When beginning a business, you certainly gave a lot of
things some thought, but ecommerce fraud prevention definitely wasn\’t one of
them. In light of the fact that ecommerce fraud is a rising issue for brands,
it\’s critical now more than ever for business owners to safeguard their
finances.
Global e-commerce sales are expected to increase to $7.4
trillion by 2025 from its $4.9 trillion US dollar level in 2021. These figures
are excellent news for business owners, but rising sales also mean rising
fraud. Ecommerce fraud is expected to cost the US $20 billion in 2021, a
significant 14% increase from 2020 figures.
The terrible truth is that fraudsters and cybercriminals may
target you and your company if you run or assist in running an online store.
And this can have a bad effect on your brand\’s reputation and possible consumer
experiences in addition to having an adverse effect on your earnings and taking
up your time.
However, you may put features and procedures in place to
safeguard your company.
You can protect your income and business by being as
knowledgeable and prepared as you can be, along with the appropriate ecommerce
fraud protection tools and techniques. Look through this guide to learn more
about e-commerce fraud, the various types of fraud that retailers may
encounter, and strategies for preventing it, including the use of Shopify\’s
free and integrated products like Shopify Protect and Fraud Analysis.
E-commerce fraud: what is it?
Ecommerce fraud refers to any intentional misrepresentation
made during an online transaction with the intent to benefit cybercriminals or
fraudsters financially or personally, even if it has a negative impact on the
merchant.
Ecommerce fraud comes in a variety of forms, and the term
\”ecommerce fraud\” is more of an all-encompassing term that refers to
any fraud that takes place on an e-commerce platform. E-commerce fraud may also
be referred to as payment fraud. Although different scammers employ various
techniques, all online fraud has the same objective: robbing the merchant of
money or goods while going unnoticed.
To commit e-commerce fraud, a cybercriminal needs access to
both personal and credit card information. However, unlike committing fraud at
a real location, they don\’t require an actual card, and scammers might even
purchase this data on the black market—which was also probably stolen.
Each year, the cost of e-commerce fraud rises, and there are
several causes for this. First off, it\’s simple to commit—all you need is
credit card information that has been stolen—and simple to get away with.
Despite the fact that ecommerce fraud costs billions of dollars annually, that
money originates from the thousands of different merchants who are each
victimized to differing degrees. It is difficult to get the police or other
authorities to look into this. Ecommerce fraud appears to be highly alluring to
cybercriminals, especially when they consider the relative anonymity that
online fraudsters can maintain while executing their schemes.
What sorts of e-commerce fraud are
there?
We briefly mentioned earlier that the word \”ecommerce
fraud\” serves more as an all-encompassing term for all sorts of fraud that
can be performed on an online commerce platform. Understanding the many types
of fraud you and your store could encounter is useful for protecting against
and preventing fraud against your business. The following are seven types of
online fraud you need to be aware of:
1.
Credit Card Theft
2.
Cooperative fraud
3.
Fraudulent Account Takeover
4.
Fraudulent interception
5.
Fake Triangulation
6.
Fraud through affiliates
7.
Refund Fraud
1. Credit card theft
Any fraud committed with a credit card or debit card is
considered credit card fraud. Because a customer does not have to physically
give their credit card to a retailer as they would in a physical store, this
type of fraud is also known as card-not-present fraud in an e-commerce
scenario.
Typically, this kind of fraud occurs when a fraudster gains
illegal access to credit card information, frequently through the black market.
They then purchase a good or service using the card information. In the
beginning, the thieves steal the credit card holder\’s money by using their
information improperly. They later cheat the business, forcing it to reimburse
the illegal sale.
Refunds typically happen after the product has arrived or
after the services have been utilized. The cardholder\’s bank charges a
chargeback fee to the merchant in addition to the cost of the good or service
remaining unpaid. Even though each case of credit card fraud may not be very
expensive, they can pile up to be rather expensive. Additionally, thieves may
engage in card testing fraud, in which they use their stolen card information
to first make minor purchases to make sure the card hasn\’t been canceled and
then larger ones.
2. Cooperative fraud
When credit card payments used in a transaction are returned
to the buyer, it is known in banking as a chargeback or reversal. In this case,
the bank or credit card company issues a refund to the cardholder and asks the
merchant to pay back the money.
