Security starts with your mind, not your secret key.
Fraud detection for e-commerce businesses is an important aspect of your customer shopping experience. Therefore, it’s wise to take proactive measures to identify and prevent e-commerce fraud.
The growth of eCommerce websites worldwide experienced a massive explosion between 2020 and 2022. Recent statistics show over 26.2 million eCommerce sites worldwide, and the number continues to increase.
Global retail e-commerce sales were estimated at around 4.9 trillion in 2021 alone. By 2025, this amount is predicted to increase by 50%, reaching about $7.4 trillion, making e-commerce a profitable business venture.
Though online transactions benefit businesses, they also expose businesses and their customers to fraudulent attacks and financial losses.
E-commerce fraud: types of e-commerce fraud
E-commerce fraud occurs when fraudsters interfere with a transaction in an online store to steal money from the buyer or the seller and, in some cases, both.
Some cyber-criminals use authentic customers’ login information on an e-commerce platform to make purchases; others use stolen credit card information to purchase in e-commerce stores.
The following are some of the various types of online fraud that can be perpetrated against e-commerce platforms:
Typical credit card-based theft
This is the most popular type of e-commerce fraud and is the first option for most novice scammers.
In this attack, the fraudster gains access to stolen credit card data in some way and then makes a purchase from an online store using the information they have obtained.
The fraudster may try to get the goods by masking their IP address or sending them to a different address.
Account takeover (ATO)
Account takeover, or ATO, occurs when a hacker accesses a legitimate user account on an online store and uses it to make a purchase.
Several techniques, including physical assaults, pickpocketing, and the dark web, can be used by fraudsters to access accounts.
ATO might increase the number of identity theft incidents, making customers distrust the business and damaging its reputation.
This is frequently employed when a fraudster is unable to have items delivered to their address or withdraw money using a credit card that has been stolen.
With stolen information, fraudsters purposefully overpay, then ask for a refund of the overpayment and for the money to be sent via a different route. The fraudster will then receive the refund as his.
Triangulation fraud frequently affects e-commerce companies that sell through various sales channels.
The fraudster first establishes an online store and sells highly sought-after goods for a very low price to entice customers. Customers believe they have received a great deal when they receive the goods, but that comes with a price; their credit card information.
Card testing fraud
Fraudsters use card testing to confirm whether the stolen card is functional. First, they make small, insignificant purchases to avoid the cardholder noticing the fraudulent transaction. Then, they use the stolen card to make more expensive purchases after confirming that the card still works.
This is when customers purchase something from your e-commerce website and then submit a chargeback request to their bank.
Fraudsters falsely assert that their order was never delivered, looked different from what they ordered, or that they canceled the order and they get a refund from their banks.
In this type of fraud, criminals place an order with a legitimate credit card and billing and shipping address that match the information on the card. Later, they attempt to intercept the order through various means, such as requesting that the shipping address be changed through customer service.
How to identify fraudulent activities on your e-commerce websites
If a customer experiences fraud on your website after a purchase, they are unlikely to return to your brand.
As your business grows, you attract more fraudsters. The ability to detect fraudulent activities on your website would go a long way in helping you prevent losses and maintain customer loyalty.
Here are a few red flags to look out for if you suspect fraudulent activity on your website:
Unusually high order volumes
People who use stolen credit cards frequently buy expensive items because they intend to exploit others.
If you notice extravagant or unusually high orders from a customer who doesn’t indulge in such behaviors, then something is probably wrong.
Extremely low-value orders
Stay suspicious of low-value transactions; Fraudsters usually buy low-value products to confirm that their stolen card works.
Repeated declined transactions
It’s questionable that a payment decline that repeatedly occurs due to security code errors came from a real customer. Fraudsters don’t always have the data to use stolen cards for purchases.
The use of different credit cards
It is alarming when a single customer uses multiple credit cards to make various purchases. Unfortunately, these criminals frequently do this to verify the validity of customer data they have stolen.
Suspicious IP addresses
Watch out for orders coming from the same IP address frequently or orders coming from an unfamiliar IP address.
Six best preventive measures for fraud detection for e-commerce businesses
Fraud detection for e-commerce businesses is necessary as most online retailers use e-commerce fraud prevention to stop, catch, and address online fraud. It helps your company avoid loss of sales and profits while also ensuring the safety of your customers.
Here are some strategies to employ and stop e-commerce fraud:
Employ the use of fraud prevention software
Safeguarding your store using e-commerce fraud prevention tools that automatically analyze, identify, and stop high-risk orders would be best.
Stay alert for phishing attacks.
Phishing is when spyware is included in malicious email links. This is a method frequently adopted by cybercriminals.
You should monitor every email that you receive and avoid any suspicious links.
Use address verification services
When a customer uses a credit card, Address Verification Services (AVS) verifies that the billing address they entered matches the address the card’s issuing bank has on record for the card.
Use card verification number (CVN)
Swindlers usually use only the front of a credit card to make purchases.
Requesting the three- or four-digit PIN (CVN) is an additional safety measure. This is an effective technique that most merchants use.
Be vigilant during seasonal sales.
Whenever there is an increase in sales, there will be an increase in fraudulent attempts.
Cybercriminals take advantage of seasonal sales because they expect you to be too busy to notice if anything is wrong. You must be alert. Increasing your investment in fraud prevention during these shopping seasons will protect you and your customers from financial loss.
Implement the use of a biometric authentication system
Conventional fraud detection methods, such as checks, usernames, and passwords, don’t guarantee customers’ safety.
Since fingerprints are unique to every individual, biometric technology, particularly fingerprint verification, is a secure method of customer authentication.
Companies are more certain to reduce the possibility of account takeover fraud and identity theft within their store.
Why is e-commerce fraud so common for online merchants
It is quite cheap
E-commerce fraud is quite cheap because it requires few resources.
A fraudster will have to use physical force to commit offline fraud, which is quite dangerous for them.
Cybercriminals pay for stolen credit card information that is cheaply available on the dark web.
Evasion of the law
Since cyberattacks sometimes come from nations outside the victim’s jurisdiction, it can be challenging for the relevant authorities to gather evidence.
Authorities may think that the resources needed to pursue an online fraudster are unjustified because the amount of money involved in such attacks is typically low compared to other types of crimes.
It is easy to pull off.
Online fraud is quite popular compared to traditional fraud; it is easy to pull off. The criminal has a low chance of getting caught. He only needs a computer and an internet connection.
The safety of your e-commerce website and customers is crucial to your brand.
Protecting an e-commerce site from fraud is tricky as hackers constantly improve their skills and adopt new methods.
Constant monitoring of your site for potentially fraudulent activity can’t be overemphasized. You are responsible for whatever occurs on your website.
Though fraud won’t get completely eradicated, with the proper attention, you’ll significantly lessen its occurrence on your business and your clients.