To stay ahead of the threats, protect their revenue and preserve customer loyalty, retailers need to take a comprehensive approach to tackling fraud.
E-commerce fraud is an issue that’s growing increasingly significant as online shopping continues to rise in popularity. By 2030, the global B2C e-commerce market is set to be worth around $7.9 trillion, and malicious actors are keen to get a piece of the pie by scamming online buyers.
To stay ahead of the threats, protect their revenue, and preserve customer loyalty, retailers need to take a comprehensive approach to tackling fraud.
This starts with understanding the various types of fraud relevant to the e-commerce industry and the specific risks to mitigate.
Here are some of the most common types of e-commerce fraud influencing online shopping today along with some strategies for reducing risk.
What is e-commerce fraud?
E-commerce fraud is a form of cybercrime that affects online consumer transactions. Malicious actors use a range of methods to deceive both businesses and consumers for ill-intended purposes, such as stealing money. They trick users to gain access to personal and financial information, conduct fraudulent transactions, and ultimately exploit the online retail environment for personal gain. Notably, e-commerce fraud doesn’t just have a negative impact on consumers, it leads to significant problems for businesses, too.
According to Juniper Research, by 2028, merchant losses caused by fraudulent acts will amount to over $362 billion worldwide. Fraud can force companies to lose money on refunding transactions, dealing with fake chargebacks, and more. Plus, it can lead to regulatory fines, loss of customer trust, and a decrease in long-term revenue.
6 common types of e-commerce fraud
Criminals have become increasingly effective at carrying out fraud attacks against e-commerce companies in recent years. The rise of innovative technology, such as AI and automation, is helping business leaders run their e-commerce companies more efficiently, but it’s also giving criminals new ways to deceive and scam both businesses and consumers.
Here are some of the most common types of e-commerce fraud companies need to prepare to navigate today and in the years ahead.
1. Brand impersonation
Phishing attacks on e-commerce platforms have posed a significant threat to organizations and consumers in recent years. Malicious actors using phishing and social engineering tactics generally leverage deceptive emails, messages, and websites to trick users into sharing sensitive information.
Although consumers and employees have become more adept at distinguishing between authentic and fake messages and spoofed websites in recent years, criminals are also becoming more deceptive by using sophisticated technologies and approaches. According to a report from Memcyco, 67% of companies only find out about criminals “impersonating” their brands from victim incident reports.
If a criminal builds a fake website designed to look exactly like a legitimate e-commerce site, customers can frequently make purchases and share payment details with the wrong entities. This leads to severe financial losses for customers, as well as issues for companies. According to Memcyco’s report, up to 40% of customers who fall victim to fake site scams ultimately stop doing business with that organization entirely.
To address this issue, companies need to take an advanced approach to detecting instances of phishing, social engineering, and brand impersonation against their customers. AI-powered solutions can help businesses proactively detect, counter, and control fraud with exceptional efficiency. Memcyco’s own solution acts to keep customers safe by providing pop-up alerts to any customer that stumbles onto a fake version of a brand’s website. This applies for all live versions of the brand’s fake websites existing on the web, which can be many, as they are very easy to create and recreate when they are taken down.
2. Evolving identity theft
Identity theft is one of the oldest forms of fraud affecting virtually every industry. It’s what happens when a criminal uses someone else’s personal information, such as their address, name, and credit card details, to open accounts, make unauthorized purchases, or complete actions.
Criminals can acquire sensitive customer information in a range of ways, from leveraging data breaches to using phishing tactics. They can then use this information to impersonate the victim. Similarly, criminals can also use the same methods to steal employee information, which could allow them to gain access to e-commerce platforms and back-end systems.
The threat of identity theft is evolving as criminals discover new ways to leverage generative AI and similar tools for the creation of deepfakes. These tools can even allow criminals to bypass common security measures, like biometric authentication.
Overcoming this problem will require businesses in the e-commerce industry to invest in more advanced authentication methods, such as requiring multi-factor authentication for all users of customer and employee accounts.
3. Credit card fraud
With identity theft, criminals can steal all kinds of customer information for different purposes. They might obtain contact details to sell to third parties, steal passwords to access accounts, and more. With credit card fraud, the focus is exclusively on accessing payment details.
