Ecommerce Fraud: What Is It and How Online Merchants Can Prevent It?

Ecommerce Fraud: What Is It and How Online Merchants Can Prevent It?

ecommerce fraud protection

Table Of Contents

Every big system has to have its loopholes where scammers find their tricky ways to fool people for their money. And eCommerce is certainly one of the biggest markets in online businesses with its sales growth foresight up to $2.779 trillion by the end of this year.

Sounds optimistic, huh? 😃

Wait till you know the downside of it. 😏

Unfortunately, the unstoppable growing numbers not only indicate revenue but also loss and fraud. We can’t keep telling the good numbers all the time. If by no magic wand the continuous losses of eCommerce were prevented, it’ll sum up to $12+ billion by 2022.

The monthly fraud attacks online merchants have to deal with count for over 200k on their online stores. It’s come to our knowledge that just as eCommerce businesses grow, the number of cybercriminals seeking fraud opportunities increases as well. But don’t worry, we’ve got your back on this.

So, how are you going to protect your online store from eCommerce fraud? By getting the full grasp of it.

Today’s blog will discuss:

  • What is eCommerce fraud?
  • What are the types of eCommerce fraud?
  • How to prevent eCommerce fraud? 🕵️

Let’s start with the definition…

What Is Ecommerce Fraud?

eCommerce fraud is the criminal deceit that takes place during the process of financial transactions in an online store. Whoever does this usually aims at getting away with a purchase without actually paying for the product or service.

That’s why it’s called payment fraud. Since it deceits the system that payment has been accepted, while it’s not. That, in return, negatively affects the merchant’s financials.

eCommerce includes limitless financial transactions that are conducted based solely on the internet, basically, anyone can get scammed.

Therefore, stores work very hard on improving their authenticity and showing their human side to the process to encourage people to deal with them and trust them with their credit details.

comparing fraud complaints to other complaints

What are The Types of Ecommerce Fraud?

  • Friendly fraud.
  • Refund fraud.
  • Card testing fraud.
  • Interception fraud.
  • Account takeover.
  • Triangulation.

Doctors always say; once you know your disease, you’ve taken the first step of curing it. The same goes for eCommerce scams. Once you learn its meaning, types, and sources, you’ll know how to prevent eCommerce fraud.

We explain each type in details below:

Taking the mentioned numbers into consideration, there’s no better start time to prevent e-commerce fraud than today. It’s vital for online merchants today to start using management systems that identify suspiciousness and prevents it before it gets into their system.

1. Friendly Fraud

Friendly fraud is when a customer requests a refund based on a fake error. Sometimes companies send refunds for fake reasons, sometimes a free item, and sometimes even the fraudster gets his money back and gets to keep the product or service.

For example; an experienced fraudster buys an item and claims he never received it.

In another version, he claims he canceled the order but never got a refund. In such cases, the company has to satisfy the fraudster even if they know he’s lying just to save their brand image.

Tip 🍊

An eCommerce fraud prevention method such as using chargeback management software would minimize the chances of having to obey such deceits. Click To Tweet

2. Alternative Refund Fraud

This type of eCommerce fraud is formed on the basis of overpaying for a product with a stolen card then asking for a refund with an alternative method. The fraudster only succeeds in this method by convincing the store that his credit card is closed.

3. Card Testing Fraud

Also called card cracking, is a commonly used trick that accounted for 16% of eCommerce frauds in 2017.

A cybercriminal might have a lot of stolen credit card numbers but he doesn’t know which of them would work, so he spends a little amount of money trying to test each credit card number and limit until one works. Once that happens, he takes a leap and completes larger purchases.

4. Interception Fraud

Interception fraud aims at catching an order in the middle and changing the address so that the fraudster receives the items instead of the actual buyer. It could only happen if the credit card information matched a stolen card.

The criminal waits until the order is placed to play his trick on the delivery, he contacts customer support to change the delivery address to his own.

It all takes place while the actual payment is being sent, and as the buyer and the store later discover a fraud has taken place, the fraudster would have already received the goods and fled.

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5. Account Takeover Fraud

Such a method sounds very similar to hacking, but in this case, the fraudster actually has all the account information he needs, ID and password that he has purchased from the dark web.

