Key Takeaways

• Implement robust fraud prevention strategies to protect your revenue and outperform competitors in the e-commerce space.
• Utilize AI-powered anti-fraud tools and multi-factor authentication to systematically detect and prevent various types of e-commerce fraud.
• Educate customers about online shopping safety to build trust and create a more secure e-commerce ecosystem for everyone.
• Explore the fascinating world of e-commerce fraud prevention, where cutting-edge technology battles clever criminal schemes.

However, it does not mean this revolution comes without a downside. Online merchants need to know the most common types of ecommerce fraud and how to avoid them to protect revenue streams and consumer trust. Below is a summary of eight of them. 

1. Chargeback Fraud

Also known as friendly fraud, it occurs when a customer purchases an authentic product and later disputes the transaction with their bank to receive a refund while retaining the product. It can be intentional or unintentional and sometimes results from customers not reading return policies or simply forgetting that they bought something. This creates unnecessary business losses.

Merchants can fight chargeback fraud by keeping precise records of transactions, maintaining open return policies, and offering good customer service to resolve complaints before they become disputes. You can also dispute false claims by utilizing chargeback management services that collect and present evidence to banks. Maintaining a good fraud prevention program with customer verification procedures can discourage fraudulent chargeback claims.

2. Account Takeover Fraud

Accounts takeover occurs when thieves use stolen credentials to control a customer’s online retailer account. They may then proceed to make purchases, change account details, or steal confidential information. Account takeover is especially devastating since it shatters customer trust and may lead to financial losses for both customers and retailers, with the retailer possibly suffering reputational damage.

Prevent such fraud as a trader by asking customers to use strong passwords, enabling MFA, and monitoring for suspicious account behavior. Similar sign-in and account modification attempts from different devices may also be used to detect and prevent unauthorized access. Ongoing education of consumers on phishing attacks and credential protection may also minimize ATO attacks.

3. Triangulation Fraud

Triangulation scam refers to a form of scam where an imposter opens a copy of an online store in an attempt to acquire the payment details of a customer. Once a customer makes an order, the imposter directly orders the same item from a real shop with stolen card details and sends it to the customer. They can keep the stolen payment data for future use in fraudulent purchases, causing further losses to innocent consumers and business people.

The most effective way to prevent triangulation fraud is through education for consumers. Businesses can inform consumers about verifying genuine online stores before purchasing. Merchants can also track suspicious buying patterns and mark down those purchases made by risky IP addresses. Stricter verification for new customers and unknown devices can also weed out triangulation fraud possibilities.

4. Card Not Present Fraud

This impersonation crime is done using stolen credit or debit card information for an online purchase to be effective. Although transactions made physically have the provision of being validated by watching out for the genuineness of a card in physical form, ecommerce purchases made online lack this feature and are therefore vulnerable to thieves. Illegally obtained card information is usually made available to criminals through phishing, data breaches, and other unauthorized means, which can potentially cause substantial financial loss to merchants and consumers.

Companies may use strong countermeasures to avoid CNP fraud, such as requesting CVV codes, providing the possibility of using two-factor authentication, and implementing AI-powered anti-fraud tools. Utilize a debit card scanner at checkout to provide an additional shield. Modern scanning systems are compatible with SDK to make the verification process seamless. Ongoing monitoring and using machine learning to look for suspicious behavior can also make a stores system more impenetrable to fraud. 

5. Refund Scam

A refund scam happens when a malicious person buys a product and then asks for a refund on some pretext. It is done by complaining that they have not received goods, that the goods are faulty, or by returning a box where there are supposed to be goods. Some scammers even use generous return policies to regularly request refunds without returning the goods.

Refund fraud can be avoided with tighter return policies, proof of return, and delivery confirmation to track shipment. AI-based detection software can also be utilized to detect fraudulent refund requests in order to limit losses. Implementing refund caps on the frequency of refund requests by customers can also block multiple refund requests by fraudsters.

6. Card Testing Fraud

Card test fraud is an illegal process through which criminals test stolen debit or credit card information, either manually or with the help of automated scripts, by making small-value transactions. Once they’ve tested that they possess a valid card, they are used to make value-for-money false high-value transactions. Unless companies are well watchful of odd patterns, such fraud will never be detected, resulting in cataclysmic financial loss.

Merchants can stop card testing scams by applying transaction speed checks to identify a pattern of low-dollar transactions from the same IP address or card. They can also stop suspicious activity by allowing CAPTCHA authorization at checkout and employing anti-fraud technology. Collaborating with payment processors to detect card testing patterns and apply multiple levels of security to block suspect activity also helps.

7. Interception Fraud

Interception fraud is perpetrated by a burglar who places an order using hijacked payment information and sends it to a different address before reaching it at delivery. They can also manipulate customer services into changing the delivery addresses or diverting them during transit by calling the delivery company and causing them to re-route the consignment. In intercepting fraud prevention, there should be;

• Address verification systems among merchants
• Signature verification for large orders should be mandatory
• Address changes at shipping after the sale should  be prevented

Customer behavior monitoring for the number of shipping change attempts may also identify interception fraud. Collusion with shipping carriers to prevent redirect requests can also prevent interception risk.

8. Affiliate Fraud

This is a crime where scammers take advantage of an ecommerce website’s affiliate scheme to earn income in the form of bogus commissions. This may be achieved using automated tools to generate fake clicks, making illegal purchases using hijacked payment credentials, or using their affiliate link without permission to attribute purchases, resulting in loss of revenue for the retailer.

Affiliate fraud may be avoided by paying close attention to affiliate activity and employing fraud detection mechanisms and machine learning software to spot patterns characteristic of fraud. Routine auditing of affiliate traffic sources may also eliminate players with malicious intentions from the program.

Endnote

Ecommerce fraud is never a risk-free situation for online businesses, but with knowledge about various frauds and protective actions, it is possible to deal with it. With advanced anti-fraud software, consumer education, and rigorous security protocols, consumers and businesses can be protected and made safe and secure.