Criminals engaging in credit card fraud use data breaches, phishing attacks, hacking strategies, and more to gain access to a customer’s credit card details. Some criminals even hack into e-commerce company databases to access huge volumes of credit card information at once.
While e-commerce companies aren’t always required to reimburse victims of credit card fraud (sometimes this responsibility lies with the credit card provider), companies exposed to this crime can risk serious damage to their reputation.
The good news for both consumers and credit card companies is that many payment processing solutions now come with built-in tools for automatically detecting and mitigating fraud. They can automatically monitor suspicious transactions, alert victims to threats, and even stop payments from going through if they’re considered fraudulent.
4. Chargeback fraud
Chargeback fraud is one of the few types of e-commerce fraud that has a more significant impact on businesses than consumers. It’s what happens when customers make a purchase, receive their product or service, then dispute the charge with their credit card company to get a refund.
Notably, customers don’t always commit this act of fraud to “steal” money from a company, sometimes they dispute a charge for invalid reasons. For instance, a customer might argue that they’ve disputed a charge because the product they received wasn’t “as described”, when it really was.
This form of fraud can be difficult to address. There are a few things e-commerce companies can do, such as confirming orders with customers before shipping products, using clear descriptions on product pages, and creating clear return, refund, and cancellation policies.
There are also tools that can help companies flag potentially suspicious orders based on filters, like order size, frequency, and shipping address. These tools can even allow companies to create blacklists of customers who are known for committing chargeback fraud.
5. Refund fraud
Refund fraud might sound similar to chargeback fraud, but there is a core difference. In both instances, someone requests a refund from a company. However, with chargeback fraud, it’s the customer requesting a refund. With refund fraud, it’s usually a criminal posing as a customer, who never actually purchased a product or service, who asks for their money back.
There are various ways for malicious actors to commit this form of fraud, too. For instance, some criminals attempt to return stolen or counterfeit items to a company for a refund. Others steal a customer’s email address or contact details, and contact the company asking for a refund because they “never received a product”.
There is one form of refund fraud that can be committed by a genuine customer too, known as “double dipping”. This is when a customer requests a refund from both their retailer and the credit card company (to get double their money back).
Again, the key to overcoming this issue is caution, validating a purchase with a customer, asking for pictures of the item, and double-checking that a return is legitimate.
6. Affiliate fraud
Affiliate fraud has become increasingly common in the e-commerce sector, as online retailers look for new ways to connect with a larger number of customers. Affiliate fraud happens when companies use affiliate marketing programs, which involves paying a commission to a third-party each time they successfully help deliver sales opportunities to the brand.
Unfortunately, criminals can earn commissions using underhanded tactics. In fact, an Anura study suggests affiliate fraud accounts for around 45% of all affiliate traffic. With affiliate fraud, criminals use tactics like bots, fake accounts, and click farms to generate artificial traffic, sales, and clicks that inflate their commission earnings.
Some criminals use tactics like cookie stuffing to place cookies on a user’s computer without their consent, to inflate the number of sales or clicks attributed to an account. Others submit fake leads and customer information to e-commerce companies to claim rewards they haven’t earned.
The key to overcoming this issue is a careful approach to affiliate marketing. Business leaders should vet affiliates, partners, and influencers carefully, validate each purchase, and use attribution tracking tools to ensure they’re distributing commissions correctly.
Addressing the rising issue of e-commerce fraud
E-commerce fraud is, unfortunately, a common issue in the world of online shopping, and new forms of fraud are emerging all the time. To protect their revenue, customers, and brand reputation, store owners need to ensure they’re using holistic methods to address fraud.
This means not just using secure payment gateways and implementing strong authentication methods, but monitoring transactions and user behavior, tracking fraudulent websites, and leveraging state-of-the-art tools to stay one step ahead of threats.
Crucially, as the threat landscape continues to evolve, the strategies used by e-commerce companies to mitigate fraud will need to change, too. Only by staying aware of the latest threats and committing to a strategy of constant optimization and evolution can e-commerce companies stay secure.
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