The Common Types of E-commerce Fraud and How to Prevent Them

Businesses are not new to common fraud. Many of these establishments, at some point, have encountered a fraudster who made an attempt to dupe them out of their hard-earned money.

Over the years, things have not really improved. Strategies have changed, and a significant portion of activity now happens online, but businesses still fall victim to fraud.

E-commerce has become one of the primary ways people acquire goods and services. During the pandemic, the number of online shoppers across the United States and around the world grew. The incidence of fraud has also increased. According to a recent report, e-retailers around the world risk losing over $20 billion to fraudulent activities online in 2021, an 18 percent jump from last year.

China is predicted to become the largest market for e-commerce fraud by 2025, accounting for almost 40 percent of losses.

In order to protect your business, you have to recognize when an e-commerce fraud is occurring. Here are the standard methods bad actors use to steal from online retailers.

1. Identity Theft

In the online space, identity theft is still a widespread problem. When credit cards are stolen, bad actors can use them to make purchases from retailers. This type of fraud does not just affect the credit card owner, but it also has a negative impact on the retailer.

These days, because data breaches happen so often, fraudsters can buy and access credit card details from the dark web. One person can have multiple stolen credit card details that they can use to make numerous small and big purchases.

Usually, the credit card owner and the merchant would not notice that fraudulent activity is happening until the fraudster has made suspicious large purchases. Before that, however, there might have been transactions for smaller items that were completed without detection.

2. Chargeback Fraud

This type of fraud is also known as friendly fraud. It occurs when the customer receives the product they purchased online, but they ask for a refund. They claim that they made the purchase in the first place, the item was never delivered, or the payment was made twice. The bank, therefore, returns the money to the customer, and the customer gets to keep the item for free.

3. Triangulation Fraud

In triangulation fraud, the fraudster creates a fake online store where all the goods are offered at a lower price. Once customers start placing orders, the fraudster collects credit card data and charges for the goods purchased. Then, they place an order for the same items from the legitimate store using the customer’s credit card details. The customer, then, ends up paying twice.

4. Interception Fraud

The customer makes a purchase from the merchant but never receives the product. Instead, a fraudster somehow reroutes the delivery to another address and takes the goods for themselves. This is interception fraud.

The fraudster accomplishes this type of fraud by contacting customer service to ask for the recipient’s address to be changed. They may also reach out to the courier service to send the delivery to another location. Or, if they lived close enough to the recipient, they may just wait for the delivery to happen and take it.

Whatever the tactic is, it will end with the customer disputing the charge. The merchant loses the product, profit, and the customer’s loyalty.

Preventing E-commerce Fraud

Awareness is only step one to prevent e-commerce fraud. Businesses should adopt known strategies that can effectively avert fraudulent activity.

Businesses should offer safe payment methods to protect themselves and their customers from fraudsters. For example, ACH (automated clearing house) transfer is one way to send and receive money online. Many retailers already use it because it is secure. It does not only disclose the bank details of either party, but it is much quicker, too.

By using reliable payment processors, businesses can have peace of mind. The gateway does the verification on their behalf to ensure that the details provided to the merchant match the issuing bank account.Read here how to send money to Africa from America.

There are also services that specifically offer solutions to prevent e-commerce fraud. These providers inspect and validate that each digital transaction is legitimate.

Businesses can also rely on machine learning to quickly analyze data that comes into the e-commerce platform, then detect suspicious patterns. When fraudulent activity is identified, a human can take a look at it and, if needed, intercept it. That way, the business can immediately halt the transaction.

The Bottom Line

E-commerce fraud can be prevented as long as retailers and consumers remain vigilant.  All parties should be aware of common types of e-commerce fraud and adopt strategies to protect themselves from online fraudsters.