By doing so, the stolen information gives him the ability to purchase and withdraw funds as he sees fit. It can hugely affect your business reputation if by chance the cybercriminal decides to make a purchase from your store right before he gets caught.

6. Triangulation Fraud

It’s called triangulation for a reason. It involves three parts, the cybercriminal, the innocent customer, and a fake online store and along with plotting and scheming for a long time. How’s that?

💡 Read Also: How Trustworthy Is Your eCommerce Store?

Well, this one affects the reputation of the whole idea behind eCommerce stores. Since he creates a storefront on an eCommerce enabling platform, say ExpandCart, and begins marketing with competitive prices.

Attracting legitimate buyers who have no clue what’s about to happen to their credit card information.

However, such a fraud type is almost impossible to happen on ExpandCart since we have a thorough identification process for merchants to create their online stores with us.

Ecommerce Fraud Prevention: How?

  • Use SSL certificates
  • Use social media logins
  • Gather identification data like IP addresses
  • Compare billing and shipping addresses
  • Remove ineffective fraud filters
  • Study each country’s risk factors

Getting straight to the point, we’ll explain actionable steps to prevent eCommerce fraud from ever getting a chance of harming your online business.

ecommerce fraud protection methods

Use SSL Certificates

An SSL certificate is a highly secured and popular method of ensuring private customers’ data is being properly encrypted when moving from the user’s browser to the host servers, therefore assuring no server hacks can get into your system and steal your customers’ data.

⚠️ Caution

You cannot depend solely on an HTTP protocol to transmit delicate data and information since it's not 100% secure and can be easily hacked compared to an SSL certificate since it doesn't even encrypt transmitted data. Click To Tweet

Use Social Media Logins

The first and most convenient step is to start using social media logins on your website. That’s one easy way to directly verify customer’s identification. Such ecommerce fraud prevention technique is implemented in every online store created on ExpandCart.

It’s convenient for both customers because of the easy login, and for merchants for identity validation and store fraud prevention.

Gather Identifying Data

Digital business is all about collecting data, you cannot possibly be running a successful business without relying on data collection. Well, apparently it comes beneficial in many ways, one of them is preventing your store from being frauded.

Gather data such as IP addresses, emails, age and name, and shipping, and billing addresses and attribute them to your customer in order to identify future unusual behaviors that might relate us back to his data.

Compare Addresses

Another commonly used way to pinpoint abnormal activity on eCommerce stores is collecting and comparing shipping and billing addresses. Most fraudsters are way farther than the true place where the actual billing took place.

An order billed with an address in the US to be shipped to Mexico may indicate a fraud act. In this case, you may need to call the customer and make sure of the delivery.

Remove Ineffective Fraud Filters

AVS filters were proven to be inefficient to identify foreign fraudsters. Such filters rely on being implemented by international banks, however, some banks do not use them, and therefore, as a result, legitimate customers and fraudsters are both treated alike by getting their bank information declined.

So, you end up getting false declines and may result in losing customers over this error.

Try to remove such ineffective filters but make sure to use all the other methods mentions in this article to confirm transactions and identify and analyze customer behavior in order to protect your store from eCommerce frauds.

Understand Risk Factors

Although some countries with a high-risk rate can raise suspiciousness, not all transactions that take place there should indicate cybercriminal scheming. So you should stay aware to limit incorrectly declined transactions that can harm your business just as actual fraud would.

Avoid this by understanding the risk factors of each country and evaluating the risk of each international transaction by taking the personal circumstances and economic settings and communal expectations into your consideration.

Depend on ExpandCart to Secure Your Website 🛒

Not only we use bank-security levels of software and technologies, but we also provide our merchants with the ability to integrate their online stores with a complete fleet of the best and most elite payment gates.

Which in their turn only process with the highest protection values that are completely secured against any kind of fraudulent techniques.

Not stopping here, the platform also keeps revamping and initiating efficient strategies with more of the most secured global payment gateways to ensure offering the smoothest and most safe transactions on your online store.


Create a fraud-free store without a credit card or hidden fees

Back to You

We’ll sum up our final words in a few questions for you… Is your store protected against eCommerce frauds? How do you intend to protect yourself against such cybercriminal schemes from getting to your business?

Let us know your process down below. ⤵️

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