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E-commerce fraud refers to any illicit activity or scam that takes place in an online retail setting, where fraudsters exploit weaknesses in payment systems, customer data, or online processes to steal money or goods. As the global shift toward online shopping accelerates, so does e-commerce fraud.
This type of fraud can affect both consumers and businesses, causing financial loss, reputational damage, and customer distrust. With the growth of digital transactions, it has become essential for individuals and companies to understand the risks of e-commerce fraud and how to protect themselves from it.
E-commerce fraud involves a range of deceptive practices aimed at exploiting online retailers and customers. Fraudsters often take advantage of loopholes in payment systems, insufficient identity verification methods, and the anonymity that the internet provides. The key characteristic of e-commerce fraud is that it occurs online and can involve various schemes, from stolen credit card details to creating fake online stores to deceive consumers.
One example of e-commerce fraud is card-not-present (CNP) fraud. In CNP transactions, the fraudster doesn’t physically possess the victim’s credit card but uses stolen information to make unauthorized purchases online. Unlike traditional in-store purchases, online transactions don’t require the presentation of a physical card, making it easier for fraudsters to carry out the scheme without detection.
Another example is chargeback fraud, where customers deliberately request refunds from their credit card issuer after receiving the goods or services, claiming they never authorized the transaction. This leaves the merchant not only without the item they sold but also without the money, as they have to refund it.
In both of these cases, the online nature of the transactions makes it difficult for businesses to verify whether the person making the purchase is who they say they are. On top of the difficulty of verifying clients’ identities, e-commerce fraudsters often rely on highly sophisticated techniques, such as phishing, account takeovers, and synthetic identities, to deceive merchants and customers.
E-commerce fraud can take many different forms, each with its own set of tactics and risks. Let’s go over some of the most common types of e-commerce fraud to help you recognize and prevent these schemes before they cause harm:
CNP fraud occurs when fraudsters use stolen credit card details to make online purchases without the cardholder’s knowledge. Since the card isn’t physically presented, it can be harder for merchants to verify the transaction’s authenticity. This type of fraud is one of the most common in e-commerce because of the reliance on digital payment methods.
In this type of fraud, cybercriminals gain unauthorized access to a customer’s account, often through phishing schemes, weak passwords, or data breaches. Once inside, they may change the shipping address or make purchases using the victim’s stored payment information. Account takeovers not only lead to financial loss but can also cause lasting reputational harm for businesses, making recovery from such incidents even more challenging.
Chargeback fraud, also known as “friendly fraud,” happens when a customer makes a purchase and then disputes the charge with their credit card company after receiving the product. They claim they never made the purchase or didn’t receive the item, resulting in a refund from the merchant. While some chargeback claims are legitimate, fraudsters use this technique to exploit merchants and obtain goods without paying for them.
Phishing schemes involve sending fraudulent emails or creating fake websites that appear legitimate in order to trick users into providing sensitive information, such as login credentials or payment details. Spoofing involves creating fraudulent websites that mimic real e-commerce sites to deceive customers into thinking they are making purchases from a legitimate retailer.
This is a multi-step scam that involves fraudsters setting up fake online storefronts. When customers make purchases, the fraudster uses stolen credit card information to buy the goods from a legitimate retailer and ships them to the unsuspecting customer. The fraudster keeps the profit, the retailer processes a fraudulent payment, and the original cardholder is left with an unauthorized transaction.
Fraudsters sometimes create entirely fake e-commerce sites designed to look like legitimate online retailers. These sites entice users with attractive deals, low prices, and product images but never deliver the promised goods. After the payment is made, the scammer vanishes, and the consumer receives nothing in return.
Awareness of the different types of e-commerce fraud can help you identify suspicious activity and implement preventative measures within your organization, helping you protect both your operations and your customers from the financial and reputational damage caused by cybercriminals.
Although fraudsters can be sneaky, certain warning signs of e-commerce fraud can help your business and consumers at large avoid falling victim to scams. Let’s explore some red flags that may help you identify fraudulent activity:
Ideally, you would set up systems and procedures so your team can stay alert for these common red flags to detect potential fraud before it results in significant financial loss, allowing for quick action to prevent the transaction from being completed.
To protect your e-commerce business and customers from fraud, it’s crucial to implement proactive security measures. Here are some best practices to minimize the risk of e-commerce fraud:
These best practices can significantly reduce the risk of e-commerce fraud and ensure a safer and more secure online shopping experience for your customers.
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Eftsure provides continuous control monitoring to protect your eft payments. Our multi-factor verification approach protects your organisation from financial loss due to cybercrime, fraud and error.