What Is Ecommerce Fraud and How to Prevent It for Your Business

What Is Ecommerce Fraud and How to Prevent It for Your Business

There has never been a better time to sell your goods online with the rise of countless eCommerce platforms that make it easy to build an online store from scratch, as well as a growing trend of online shopping. Although everything has its downsides, it's important to know about the potential risks of online selling; after all, even paradise has its trouble.

You should protect your customers from eCommerce fraud if you run an eCommerce store. In recent years, eCommerce fraud has more than doubled the growth of eCommerce sales.

E-commerce stores are more likely to suffer from fraud than ever before, so they need fraud management systems that detect and prevent fraud as well as help you manage chargeback disputes.

Each month, online retailers are attacked by 206,000 hackers. Cybercriminals and unscrupulous consumers have more opportunities to scam online businesses as online shopping becomes more popular.

Online store owners and operators must protect themselves against fraudsters who steal from them, wreck their online reputations, alienate customers, damage their brands, and hurt their profits.

What is Ecommerce Fraud

You must understand what eCommerce fraud is before you can protect yourself. To begin with, let's define what we mean.

The definition of eCommerce fraud is criminal deception committed during a commercial transaction over the Internet to gain financial or personal gain for the fraudster at the expense of the merchant. A payment fraud may also be called eCommerce fraud.

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The two things to remember about eCommerce fraud are that the victim is an online merchant and that the deception is intended to remain hidden. Due to time and resource constraints, gathering evidence, and other factors, eCommerce fraud is so prevalent today especially because of the rarity of prosecutions.

The fact is that eCommerce fraud prosecutions are rare, so it's important to implement a fraud detection and prevention management system that can minimize the impact of eCommerce fraud on your business.

Each year, fraudsters adopt more advanced tactics as eCommerce fraud becomes more sophisticated. You need to be right every time, whereas malicious actors only need to be right once. Let's take a look at the most common forms of online fraud before discussing strategies to combat them.

Ecommerce Fraud Types

For your eCommerce site to be secure, you must identify the reasons why fraud occurs in the first place, and then develop strategies to prevent and protect against these attacks. You'll want to begin by identifying the type of fraud occurring on your platform.

We would like to highlight some of the most common types of eCommerce fraud that fraudsters use. Both smaller and larger e-commerce websites have been targeted by these strategies. You can prevent being a victim by being aware of them now.

1. Credit Card Fraud

The act of obtaining money without the rightful owner's permission is called credit card fraud. Despite the prevalence of credit card fraud on eCommerce sites, it is not unique to them. Credit card fraud can be classified into three types: friendly fraud, chargeback fraud, and real fraud.

  • Friendly: Cardholders who dispute a transaction without realizing or remembering they authorized it are perpetrating friendly fraud. As the cardholder believes they have been wrongfully charged, this is an unintentional act of fraud.
  • Chargeback: Fraudulent chargebacks are carried out using the same steps as friendly fraud, however, the cardholder deliberately disputes a transaction they know they authorized.
  • True: In true fraud, a lost or stolen credit card is used to complete a transaction. True fraud happens when someone uses a lost card before the cardholder realizes it is missing or when they use stolen credit card information without having the physical card.

2. Account Takeover Fraud

Taking over an account on a website or eCommerce store is considered to be account takeover fraud. The dark web can be utilized for obtaining stolen passwords, security codes, or personal information, or phishing can be used against a specific customer.

Fraudulent activities can be committed once a user's account has been accessed. They can modify a user's account details, purchase products on eCommerce sites, withdraw funds, and even access other accounts on behalf of the user.

Fraudulent account takeovers are a serious form of identity theft, and they harm victims and hurt your reputation. It is less likely that customers will check out of your website or eCommerce store if they feel their data is vulnerable. They are more likely to consider competitors with stronger security measures.

Once they have breached an account, fraudsters can do whatever they want, including:

  • Changing account information
  • Shop at the store
  • Withdraw funds (if available)
  • Access other accounts that the user owns

3. Interception Fraud

If fraudsters place orders on your eCommerce website that matches the shipping address and billing address associated with a stolen credit card, they are committing intercept fraud. As soon as the order is placed, their goal is to intercept the package and grab the goods.

Before the order is shipped, they may ask your customer service department to change the address on the order. This allows them to receive the goods without having to pay for them.

Alternatively, they can ask the shipper to reroute the package to an address of their choosing. In some cases, they may even wait for the package to be delivered physically to them, sign for it, and take it themselves.

