Detecting E-Commerce Frauds & Strategies To Prevent Them

Detecting E-Commerce Frauds & Strategies To Prevent Them 

how to prevent e commerce fraud

The democratisation of online marketplaces such as Facebook, eBay, Amazon and Etsy has reduced the barriers of entry for anybody to open an online business. Unfortunately, it has also made life much simpler for fraudsters, who no longer require physical payment cards to conduct deals.

Weak passwords, loopholes in credit card protocols, and the general lack of awareness of retailers and customers have made it easier for scammers to carry out schemes without being caught. 

What can be done to protect your business from fraudsters who steal from you, ruin your reputation, hurt your profits and scheme your loyal customers? 

This article answers some questions you may have regarding fraud detection and prevention. Let’s start from the beginning and then move towards a strategy that will help you protect your business from e-commerce fraud. 

What Is E-Commerce Fraud & How Do You Detect It? 

Online fraud, often known as payment fraud, is any dishonest behaviour that occurs during an e-commerce purchase. Ecommerce fraud can range from the theft of credit card information to identity theft. There are several varieties of e-commerce fraud, but they all seek to benefit at the expense of the business. 

Before we look at the types of e-commerce fraud and strategies for prevention, let’s see how retailers can detect it.

Common Red Flags From Retailer’s Perspective 

  • Using multiple cards on a single I.P address. 
  • Shipping to an incomplete address or a remote location. 
  • Large orders from customers that are shopping with you for the first time. 
  • Too many declined transactions. 

Common Red Flags From Customer’s Perspective 

  • The online store you made a purchase from asks for repayment without any evidence for repayment. 
  • SMS, calls & emails that request personal information – bank account/credit card number, address, phone numbers. This is called Phishing
  • Someone requesting the one-time password (OTP) generated on your phone. 
  • Getting emails from an ID that’s a random character string, or a number calling you that’s not from your country. 

These red flags are common for all types of e-commerce frauds. Let’s look at the different types of fraud and a strategy to steer clear of them. 

Types Of E-Commerce Frauds & Strategies To Prevent Them 

strategy to prevent chargeback fraud

Friendly-Fraud or Chargeback Fraud 

The issue with chargebacks is that it is sometimes difficult for credit card issuers to discern between legitimate consumer chargebacks and chargeback fraud performed by fraudsters, resulting in retailers losing money from both. 

In a chargeback fraud, the consumer keeps the goods/products purchased online from the eCommerce business but requests a refund, claiming that the transaction was never done, the goods were damaged, the purchase was unauthorised, or that the item was never received. 

Retailers need to be careful of this type of fraud, especially with bulk orders. You stand to lose your inventory while giving a full refund to the fraudster. 

What’s a strategy to prevent chargeback fraud? 

In case of a damaged goods claim, the retailer may ask the customer to share a photo or video of the damaged goods. 

In case of an authorised purchase claim, the retailer can cross-verify if an OTP was sent to the customer at the time of check out. 

A clear refund, reshipping, tracking shipment, and return policy for the e-store may aid in reducing ‘friendly’ fraud. 


Triangulation Fraud 

For legitimate businesses, this could be a nightmare since a fraudster may be using your business name to commit this fraud. The customer may be under the impression that the purchase they are making is from a store they trust when in reality it’s a fake online shop created to gain transaction details of the customer. This can severely harm your business’s reputation and you may even lose your credibility. 

First, a fraudster develops a false online storefront and sells goods at greater prices than the prices set by the real/legitimate business. 

Next, a customer “buys” a thing from this bogus storefront – in actuality, they’re just handing the fraudster their credit card information. 

Finally, using the stolen payment information, the fraudster purchases the identical thing from a legitimate business at a reduced price, mails it to the consumer, and pockets the difference. Sometimes, the customer even ends up paying twice – to the fake store and the legit store where the goods come from. 

What’s a strategy to prevent triangulation fraud? 

If you see a significant increase in orders for a specific in-demand product, it’s worth investigating to see if your business has been targeted by a triangulation fraud scheme. 

It may also be beneficial to search for your items on marketplace websites such as eBay, Amazon, or Facebook. If you notice your unique items being resold there at prices that seem too good to be true, it might mean that the seller has been recruited by a scammer.  

strategy to prevent clean fraud

A Clean Fraud 

Clean fraud is committed by using a stolen credit card from a legitimate user to make an online transaction. The stolen card and cardholder details are used to perpetrate a fraud that seems to be a real transaction made by verified consumers.  

Clean frauds are even easier when credit cards have Radio Frequency Identification (RFID) enabled that does not require the cardholder to enter a pin to facilitate the transaction. You can also be prey to clean fraud if you do not have two-step verification enabled on your card. A two-step verification usually requires you to share an OTP with the merchant to verify the purchase. 

What’s a strategy for customers & retailers to prevent clean fraud? 

Enable two-step verification for your card. You can do this with the assistance of your bank. 

If someone calls you asking you to share the OTP, it is definitely a scam because banks strictly advise customers never to share OTPs with anyone. 

Retailers can use AVS – Address Verification Service. Address Verification Service is a mechanism for reducing the risk of fraudulent transactions. AVS verifies the billing address provided by the consumer during checkout to the address on file with the issuing bank. Any discrepancy would indicate that the purchase is fraudulent. 

strategy to prevent affiliate fraud

Affiliate Fraud 

Affiliate marketing allows businesses to provide credit for referrals to people or businesses that promote their items to purchasers. The owner of a unique affiliate link earns a commission on every transaction made through that link.

Affiliate programs allow businesses to sell their items through partners. Unfortunately, such programs are a fraudster’s favourite. A fraudster will masquerade as a real affiliate and then send bot traffic via their affiliate links to get a commission. Scammers could also use stolen credit cards to make bogus transactions through the affiliate programme.

What’s a strategy to prevent affiliate fraud? 

Examine referring URLs and navigate to suspicious pages. If you see a lot of redirection, it’s conceivable that an affiliate is trying to hide the real source of traffic.

Examine every IP address related to your sales and leads. Is it possible to manage several transactions with a single IP address? This might imply that a single individual is placing several orders using stolen payment cards or otherwise participating in illicit activity.

For example: 

If you just recently started a business you must know there are specific skills required for marketing a business  Even if you have all the marketing skills you need for the success of your business, without proper knowledge and technical skills, you can be at the receiving end of frauds like switch & bait schemes, and mass marketing-marketing fraud, exaggerated claims to name a few! 

A digital marketing agency can help follow you through so that your business is not at the receiving end of such marketing frauds. Most agencies have been in the business for years and know exactly how to detect such frauds and prevent them. 

After reading this article, we are sure that you will do a better job in detecting and preventing e-commerce fraud and saving your business’s reputation along with your customer’s loyalty toward you. 

Good luck! 

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