4 Types of eCommerce Fraud You Should Know About


Marketing Insights for ProfessionalsThe latest thought leadership for Marketing pros

Wednesday, October 16, 2019

Fraud can cost ecommerce businesses a significant amount of money, and it pays to be well-informed about the threats that are out there. Here are four of the biggest.

Article 3 Minutes
4 Types of eCommerce Fraud You Should Know About

Fraud has always been a significant problem for businesses, and the move to ecommerce has only opened up new avenues for criminals to exploit. This can be incredibly expensive. It’s estimated that every dollar of fraud costs retailers $2.94, as it requires time, effort and lost productivity to fix.

Fraud isn't going away, but installing excessive security measures without truly understanding the threat could hurt you in a different way. Security hurdles present a barrier to making purchases, with 42% of millennials saying they would make more online transactions if there weren’t so many to overcome.

So, what’s the answer? Well, one of the best options is to simply be aware of the varieties of fraud that are out there and be prepared to prevent them wherever possible. Here are four of the most common that you should be aware of.

1. Basic fraud/identity theft

One of the most common forms of ecommerce fraud - comprising around 71% of all attacks -  is simply criminals using stolen or copied details to purchase items using somebody else’s bank account. This is responsible for a huge cost to banks and businesses. The US alone saw $16.8 billion lost through fraud in 2017, while the UK lost £671.4 million (around $844.3 million.)

One of the best ways to manage this kind of fraud in an ecommerce setting is to check each transaction for a change in address. If a customer has always ordered their items to an address in California, but suddenly changes to one in Pennsylvania, that could be a sign of fraud. However, it gives you a chance to double check the purchase is legitimate.

2. Friendly fraud/chargebacks

This might sound nice, but it’s not good for ecommerce businesses. This refers to fraud in which a product is purchased from you, but is then refunded without the product being returned, usually by fraudsters going directly through their bank or credit card provider for a refund (known as a chargeback) rather than contacting the business they bought from. It’s thought that as many as 86% of all chargebacks are cases of this tactic of friendly fraud.

This practice increased by 41% between 2015 and 2017, and it’s thought that once someone has successfully filed a chargeback they’re nine times more likely to file another one. Prevention can be difficult, but the more records you keep - and provide to your customers - for each transaction, the easier it will be to dispute any chargebacks that occur.

3. Triangulation fraud

This refers to cases in which a fraudster sets up an online storefront offering high-demand goods for low prices, and when unsuspecting customers make a purchase the cybercriminal buys and ships the goods from a legitimate ecommerce business using stolen accounts or credit card details.

This is an especially significant challenge for larger ecommerce merchants, who saw cases of stolen credit card details rise from 20% of all fraud cases in 2017 to 39% in 2018. It requires a lot of effort to manage, as there are extra layers between you and the fraudster behind the crime.

4. Affiliate fraud

Many ecommerce businesses use affiliate marketing programs, whereby another website advertises your products in exchange for a commission on every item sold to a user who entered your site through an ad. However, some fraudsters can artificially inflate their stats to earn large commissions without actually providing you with any extra business.

Although this type of fraud is only thought to occur in 2% of affiliate marketing transactions, it can be incredibly costly. It’s thought to have been responsible for $6.5 billion in losses around the world in 2017. Because it’s largely automated it can be very hard to detect, but one method of prevention is to carefully check any affiliate marketing contracts for possible loopholes that could allow fraud.

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