3 Types of Fraud that is Commonly Used to Target ecommerce Retailers

October 21, 2021

No business likes to be faced with fraudulent activity, yet it happens a lot nowadays. As more businesses move to an online channel for the purpose of promoting their services or product, those businesses become vulnerable to cyber-attacks.

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As an ecommerce retailer, it’s essential to be aware of what fraud means to this industry and how it’s impacting many of those who’ve experienced fraudulent activity. Some may have been attempted unsuccessfully and others with success.

In this article, we’ll look at what ecommerce fraud is, the three types of fraud commonly used for ecommerce retailers and how to prevent it from happening to your business.

What is ecommerce fraud?

Ecommerce fraud is summed up as a criminal deception that takes place during a commercial transaction on the internet. The outcome of which is for the fraudster to achieve financial or personal gain. It also results in a negative impact on the merchant in question.

In 2020 alone, over two billion purchased goods or services whilst online and e-retail sales surpassed 4.2 trillion U.S. dollars worldwide in the same year. It becomes glaringly obvious that this is a profitable industry that others want to exploit.

Fraud related to ecommerce can come in a variety of different forms but there are some that are more common than others. Whilst ecommerce fraud might not be as damaging to some of the bigger corporations, it can severely knock the smaller businesses and startups. When it comes to fraud and cybercriminals, no one is safe.

With that said, it’s worthwhile to know some of the most used methods on ecommerce retailers.

Three types of fraud commonly used for ecommerce retailers

There are three main types of fraud that are commonly used when it comes to ecommerce retailers.

With the growth in technology and the internet in general, there are new trends popping up when it comes to ecommerce fraud. From taking advantage of mobile transactions to voice-enabled shopping​​ being a tool for fraud, there’s a lot to look out for as an ecommerce retailer.

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Whilst the below types of fraud exist, these methods may adapt and change to trip businesses up and to successfully deceive merchants. So, here are a few common ecommerce methods worth knowing as an online business.

Payment fraud

Payment fraud is where the fraudster will create false payments or divert them. These attempts can be made by creating false customer records and bank accounts that generate these fake payments.

It’s one of the most common when it comes to fraud and it’s also referred to as identity theft. A lot of these cybercriminals will attempt to steal information or data that relates to a customer. Not every example of this fraud is one that involves stolen card details, however.

They might instead focus on IP addresses or email addresses when it comes to ecommerce. It takes advantage of existing data and manipulates it for personal or financial intentions.

Friendly fraud

Friendly fraud sounds like a nice version of fraud, but then again, when is fraud ever a positive experience?

Typically, friendly fraud often occurs by mistake or it’s down to the design of the ecommerce site. The customer may or may not put a legitimate transaction through but the service or product they ordered never arrived or in some cases, was damaged in transit.

As a result of this, the merchant is forced to issue a refund, re-deliver the item or services or be met with a chargeback. Some fraudsters out there will take advantage of this opportunity to manipulate the system in place. They’ll claim refunds for items or services that they did, in fact, receive.

Refunds can be issued without sending any products back and chargebacks can end up impacting some businesses heavily if they’re great in numbers.

Affiliate fraud

Many ecommerce retailers have spotted the growing industry of affiliate advertising. Affiliate advertising allows others to make a slice of the profit that the retailer makes, by providing them with unique codes and links to share online.

Anyone who clicks through to the link or uses the codes given to purchase a product or service will then register as an affiliate purchase. The person in question then gets a small percentage of the profit.

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Interestingly, affiliate programs generate between 15%-30% of all sales for advertisers and where profit is made, fraud attempts will soon follow. Affiliate fraud is where the scammers will manipulate the traffic and sign-ups in an attempt to make it look like there’s more interest on the site than there is in reality.

As it’s fairly easy to sign up to an affiliate platform and a retail program specifically, it’s why affiliate fraud is commonplace.

How to spot fraud on your ecommerce site

Spotting fraud can do a lot to help protect your business and once your staff are familiar with it, they can do more to prevent it. Here are just a few ways to spot fraud on your ecommerce site.

Multiple declined payments

A declined payment or two is common but when there’s multiple happening at once, it could be something more sinister. It’s useful to keep a watchful eye over the same users that are getting their payment declined. This may be a sign of a fraud taking place and one to be alert to.

Non-physical addresses

Non-physical addresses are likely to prove questionable. It’s important that your business has some form of technology in place, whereby they can disallow any non-physical or deliverable addresses. This will definitely help matters when it comes to preventing some of the fraud attempts on the business.

Order data that’s inconsistent or unusual

Look at your order data and understand what’s normal and what isn’t. From data that is inconsistent or more unusual behaviors like purchases from countries abroad. Whilst many cater to countries beyond their own, some transactions might appear odd.

Tips to prevent ecommerce fraud for your business

Preventing ecommerce fraud is certainly better than becoming a victim of it. For your business, it’s good to be proactive in helping prevent it in any way you can. These preventative measures should hopefully be a deterrent for fraudsters looking to exploit and damage all that hard work you put into ecommerce.

Track your packages when sending out products

When sending out products for customers and fulfilling transactions, it’s always good practice to apply tracking to the packages. That way, you can back yourself up with the evidence that at least the package arrived at the destination inputted when ordering.

You may also want to work with the delivery and distribution services you use to ensure photo evidence is recorded where possible. This can be helpful in order to ensure chargebacks and refunds are genuine in their nature.

Keep an eye on your site’s activity

Ecommerce fraud detection services and tools can be helpful in monitoring your site for any unusual activity. SEON is one of those online tools that can help keep a watchful eye over your site. If there’s anything untoward occurring, then SEON’s tools and software can help with that.

When it comes to ecommerce fraud, it can be hard to find anything wrong, particularly when transactions can quickly become historic. Be aware of what’s happening on your site at any given moment to avoid any attempts at fraud.

Don’t accept non-physical address data

There are limitations you can set as a business in order to protect yourself from fraudsters. One of which is by not accepting any non-physical address data. Manage your forms so that the user has to input existing physical addresses. Any non-physical ones will simply not show up or be accepted on the form.

Be careful of how you use data

Data is a great resource for many businesses to learn about their customers and how they can help achieve more growth and success. However, the more you gain, the more you’re responsible for. With that being said, it’s worthwhile to only collect what’s necessary because by doing so, you make yourself less of a threat to data breaches and fraud.

Make sure you’re storing your data properly and securely to prevent more forms of cyber attacks. The preventative measures you put into your ecommerce business will hopefully keep the scammers at bay.

Look out for ecommerce fraud

As a retailer online, it’s critical that you’re paying attention to ecommerce fraud. It’s a worrying concern that’s reinventing its methods of attack to gain more victims. So with that in mind, being aware of the common types of fraud is crucial, as well as how to spot it and more importantly, how to prevent it.

If you’re an online retailer, being more proactive is going to help you avoid these dangers to your business. They’re something that could cause you a lot of financial and personal issues when it comes to running your ecommerce.

Author Bio

Author Bio: Natalie Redman (LinkedIn)

Email – [email protected]

Natalie is a freelance copywriter with a wealth of experience across many industries, including ecommerce.

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