5 Most Common Types of Ecommerce Fraud and How to Fight Them
If you run an ecommerce business, it’s likely that you’ve experienced some type of fraud. Scammers are creating more sophisticated ways to navigate some businesses’ fraud prevention strategies, finding out how to better imitate genuine customers. But how are they committing these acts of fraud and how can they get away with it? Here we explore five different types of fraud that ecommerce businesses encounter. Then, we’ll explore how you can combine positive customer experiences with an optimised fraud prevention strategy to protect your business.
Payment fraud, including identity theft
Would you know if someone were pretending to be you? Payment fraud is one of the most common types of ecommerce fraud. In fact, payment fraud contributes to a whopping 71% of all online payment attacks. But things have moved on beyond fraudsters stealing bank or card details. Today, fraudsters will also use email accounts, user accounts, names, addresses, IP addresses, and personal devices to complete their purchase. For fraudsters, the hope is that all these details will make them look like the real deal – like you. This, in turn, can lead to fraudulent purchases and the creation of new fake user accounts.
Despite its affectionate name, friendly fraud isn’t all that welcome for ecommerce businesses. Also known as chargeback fraud, it occurs when a consumer (or fraudster) makes an online shopping purchase with a credit card but then requests a chargeback from the issuing bank after they’ve received the goods or services. The consumer may cite damaged goods or undelivered products as grounds for a refund. The stickler is, depending on the original payment method, the merchant can be made accountable when a chargeback happens. So as an ecommerce business, you’ve lost your goods and lost your money.
However, it must be said that sometimes chargebacks are legitimate, and friendly fraud can be unintentional. Perhaps goods were actually damaged or undelivered. Or the consumer doesn’t recognize the merchant on their credit card bill or has forgotten they made the purchase. But overall, 57% of chargebacks are classified as abuse.
Many ecommerce businesses will run an affiliate marketing program. Affiliate marketing is a method of advertisement where online publishers can make money by inserting links on their website. The links may direct customers to a product. These links can be tracked, and when a specified action takes place, such as an account registration or purchase, the affiliate who published the link will be paid a commission.
Affiliate fraud, therefore, plays a bad game in this marketing technique. By completing simple actions, fraudsters can profit from the commission of affiliate links. This may include auto-refreshing a page to imitate traffic or clicks or spamming an email from a referral link. Ultimately, the ecommerce business will believe that they have increased their onsite traffic but not see any increase in profits. In fact, they’ll be paying out to the fraudsters.
It’s hard to identify a dirty transaction when they look so squeaky clean. Fraudulent transactions that appear to be legitimate are known as clean fraud, and it’s becoming an increasingly problematic type of transaction for ecommerce businesses. This is because the transaction is less likely to get flagged up or appear on a deny list for known fraud accounts. For clean fraud, fraudsters will usually use stolen credit card information to impersonate the real cardholder.
To make this fraud appear genuine, fraudsters will convince account holders to make a purchase through a fake website or by intercepting messages between transaction parties. Fraudsters can then use this data to complete a purchase.
There’s no messing about when it comes to naming types of fraud. Interception fraud does what it says on the label: it intercepts your online orders. The fraudster will use a stolen credit card along with the same billing address and shipping address that is linked to the card. The next step involves intercepting the goods before they are delivered.
How is this achieved? Well, a fraudster may call a company after the order is placed and before it has shipped. Then they will ask for the delivery address to be changed. They may also contact the courier to change the route of the package to a different address of their choosing. Even simpler (and potentially riskier), they may just wait for the package to be delivered at the cardholder’s address, sign for it, and steal it from right outside your front door.
Fraudsters are just bad actors
It seems like there are many ways for outlaws to take advantage of ecommerce businesses in the Wild West of the online world. But despite more sophisticated methods of fraud becoming prevalent, ecommerce businesses shouldn’t fret too much. There is a solution and a way to fight back against these slippery scammers.
The difficulty with identifying scammers is that they’re getting very good at making themselves look like genuine customers. From stolen cards to fake user accounts, it may be difficult for a person or agency to recognize when their business is a victim of fraud.
There are ways to secure your ecommerce business. Putting more barriers in place to separate the fraudsters from genuine customers will help to prevent fraud. This may include identity verification, extra accounts and passwords, or a CAPTCHA test to dodge those pesky robots that are set up to do your business harm.
However, these extra barriers harm the customer experience of your ecommerce store. Did you know that the average online shopping cart abandonment rate is 70%? Factors such as barriers to completing transactions contribute to this. Promoting an easier sales experience, with less friction, is the best way to boost your business. Plus, there is a way to open your business up without letting fraudsters in.
In reality, fraudsters are bad actors. While they can wear the costume of stolen cards, addresses, and fake accounts well, their behaviour is a giveaway. Machine learning is becoming more and more capable of finding out when fraud is taking place, even when every other factor seems to be genuine. This takes into account things like delivery address, average consumer purchase size, historic chargebacks, buying behaviour, and the types of products a specific consumer would usually buy.
Machine learning becomes even more powerful when it is combined with a commerce protection network comprising hundreds or thousands of merchants. The network provides vision into millions of transactions and that data is vital to identifying fraudulent behaviour.
One platform, Signifyd, says that 98% of all online purchases today have been made by consumers that their platform has seen before. This means that they will understand everything there is to know about a consumer’s buying behaviour, so if they or you are a victim of fraud, it can be easily spotted and prevented. This saves genuine customers time at the checkout and can save everyone from fraud.
Ultimately, if your business is looking for growth in the accelerating age of online shopping, aligning your fraud strategy with your customer experience strategy is a recipe for success. Positive customer experiences lead to return sales, and fraud prevention and payment optimization can only benefit an ecommerce business. Being recognized as a safe and reliable business with friendly and helpful staff is essential for long term survival in a competitive online world. Identifying these types of fraud and recognizing the most effective ways to deter criminals will help you grow.
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