4. Triangulation Fraud

Fraud involving triangulation involves three parties, the fraudster, the shopper, and the eCommerce store. A fraudster sets up a fake storefront, such as on Amazon or eBay, that appears to sell legitimate products, but once the shopper has completed a purchase, the fraudster collects credit card information to purchase additional items.

It is a distressing reality for online stores that eCommerce fraud can cost businesses a lot of money or even causes them to fail.

Understanding eCommerce fraud will allow businesses to implement prevention strategies to safeguard their online store from fraudulent activity and prevent fraudulent activity from taking place.

5. Clean Fraud

Clean fraud is a fraudulent transaction that appears legitimate. Retailers face an increasing problem with this type of fraud as the charges usually do not get flagged or blocked by blacklisted fraud accounts. The theft of credit card information is used to impersonate the cardholder.

Fraudsters can get hold of account holders' information by convincing them to make purchases on a fake site, intercepting communications between parties to the transaction, or even buying it on the dark web, which can only be accessed by certain browsers.

6. Affiliate Fraud

Malicious actors can manipulate affiliate traffic and sign-ups to trick merchants into believing they are receiving consumer attention that is not real. Many companies participate in or run, affiliate marketing programs that generate commission by sharing links and content. A false sense of high traffic can be created by as simple a procedure as refreshing a website multiple times, or by sending spam emails and popups.

How to Identify Ecommerce Fraud Online

You can identify eCommerce fraud in various ways as an online merchant. It is important to remember that eCommerce fraud depends on the skill and ingenuity of the fraudsters.

Merchants are stepping up defenses against online criminal activity, but online crooks are also getting smarter and devising new ways to cheat their victims. Take note of these red flags:

· Inconsistent order information: There is no match between the zip code and the city entered. The IP address and email address of the shopper don't match.

· Exceptionally large order: The order is much larger than your customer usually spends. A red flag might also include multiple items of the same SKU in one order, and expedited shipping

· A strange location: You have a customer who always purchases from a North American IP address, but suddenly orders from a strange IP address.

· Shipping to more than one address: A buyer makes multiple purchases but ships the items to multiple addresses under one billing address.

· A lot of transactions in a short timeframe: Multiple purchases are made back-to-back by the fraudster-and it's not the holiday season.

· Multiple credit card orders: An individual makes multiple purchases with multiple credit cards.

· Several declined transactions in a row: A purchaser makes not just one or two attempts but four, five, six, seven, eight, or more attempts without getting the card number, expiration date, or security code right.

· An influx of orders from a new country: In the space of a week, you receive 11 orders from Bhutan, a country you have never done business with before.

How to Prevent eCommerce Fraud for your Business

Your revenue and bottom line are affected by the amount of credit card fraud occurring on your platform.

There are a few easy steps you can take to help fight back against eCommerce fraud and reduce fraud risk, even if it seems as though it is an uphill battle to defend your eCommerce company from growing threats.

1. Utilize Fraud Detection Solutions

It is one of the best ways to combat all types of eCommerce fraud. An eCommerce fraud detection solution works by identifying red flag transactions and protecting eCommerce merchants from card testing fraud, friendly fraud, and chargeback fraud.

One of the most effective forms of protection against fraud for eCommerce businesses is the use of a fraud detection solution. It is especially valuable for smaller companies that lack the time, resources, or expertise to implement their fraud solutions. It is important, however, to do your due diligence before choosing a fraud detection vendor.

2. Comply with PCI Regulations

Payment Card Industry Data Security Standard (PCI DDS) requires businesses that store and process credit card and cardholder information -- such as eCommerce businesses -- to maintain a secure environment.

As a result of PCI compliance, you must take basic security precautions, including creating 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 ensure that you are following the relevant PCI guidelines to avoid any sanctions or penalties.

3. Take Extra Precautions during the Holidays

Black Friday, Cyber Monday, and other December holidays can be among the most crucial months for your business since more people shop through eCommerce sites. During these times, customers are also preoccupied and busy, so they take fewer safety precautions.

Many fraudsters take advantage of busy merchants in these months to conceal potential fraud. Make sure to be extra careful when receiving a lot of foreign orders, rush orders, or small-dollar purchases during the holiday season. Fraudsters may test out schemes like card testing fraud by exhibiting these behaviors.

4. Create a Blacklist

You may start to notice that specific customers are testing credit cards on your eCommerce site if you use a fraud detection solution (or do it yourself). Add them to a blacklist once you identify them.

By putting a customer on a blacklist, you prevent them from making purchases on your website in the future. Since fraudsters can continue to use new stolen identities, blacklists aren't a complete solution. You can use a blacklist, however, to flag potentially fraudulent transactions before they happen.

