E-commerce

6 varieties of e-commerce fraud that pose a risk to online shopping

As online shopping becomes more and more popular, the problem of e-commerce fraud is becoming more important. With the global B2C e-commerce market projected to reach about $7.9 trillion by 2030, unscrupulous individuals are eager to exploit this opportunity by deceiving online shoppers.

Retailers must adopt a comprehensive strategy to address fraud in order to stay ahead of threats, safeguard their revenue, and maintain customer loyalty.

It begins with comprehending the different categories of fraud pertinent to the e-commerce sector and identifying the specific risks to address.

Below are several of the most prevalent forms of e-commerce fraud affecting online shopping today, as well as some tactics for mitigating risk.

How can e-commerce fraud be defined?
Online consumer transactions are impacted by e-commerce fraud, a type of cybercrime. With the aim of committing theft and other illicit acts, unscrupulous individuals resort to various tactics to mislead companies and customers alike. They deceive users to obtain personal and financial details, carry out fraudulent transactions, and ultimately take advantage of the online retail environment for their own benefit. It is important to point out that while e-commerce fraud adversely affects consumers, it also causes serious issues for businesses.

Juniper Research estimates that by 2028, global merchant losses due to fraud will exceed $362 billion. Fraud can compel companies to incur losses related to refund transactions, managing fraudulent chargebacks, and additional factors. Additionally, it may result in regulatory penalties, a decline in customer trust, and reduced long-term earnings.

6 prevalent forms of e-commerce fraud In recent years, criminals have honed their skills in executing fraudulent attacks on e-commerce businesses. The emergence of cutting-edge technologies like AI and automation is aiding business leaders in managing their e-commerce operations more effectively. However, it also provides criminals with novel methods to mislead and defraud both businesses and consumers.

Below are several of the most prevalent forms of e-commerce fraud that businesses must gear up to deal with today and in the future.

1. Brand impersonation In recent years, phishing attacks targeting e-commerce platforms have represented a major danger for both consumers and organizations. Malicious actors employing phishing and social engineering tactics typically utilize misleading emails, messages, and websites to deceive users into providing sensitive information.

Even though consumers and employees have improved their ability to tell apart genuine and fraudulent messages and websites, criminals are enhancing their deception tactics by employing advanced technologies and methods. A report by Memcyco indicates that 67% of companies learn about criminals “impersonating” their brands solely through victim incident reports.

When a criminal creates a fraudulent website that mimics a genuine e-commerce site perfectly, customers often end up purchasing items and providing payment information to the wrong parties. This results in significant financial losses for customers and problems for businesses. Memcyco’s report indicates that as many as 40% of customers who are targeted by fraudulent website scams end up ceasing all business interactions with that organization.

In order to tackle this problem, companies must adopt a more sophisticated method for identifying cases of phishing, social engineering, and brand impersonation targeting their customers. Businesses can utilize AI-driven solutions to detect, counter, and manage fraud proactively and with outstanding efficiency. Memcyco’s solution enhances customer safety by delivering pop-up alerts to customers who inadvertently encounter a counterfeit brand website. This is relevant for all active versions of the brand’s counterfeit websites available online. There can be numerous such sites since they are simple to create and can be easily recreated after being removed.

2. Developing identity theft

Virtually every industry is affected by identity theft, one of the oldest forms of fraud. It occurs when a lawbreaker exploits another person’s private data—like their name, address, and credit card information—to create accounts, carry out transactions without permission, or take other actions.

From exploiting data breaches to employing phishing tactics, criminals can obtain sensitive customer information through various means. This information can then be used by them to pose as the victim. In the same way, criminals might employ these identical techniques to purloin employee data, potentially granting them entry to e-commerce sites and back-end systems.
As criminals find innovative methods to exploit generative AI and similar resources for producing deepfakes, the menace of identity theft is advancing. These tools can enable criminals to circumvent standard security measures, such as biometric authentication.

To tackle this issue, e-commerce businesses will need to invest in more sophisticated authentication methods, including the implementation of multi-factor authentication for all users of customer and employee accounts.

3. Credit card fraud In cases of identity theft, offenders can appropriate various types of customer data for multiple aims. They may acquire contact information to sell to others, pilfer passwords for account access, and engage in other similar activities. In the case of credit card fraud, the sole aim is to gain access to payment information.

