6 Types Of eCommerce Fraud And How To Prevent Them

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December 19, 2022 Business

If you’re running an eCommerce platform, protecting your customers against fraudulent activities should be your top priority. Recently, there has been a significant increase in eCommerce sales. This is because many prefer to have everything they need delivered to their doorstep.

Unfortunately, the rise of eCommerce has encouraged cybercriminals to take advantage of the situation and attack new customers and businesses. This gives birth to eCommerce fraud.

eCommerce fraud is an online fraud targeting eCommerce platforms. A cybercriminal can use stolen identity and credit card to purchase anything from your eCommerce store without even realizing it—that’s an example of eCommerce fraud.

eCommerce fraud can come in many forms. To prevent any fraudulent activities on your online selling platform, you need to understand the different types of eCommerce fraud and how to prevent them.

Luckily, you’re in the right place. This article will discuss the following types of eCommerce fraud as well as some practices that may help you prevent them. These include:

1. Friendly Fraud

Friendly fraud, or chargeback fraud, occurs when someone buys something online and requests a chargeback from the payment medium due to an unsuccessful transaction. The bank or credit card company will return the amount paid by the customer, which the seller must still pay regardless.

In this fraud, the customer makes claims that sound utterly realistic and honest—hence the name. Therefore, one can use friendly fraud to receive products without breaking their wallet. For example, an individual may purchase an item from your eCommerce shop and claim it was never shipped to your home. They can also claim that they never received a refund after returning the purchased item even if they didn’t.

To prevent chargeback fraud, you may use chargeback management software that can help you handle disputes. You can also coordinate with banks and credit card companies before releasing refunds to verify the truthfulness of the claim.

2. Card Testing Fraud

Card testing fraud is one of the most common techniques fraudsters use to defraud an eCommerce shop. It occurs when someone has access to stolen card numbers using the information provided on the dark web.

However, credit card numbers aren’t enough to guarantee successful fraud. Fraudsters won’t be able to know the credit card limit or if the card could make a transaction just by looking at its numbers. That’s why they test the card by making small purchases.

Card testing is often done using AI to test multiple numbers quickly. Once they find out how the numbers work, they’ll be able to start purchasing more expensive items.

The initial testing purchases are often small because they’re difficult to detect. Most customers and online merchants realize that they’ve become victims of fraud after several expensive purchases under their cards.

To prevent card testing fraud, you may limit checkout attempts, request customer sign-up, set a firewall against bots, and block transactions outside your country. You can also use a fraud monitoring tool to detect possible fraud activities.

3. Refund Fraud

Refund fraud happens when someone tries to withdraw cash from stolen cards but fails to do so. They’ll use the credit card credentials to make a purchase and request a refund from the eCommerce store.

Another strategy fraudsters can use is to make excess payments. Then, they’ll try to refund and have it sent via methods, claiming the card company has issues to fix. This allows them to receive the excess amount without refunding the original card charge.

To prevent refund fraud, consider requiring proof of identification and contact details for returns and eliminating cash refunds. You may use gift checks and certificates as refunds instead of cash.

4. Triangulation Fraud

Triangulation fraud involves three different parties: the shopper, the fraudster, and an eCommerce shop. The fraudster will set up an eCommerce shop (e.g., Amazon, eBay, or Shopify). Then, they’ll post products at an extremely affordable price.

This strategy can attract the attention of legitimate customers. They’ll likely try to purchase an item and enter their credit card information. The fraudster now has all the details to make a legitimate purchase from a real eCommerce store using stolen cards.

The customers will receive the goods they ordered without realizing that they’re actually paying the undiscounted price and that their card is now stolen. To prevent triangulation fraud, you may use fraud prevention software to detect malicious bots and abnormal user behavior.

You can also monitor and review customer behavior to identify possible triangulation fraud. This includes evaluating customer purchase volume, VPN (virtual private network) use, and numerous chargeback requests.

5. Account Takeover Fraud

This kind of fraud happens when a fraudster gains access to someone else’s eCommerce account. This could be done in different ways, including stealing passwords, hacking security codes, purchasing information on unauthorized sites, or setting up a phishing scheme.

Once the fraudster gains access to an account, the fraud will begin. For example, they can change the account information, make significant transactions, withdraw money, request multiple chargebacks, and access other accounts of the same user.

This fraud shouldn’t be taken lightly. It can ruin the credibility of your store and cost your customers more. If customers feel unsafe about your shop, thinking their data might be vulnerable under your protection, they’ll look for other platforms with stronger security protocols.

To prevent this, check for compromised log-in credentials, limit log-in attempts, and send notifications to the original owners regarding changes in your account.

6. Interception Fraud

This occurs when a person uses a stolen card to purchase using the address and billing information provided. Once an order has been placed, they’ll intercept the package and take them for themselves.

This could be performed in many ways such as:

Changing the shipping address before delivering the goods
Contacting the shipper (e.g., UPX or FedEx) to reroute the item to their chosen address
Waiting for the delivery to arrive and receive the package on behalf of the owner

To prevent interception fraud, make sure to verify possible changes either by calling or sending emails only the original user can answer. You can also set up a fraud monitoring tool to detect potential fraud.

Final Words

It’s difficult for eCommerce owners to protect their platforms at all times. This is especially true because cybercriminals are getting smarter day by day as they adopt new tactics and technologies. That’s why you need to be proactive in protecting your platform. The tips above can help you establish a robust fraud prevention strategy.