5. Regularly Audit the Security of the Site

Would you like to discover flaws in your security before criminals or fraudsters? Schedule regular audits. Here are some questions to ask yourself:

  • What is the status of our shopping cart software and plugins?
  • Do we have a current and working SSL certificate?
  • Does our store comply with the Payment Card Industry Data Security Standard (PCI-DSS)?
  • How often do we back up our online store?
  • Do we have strong passwords for admin accounts, hosting dashboards, CMS, databases, and FTP access?
  • Does our website undergo regular malware scanning?
  • Do we encrypt communications between our store and our customers and suppliers?
  • Do we have inactive plugins removed?

6. Keep an Eye out for Auspicious Activity on Your Site

Shoplifters are caught by fraud prevention officers hired by brick-and-mortar shops. Monitoring your store for suspicious activity can help you prevent fraudulent transactions.

Pay attention to red flags in your accounts and transactions, such as inconsistent billing and shipping information, as well as the location of your customers. Identify any IP addresses from countries that are known to be a base for fraudsters by using tools that track customer IP addresses.

7. Use an Address Verification Service

A service called Address Verification (also called Address Validation) verifies that a person claiming to own a credit card owns it. Several credit card processors provide tools for validating the address of a credit card through Address Verification services.

The AVS system checks if the billing address on file matches the address of the customer if you receive an order and you are not sure if the customer is legitimate.

AVS generates a response code (such as a match or a no match) based on the results of the verification. The merchant decides whether to cancel the order and refund the customer, or whether to ship the item if the customer enters an incorrect address. A key element in preventing eCommerce Fraud is safeguarding your online store's data by using secure communication channels. An understanding of different types of VPNs, specifically conceiving IPsec and SSL VPNs can greatly aid you in achieving this security measure.

8. Make Sure HTTPS is Enabled

The HTTPS protocol enables you to send secure data between your online store and a web browser operated by your customers (like Google). The data is encrypted using HTTPS to protect sensitive information such as customer names, addresses, and credit card numbers.

The use of HTTPS prevents hackers, cybercriminals, and fraudsters from viewing your online store's transactions easily. An SSL certificate is required for HTTPS.

9. Don't Collect Too Much Sensitive Customer Information

To protect your store from a data breach or hack, you should collect and store as little customer information as possible. Hackers cannot steal information they do not have.

Therefore, only collect the data that is needed to complete a transaction and ship the product. Do not collect sensitive information such as Social Security numbers, birth dates, etc.

10. Don''t Ship to Non-physical Addresses

To avoid detection, scammers often use a PO box or other anonymous location to conceal their physical address. Ultimately, the police can't come knocking if there isn't a door to knock on.

Avoid shipping online orders to PO boxes and virtual addresses, such as those of freight forwarders, if you are an online merchant. Freight forwarder addresses have container numbers in the address, so you can spot them.

Future Trends in eCommerce Fraud

eCommerce fraud continues to evolve along with eCommerce. We can expect fraudsters to take advantage of various trends shortly, including card testing fraud, friendly fraud, and chargeback fraud.

Several high-profile data breaches in the past two years have contributed to a large increase in account takeover attacks and fraud. Fraudsters can steal customer data and impersonate real customers to make purchases on your site. These types of fraud are often executed by bots, so your organization needs to be prepared.

Despite the bad news, there is some good news. With the advancements provided by algorithmic and behavioral approaches to fraud detection, eCommerce companies will be better able to combat fraud. Behavioral and predictive models powered by machine learning are helping eCommerce companies combat fraud today.

Meanwhile, a new problem has emerged in eCommerce fraud: false positives. There are several fraud detection solutions on the market today that rely on faulty fraud-flagging mechanisms that inadvertently reject good customers.

An overall negative impact on a company's revenue bottom line comes from false positives, which often have a greater impact than actual fraud losses. By implementing a solution like Bolt, where incentives around order approvals align with the online retailer, false positives will be reduced.

Bottom Line

eCommerce fraud shouldn't keep you up at night, but it should be taken seriously during your day-to-day operations. To protect yourself and your customers, it is important to be aware of all the potential dangers out there, and above all - use your common sense. If you have a hunch that something isn't right, go with your gut and double-check every suspicious activity in your store immediately.

Fraudsters are becoming more sophisticated in their attacks on online merchants. As eCommerce grows in popularity, the number of attacks on web stores is also increasing. Ecommerce merchants are also becoming more sophisticated in detecting and deterring online fraud.

Understanding what eCommerce fraud is and why it is so widespread, as well as knowing how to detect online fraud, will empower you to prevent fraud on your online store.

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