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E-commerce Fraud Prevention- 6 Common Types & Necessary Precautions

Blog: MattsenKumar Blog

A Statista study reveals “more than 2.1 billion people will spend over $6.5 trillion on e-commerce platforms by 2023”. Another study reveals that e-commerce frauds have grown at twice the rate of industry growth. Alone in India e-commerce fraud cases rose from 977 cases in FY17 to 5620 cases in FY2019.

For e-commerce fraud prevention is a two-way street, first, they need to protect consumers from card frauds and then protect themselves from frauds by customers. Multiple payment failures, bulk orders, differences between shipping and billing address are common issues but they make the transaction appear as a fraud. E-commerce platforms are having a tough time differentiating between genuine and fraudulent transactions.

The most common e-commerce frauds include:

1. Credit Card Fraud

Frauds often attack small websites only to steal credit card details. Later they use these cards for shopping on bigger websites. When accepting transactions online the liability of fraudulent transactions lies with the merchant. All transactions on e-commerce platforms are Card Not Present (CNP) transactions and are deemed less secure because the cardholder is not present with a card for cross-verification.

How it impacts e-commerce stores?

Must Read: E-commerce Catalog Improvements – 8 Tips to Boost the Performance

2. Refund Fraud 

Fraudsters use a stolen credit card to overpay online stores. Later, they get in touch with stores to refund the excess amount to a different account citing “their card expired”. Such refund frauds have grown in recent past and it is impacting online stores immensely. E-commerce stores are caught in a weird situation when any such return fraud occurs because:

3. Triangulation Fraud

More like an advanced version of Phishing. To carry out a Triangulation Fraud, scammers create a fake storefront and record the credit card details. Then they place an order from the original store. Later recorded credit card detail is used by frauds to order items worth high ticket.

Impact of Triangulation Fraud on e-commerce stores:

Also Read: How to Optimize E-commerce Search for better Customer Experience?

4. Friendly Fraud

Commonly known as chargeback frauds. In friendly fraud, a customer claims his or her credit card was stolen once he or she receives the product. The customers go ahead and ask for a chargeback.


5. Selling Fake Products

Sellers offering fake or imitated products at a lucrative price is perhaps one of the most common scams. First, they list the product at an attractive price, then they promote it on social media. People bank upon the trust-worthy name of marketplaces like Amazon and Flipkart and buy it only to receive fake or imitated products.

How do fake products affect marketplaces?

How marketplaces can stop sellers from selling fake products?

Catalog quality check is perhaps the only way to stop such fraudulent activities. By leveraging manual marketplace checks, stores can easily identify fake products and remove them. Catalog quality checks can also assist with seller education and website sanity check.

Must Read: Seller Management: Best Practices for Online Marketplaces

6. Customers Returning Fake Products

Since every e-commerce stores have policies like “no questions asked return” and “30 days return policy”, it gets easier for customers to cheat. Customers often buy imitated or fake products from other stores and replace them with the original product they bought online. Marketplaces train delivery agents to match the product and scan the barcode while picking up a return shipment. By the time the product reaches the seller, customers have received the money in their accounts along with the original product.

Impact of frauds by the customer are:

What does a fraudulent order look like?

Before we get down to methods of e-commerce fraud prevention, let’s traverse through a list of how fraudulent order looks like:

  1. First-time shoppers with larger than average orders: With a stolen credit card, scammers are looking to cash out maximum benefit in one go. They will generally create new accounts and place big orders. To evade chances of getting caught they rely on new accounts instead of using old accounts.
  2. Fast shipping to an unusual location: Frauds are in a hurry to make the most of the card and since they are not paying for it from their pocket, they will not shy away from opting for faster shipping. Scammers are also worried about getting their address exposed hence they will often provide street names, shopping centers and other public places as their delivery address.
  1. A large quantity of the same product at multiple locations: E-commerce marketplaces restrict customers from buying items in bulk. To keep the number of transactions as less as possible and save themselves from getting caught, scammers order a large quantity of the same product at multiple locations. Often these are high ticket products.
  2. Multiple Card from Single Address: It is easier to catch a habitual offender, he will always follow the same old paradigm. By leveraging IP detection methodologies, e-commerce businesses can identify and restrict attempts of e-commerce fraud.
  3. Multiple transactions in a short period: Yet again, scammers are in a hurry to make the most of stolen credit cards, so they will do multiple transactions in a short period. Identifying such transactions can prove to be a relevant e-commerce fraud prevention technique.

Best E-commerce Fraud Prevention Practices

As mentioned, multiple payment failures, bulk orders, differences between shipping and billing address are common and genuine problems. Restricting all bulk purchases and orders at a different location can impact genuine customers as well hence e-commerce stores need to use different methodologies to prevent e-commerce fraud.

Some of the best ways of e-commerce fraud prevention are:

Cross-verify suspicious transactions: Since hackers have access only to cardholders’ data and not their email address, e-commerce players can rely on cross-verification emails to sustain such frauds. Send the cardholders’ a mail about the suspicious transaction and process it only when they verify it. In countries like India and China, Credit card providers are relying on verification paradigms to restrict fraud.

PCI DSS Compliance: Getting PCI DSS Certified allows businesses to enjoy a set of privileges like improved customer confidence and protection against unauthorized access. With PCI DSS certification, hackers can’t steal credit card details because all information passed over the network is encrypted and locked with a key.

SSL Certification: Ever since Google made SSL a standard practice, even small businesses have started using it. If any e-commerce is not using SSL, they are in for hefty fines. SSL certificates not only safeguards data but also doubles as a great method of e-commerce fraud prevention.

IP Address Verification: Discover anyone who uses multiple cards from the same address and limit their access to your site. With IP address verification, online businesses can easily stop their platforms from getting misused.

Use Address Verification System: There are payment gateways that use an address verification system to verify transactions. With AVS, transactions are processed only when the address entered on checkout page matches with the address registered on the bank’s server.


The growth of e-commerce and Fintech industry has made it easier for people to buy things online. With payments getting processed under a few seconds, now people are preferring online payment over cash on delivery. The direct involvement of money has got everyone’s eyeballs stuck on e-commerce and Fintech organizations.

With increasing hacks businesses today need to rely on safe e-commerce fraud prevention techniques to safeguard users from breaches. Leveraging technology and following strict scrutiny paradigm can minimize breaches and improve customer experience.

The post E-commerce Fraud Prevention- 6 Common Types & Necessary Precautions appeared first on MattsenKumar.

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