If someone made a payment without their knowledge or
consent, card owners may legitimately request chargebacks. For instance, if a
burglar obtained their credit card information and used it to make a
transaction. However, these can also be done with the intention of committing
chargeback fraud, commonly known as so-called friendly fraud. A person will
make a purchase in this scenario, but after getting the goods, they will
dispute the transaction and ask their bank to issue a credit card chargeback,
claiming they were not aware of the purchase. A fraudster\’s objective when
engaging in friendly fraud is to receive a free item.
For online retailers, chargebacks can be particularly
troublesome since, if your store receives too many, payment processors may
suspend your ability to accept payments from particular credit card issuers.
Additionally, chargeback costs, which cost $15 each chargeback, can be fatal to
small firms.
3. Fraudulent account takeover
Identity theft in the form of account takeover fraud happens
when hackers get access to users\’ login information.
These are typically obtained through phishing, a dishonest
method. Phishing is when con artists send emails or messages purporting to be
from a business to get clients to divulge their personal and account login
details. 7.6% of phishing attempts in 2021 targeted retail and e-commerce
sites.
These thieves enter their accounts using the login details,
update their personal data, including passwords and addresses, and conduct
unlawful purchases. The dark web may potentially be used to sell the personal
information.
Fraudulent account takeover can have a devastating impact on
internet enterprises. Chargebacks and other fines are the outcome, and if
customers complain publicly, the reputation of the retailer may also suffer.
4. Fraudulent interception
When thieves make online purchases using another person\’s
credit card information, they are committing intercept fraud.
Normal ordering and payment procedures are followed, and the
online retailer is given the go-ahead to send the goods to the registered
shipping address. However, when the order has been placed and verified, the
fraudster intercepts the delivery and has it sent to a different address. This
can be done by getting the shipment address changed through the store\’s
customer service department or by getting in touch with the shipping company
directly to have the package sent somewhere else.
If the offender lives close to the victim, they may be able
to simply wait for the delivery of the products before either stealing them
from their places of drop-off or signing for them when the victim isn\’t home.
5. Fraudulent triangulation
The goal of the ecommerce fraud known as
\”triangulation\” is to profit from the sale of items obtained through
the use of stolen personal data. The fraudster, the internet company, and the
customer must all work together to complete the three parts of the scheme.
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First, scammers set up a phony online storefront, usually
offering well-known products at steep discounts to draw in customers. Following
that, unwary website visitors who decide to make a purchase fill out the
checkout form with information such their names, addresses, and credit card
numbers. The last stage involves the fraudsters using the victim\’s order\’s
items to be purchased and shipped to them using stolen credit card information
and buyer data they obtained from their fictitious storefront. When personal
information is really exchanged for a purchase, triangulation fraud victims
mistakenly assume they have received a deal.
The majority of the time, triangulation fraud continues.
These scammers will keep making purchases using the stolen personal
information. Triangulation fraud can go undetected for a long time since
victims really receive their purchases, especially if the false online
storefront seems reliable and trustworthy.
6. Fraud through affiliates
Through affiliate fraud, crooks hope to profit financially
from commissions. The strategy is derived from affiliate marketing, in which an
internet firm compensates a third party with a commission for customer
introductions and/or sales.
For instance, a smartphone internet retailer might pay a
tech blogger a commission for each visit (and/or subsequent sale) made through
their blog. Trackable, tagged links that inform the store where its internet
traffic originates are used to keep track of this.
Criminals who commit affiliate fraud use the system to boost
the illicit commission they collect. Through techniques like IP spoofing,
cookie stuffing, malware, and typo squatting, which all produce fictitious
human activity to carry out the associated action, they are able to accomplish
this.
7. Refund fraud
When internet criminals seek to claim a refund for a
purchase they made online, they are committing refund fraud.
Here are a few typical instances of refund fraud:
·
Claiming that the order never arrived and then
seeking to obtain a refund via a different channel
·
Stating that the package was missing contents or
that the item(s) arrived damaged
In the case that merchandise must be returned in order to
receive a refund, scammers may attach the return shipping label to junk mail,
send it, and then claim to have returned the merchandise.
In certain cases, thieves would use a stolen credit card to
make a purchase and then ask for a refund using a different payment method
while claiming that the original credit card they used was canceled.