals to perpetrate interception fraud:

• Compromising shipping accounts: Criminals gain access to shipping accounts and change the delivery address for packages to their own address.
• Using fake shipping labels: Criminals create fake shipping labels and affix them to packages that are not addressed to them. They then intercept the packages when they are in transit.
   

6. Triangulation Fraud

Triangulation fraud uses a complex fraud scheme where criminals sell stolen goods on an e-commerce platform and use stolen payment information to purchase them.

Methods Involved In Petrpetrating Triangulation Fraud

The following methods are employed by criminals in the perpetration of Triangulation fraud.

• Creating fake buyer accounts: Criminals create fake buyer accounts on e-commerce platforms and then use stolen payment information to purchase the stolen goods.
• Using third-party shipping services: Criminals use third-party shipping services to ship the stolen goods to themselves. This makes it more difficult for investigators to track the goods.

These common types of e-commerce fraud pose significant risks to online businesses, causing financial losses, reputational damage, and increased costs. It is crucial for e-commerce businesses to implement robust fraud prevention measures to protect themselves and their customers. Using Youverify’s risk assessment and risk management solutions can help make this a thing of the past.

Ecommerce Fraud Detection

E-commerce fraud detection involves identifying and preventing fraudulent activities in online shopping environments. As e-commerce continues to grow, so does the risk of fraud, which includes payment fraud, account takeovers, and policy abuse. Ecommerce fraud detection solutions aim to protect businesses from financial losses and maintain a secure shopping environment for customers.
 

ECommerce Fraud Prevention: How To Prevent E-commerce Fraud

As we are on the issue of figuring out the common types of e-commerce fraud and how to prevent them, it is necessary to understand that e-commerce fraud poses a significant threat to businesses operating in the digital realm. To effectively combat this growing menace, e-commerce businesses must implement a multi-layered approach that encompasses robust security measures, customer education, and ongoing vigilance. Below, we shall be expanding on them in detail:
 

1. Implementing Strong Authentication

Strong authentication serves as the first line of defence against account takeover (ATO) fraud, where unauthorized individuals gain access to customer accounts. By requiring customers to use strong passwords, at least 12 characters long and incorporating a combination of upper and lowercase letters, numbers, and symbols, businesses can significantly enhance account security. Additionally, implementing multi-factor authentication (MFA), which adds an extra layer of verification such as a code sent to a mobile device, further strengthens the security posture.
 

2. Verifying Customer Information

Verifying customer information is crucial for identifying and preventing fraudulent transactions. This involves validating billing and shipping addresses, phone numbers, and email addresses. By comparing this information against reputable databases and checking for inconsistencies, businesses can flag suspicious transactions for further scrutiny.
 

3. Monitoring for Suspicious Activity

Continuous monitoring of transaction patterns and user behaviour is essential for detecting potential fraud. Fraud detection tools can analyze vast amounts of data to identify anomalies, such as unusual purchase patterns, sudden changes in shipping addresses, or multiple orders from the same IP address. By promptly investigating these red flags, businesses can prevent fraudulent transactions from being completed.
 

4. Educating Customers

Educating customers about ecommerce fraud prevention is a proactive strategy that empowers them to protect their personal information and identify potential scams. Providing clear and concise information on phishing scams, password management, and secure payment practices can help customers make informed decisions and safeguard their accounts.
 

5. Collaborating with Payment Processors

Payment processors possess valuable expertise and tools that can be leveraged to enhance fraud prevention efforts. Partnering with reputable payment processors can provide access to advanced fraud detection systems, real-time transaction monitoring, and chargeback mitigation strategies.
 

6. Staying Updated on Evolving Fraud Tactics

Fraudsters are constantly devising new techniques to exploit vulnerabilities. E-commerce businesses must stay abreast of emerging fraud trends, such as social engineering tactics, evolving malware threats, and new payment fraud schemes. By continuously adapting their fraud prevention strategies, businesses can stay ahead of the curve and protect their assets.
 

Ecommerce fraud prevention is an ongoing process that requires a vigilant and proactive approach. By implementing strong authentication, verifying customer information, monitoring for suspicious activity, educating customers, collaborating with payment processors, and staying updated on evolving fraud tactics, e-commerce businesses can effectively combat fraud and safeguard their business operations.

Ecommerce Fraud Prevention Software

E-commerce fraud prevention software helps online retailers detect and prevent fraudulent activities during transactions. These tools utilize various technologies, such as machine learning, behavioral analytics, and real-time monitoring, to minimize the risk of fraud. Here are some popular e-commerce fraud prevention software:

• Signifyd
• Riskified
• Kount
• Fraud.net
• ClearSale
• Seon
• Sift

Closing Thoughts

Now that we have taken a trip to examine the common types of e-commerce fraud and how to prevent them, we can stress that e-commerce fraud has emerged as a formidable threat to online businesses, posing significant financial and reputational risks. Combating this menace requires a comprehensive approach that encompasses robust security measures, customer education, and ongoing vigilance.

Implementing strong authentication, verifying customer information, and monitoring for suspicious activity form the cornerstone of effective fraud prevention strategies. Educating customers about fraud prevention empowers them to safeguard their personal information and identify potential scams. Collaborating with payment processors leverages their expertise and advanced fraud detection tools.
 

Staying updated on evolving fraud tactics is crucial to adapt prevention strategies and stay ahead of the ever-changing landscape of e-commerce fraud.
 

To close, we shall stress that ecommerce fraud prevention is an essential aspect of business operations in the digital realm. A multi-layered approach that addresses both technical and human factors is paramount to safeguarding the integrity of e-commerce transactions and fostering a secure online shopping environment.

See how 750+ global companies use Youverify for KYC and AML screening of customers for compliance and real-time risk detection. Request a demo today.

Updated October 24, 2024 by Temitope Lawal