In 2020, e-commerce accounted for 18 percent of all global retail sales—a jump of 4.4% from the year prior.
This may not seem like a big jump at first glance. However, when you look at the year-over-year trend from 2015 onward, you’ll notice that the pandemic actually boosted e-commerce sales by a significant amount.
That’s the beauty of e-commerce platforms. During times of crisis, businesses that employ e-commerce platforms can still thrive.
At the same time, this increase in e-commerce transactions brings another problem: E-commerce fraud.
Five common types of e-commerce fraud affect retailers (and other e-commerce businesses) to be on the lookout for: card testing fraud, account takeover fraud, interception fraud, chargeback fraud, and refund fraud.
How E-commerce Fraud Affects Businesses
E-commerce fraud encompasses any fraud tactics used on an e-commerce platform. While this term is fairly self-explanatory, the term e-commerce fraud covers a wide range of tactics used by fraudsters to target e-commerce merchants.
Brick-and-mortar stores are no stranger to fraud, as they’ve been dealing with it for decades. However, e-commerce platforms open up a whole new world of opportunities for fraudsters to take advantage of since credit cards don’t need to be presented for a transaction.
E-commerce stores and merchants also offer accounts to customers for different reasons, ranging from rewards programs to simply adding the convenience of saving payment information. These accounts are another avenue for fraudsters to take advantage of, should they gain access to honest customer’s account information.
E-commerce Fraud Types
As we mentioned, the nature of e-commerce transactions presents many opportunities for fraudsters to target e-commerce vendors and merchants.
This means that there are several different types of e-commerce fraud to watch out for. Here are some of the most common tactics.
Card Testing Fraud
With card testing fraud, the fraudster illegally obtains one or more credit card numbers. Typically, fraudsters will obtain these numbers by stealing them directly or purchasing them from certain parts of the internet.
Card testing fraud starts out smaller: The fraudster will attempt smaller purchases with each card number to figure out which ones are valid without drawing too much attention to themselves. Smaller purchases also help determine the limits on each of the credit cards.
After initial testing, fraudsters can begin making larger purchases. By the time many merchants discover that they’ve been the target of card testing fraud, the fraudster has likely had the time to make several big-ticket purchases.
Account Takeover Fraud
We talked about how e-commerce platforms unintentionally offer different opportunities for fraud when compared to brick-and-mortar merchants. Gaining access to customer accounts is one of them.
Fraudsters have a variety of methods they can use to gain access to customer accounts. Purchasing stolen passwords, security codes, obtaining customer info from the web, and implementing phishing schemes are just some of the tactics at a fraudster’s disposal.
Fraudsters have free reign to do whatever they want once they breach an account, including:
- Changing account details
- Make purchases on the store
- Withdraw funds (if this functionality is present)
- Access other accounts owned by the user.
Make no mistake. Account takeover fraud is a form of identity theft. Customers who have been the victim of account takeover fraud may never trust the provider again, and any customer relationship will be tarnished if not destroyed. This makes account takeover fraud one of the most detrimental forms of e-commerce fraud that exists.
With interception fraud, the fraudster purchases goods from your e-commerce website using a stolen credit card but avoids certain checks by providing legitimate, matching shipping and billing addresses.
Upon placing the order, the goal is to intercept the package before it gets to the address provided. There are three common tactics that fraudsters can use to do this:
- If they know the victim and live close, they can simply steal the package from the drop off location
- Contact a customer service rep from your company to change the shipping address before the item is ready to be shipped
- Contact the shipping company themselves to reroute the package to a destination of their choice
Chargeback fraud is when a customer purchases a product or service before contacting their credit card company to void the purchase, resulting in a “chargeback”.
Chargeback fraud is an interesting case because it could result from a legitimate purchase not being recognized by the customer. This particular case is often called “friendly fraud.” Friendly fraud is no less detrimental to e-commerce merchants, though. It can still leave a negative impact on both the business and the customer relationship.
Some fraudsters intentionally commit chargeback fraud by abusing company policies to get items for free since the purchase will be refunded to their credit card.
Chargebacks cost companies big in multiple ways, including:
- Chargeback fees
- Lost merchandise
- Shipping costs
- Penalties and administrative costs
- Banking fines
With refund fraud, a fraudster purchases a product or service using a stolen credit card and then has it refunded onto their credit card. One of the most common tactics used here is informing the merchant that the refund will need to be processed on a new credit card because the old one has been closed.
Refund fraud is stressful for e-commerce merchants to deal with. It can be difficult to figure out which claims are legitimate and which ones are fraudulent. Customer relationships can get caught in the middle of attempting to prevent refund fraud cases from happening.
Preventing E-commerce Fraud With an E-commerce Fraud Protection Service
There are several effective strategies you can use to prevent e-commerce fraud, from consistent site security audits to simply training your support team to spot the signs of fraud.
However, the most reliable way to protect your business is with an e-commerce fraud protection service.
Forter, for example, provides you with a fraud prevention solution that is tailored to your business. With a single platform, you’ll be able to secure the entire purchasing journey from start to finish. All of Forter’s fraud protection services allow you to approve more legitimate transactions, avoid false declines, and protect your business from all different types of e-commerce fraud using an automated platform.
There Are Many E-commerce Fraud Types—All Of Them Negatively Impact Your Business
E-commerce platforms provide everyone with a ton of convenience. Pandemic aside, there is still loads of value in being able to purchase goods and services from the comfort of your home instead of needing to leave the house.
This also means that companies need to be aware of the different e-commerce fraud types. Unfortunately, e-commerce merchants have more to watch out for than brick-and-mortar stores.
Fortunately, by staying informed (and implementing a fraud protection solution), you can keep fraudsters from targeting your business and ensure that your bottom line is always protected.
Questions About E-commerce Fraud?
The Forter team is here to answer your e-commerce fraud questions. Reach out to us with any questions, comments, or concerns that you have. We would love to help.