Criminals involved in credit card fraud utilize data breaches, phishing attacks, hacking methods, and other tactics to obtain a customer’s credit card information. Some offenders even breach the databases of online retail companies to obtain vast amounts of credit card data simultaneously.

Although it is not always mandatory for e-commerce companies to compensate victims of credit card fraud (as this duty can sometimes fall on the credit card provider), companies that are vulnerable to this crime may face significant reputational harm.

Both consumers and credit card companies can take heart from the fact that many payment processing solutions now include integrated tools for automatically identifying and reducing fraud. They can automatically oversee dubious transactions, notify victims of dangers, and even prevent payments from being processed if they are deemed fraudulent.

4. Chargeback fraud Chargeback fraud is among the few forms of e-commerce fraud that affects businesses more significantly than consumers. This is the outcome when customers buy something, get their product or service, and then challenge the charge with their credit card provider in order to obtain a refund.

It is important to point out that customers do not always engage in this fraudulent behavior with the intention of “stealing” money from a business; there are also instances in which they dispute charges for reasons that lack validity. A customer could, for example, contend that they have contested a charge on the grounds that the product they received was not “as described,” when in fact it was.

It can be challenging to tackle this type of fraud. E-commerce companies can take several actions, including confirming orders with customers prior to shipping products, utilizing clear descriptions on product pages, and establishing transparent return, refund, and cancellation policies.

Additionally, there are tools available that assist companies in identifying potentially suspicious orders using filters such as order size, frequency, and shipping address. These tools can enable companies to establish blacklists of customers recognized for engaging in chargeback fraud.

5. Fraud involving refunds

Although refund fraud may seem akin to chargeback fraud, a fundamental distinction exists between the two. In both cases, an individual asks a company for a refund. In contrast, in the case of chargeback fraud, it is the customer who is asking for a refund. Refund fraud usually involves a criminal masquerading as a customer who has never made a genuine purchase asking for their money back.

Additionally, there are numerous methods that ill-intentioned individuals can use to perpetrate this type of fraud. As an example, certain offenders try to get a refund from a company by returning items that they stole or that were counterfeit. Some individuals take a customer’s email address or contact information and reach out to the business for a refund, claiming they “never received a product.”

One type of refund fraud, called “double dipping,” can be perpetrated even by a legitimate customer. Here, a customer seeks reimbursement from both their retailer and the credit card company, aiming to receive double their money back.

Once more, the essential factor in addressing this problem is care, confirming a purchase with a customer, requesting images of the product, and verifying that a return is genuine.

6. Affiliate fraud As online retailers seek new methods to engage with more customers, affiliate fraud has become more prevalent in the e-commerce industry. Affiliate fraud occurs when businesses utilize affiliate marketing programs, which entail providing a commission to a third-party for every successful sales opportunity they generate for the brand.

Sadly, criminals can make commissions by employing unscrupulous tactics. Actually, a study by Anura indicates that approximately 45% of all affiliate traffic is due to affiliate fraud. Affiliate fraud involves criminals employing strategies such as bots, counterfeit accounts, and click farms to create fake traffic, sales, and clicks, thereby boosting their commission income.

Certain offenders employ strategies such as cookie stuffing to add cookies to a user’s computer without their approval, aiming to increase the sales or clicks associated with an account. Some submit fraudulent leads and customer data to online retailers in order to obtain unearned rewards.

A careful approach to affiliate marketing is the key to overcoming this issue. To confirm that commissions are being allocated properly, business leaders should thoroughly evaluate their partners, affiliates, and influencers, validate every transaction, and utilize attribution tracking tools.

Tackling the growing problem of e-commerce fraud E-commerce fraud is, regrettably, a prevalent issue in online shopping, with new types of fraud constantly arising. Store owners must ensure they are employing comprehensive approaches to combat fraud in order to safeguard their revenue, clientele, and brand image.

It involves not only the use of secure payment gateways and robust authentication methods, but also the monitoring of transactions and user behavior, tracking of fraudulent websites, and utilization of cutting-edge tools to anticipate threats.

It is essential that, as the threat landscape evolves, e-commerce companies adapt their strategies for combating fraud accordingly. E-commerce companies can only ensure their security by remaining aware of the latest threats and dedicating themselves to a strategy of constant optimization and evolution.