The eCommerce industry is under constant attack from cybercriminals. Such attacks have posed a serious threat to businesses and have caused huge financial losses. According to sift, it is estimated that globally over $1 trillion was lost due to cybercrime in 2020, with a 40% rise in ransomware attacks and a 600% hike in email-delivered malware attacks from 2019.
The eCommerce industry has been a prime target for cybercriminals due to the nature of the business and the way it operates. The industry is highly dependent on the Internet and online transactions, which makes it a soft target for cybercriminals. Moreover, the online nature of the business makes it difficult to track and trace the origins of the attacks.
That is why it is crucial for eCommerce business owners to develop strategies to keep their stores protected from cyber-attacks and take some measures to protect their online business. So, we have compiled this guide comprises everything you need to know about eCommerce fraud.
What Is eCommerce Fraud?
E-Commerce fraud refers to a fraudulent activity that occurs during an electronic transaction with the intention of personal or financial gain. E-commerce fraud can happen to both businesses and consumers. Businesses can suffer financial losses and may experience reputational damage due to fraudulent activity. Consumers can also suffer financial losses and may also experience emotional distress as a result of e-commerce fraud.
What Are The Different Types Of eCommerce Fraud?
There are many types of eCommerce fraud, and it can be difficult to track them all. Here is a list of some of the most common types of eCommerce fraud:
According to Statista, the most common fraud encountered by online merchants globally was friendly fraud, with approximately 40% of online merchants experiencing this type of eCommerce fraud in 2021.
Friendly fraud occurs when a consumer intentionally uses a credit card to make a purchase with the intention of not paying for the goods or services purchased. The term “friendly” is used to describe this type of fraud because the consumer is usually not trying to commit identity theft or commit any type of theft. Instead, the consumer is simply trying to get something for free.
Friendly fraud can take many forms, but the most common type of friendly fraud is chargeback fraud. Chargeback fraud occurs when a consumer requests a chargeback from their credit card issuer for a purchase that they intentionally made and received. The consumer denies making the purchase or claims that they never received the goods or services purchased. The credit card issuer then refunds the consumer’s money, and the merchant is left to pay for the chargeback fees.
Card Testing Fraud:
Card testing fraud involves the testing of debit or credit cards to determine whether they are still active and have available funds. This type of fraud is most commonly perpetrated by organized crime groups and can result in significant financial losses for financial institutions and cardholders. It has seen an increase in card testing fraud by 200%, and it is rising by 30% every year.
Card testing fraud typically occurs in two phases. In the first phase, criminals obtain a list of valid card numbers and expiration dates, which can be obtained through skimming devices or data breaches. In the second phase, the criminals use the card numbers to test the cards to see if they are still active and have available funds. This is typically done by making small purchases at retail businesses or by withdrawing cash from ATMs.
Card testing fraud can be difficult to detect because the transactions are often small and may not be flagged as suspicious. Additionally, the card numbers and expiration dates used in the fraud are often stolen from legitimate cardholders, which can make it difficult to identify the criminals.
Refund abuse is a type of fraud in which a person takes advantage of a store’s return policy to get a refund for an item they did not purchase or for an item that they purchased and then returned. This type of fraud costs retailers millions of dollars each year, and it is often difficult to detect.
Refund abuse fraud can have serious consequences for both businesses and consumers. For businesses, it can lead to loss of revenue, higher processing and shipping costs, and damage to reputation. For consumers, it can lead to higher prices and difficulty obtaining refunds for legitimately defective merchandise.
Online Payment Fraud:
Online payment fraud, also known as credit card fraud, is an identity theft, where a stolen credit card or card number, is used to make unauthorized purchases. Credit card fraud can also involve using a fake credit card or identity theft to obtain a line of credit from a financial institution.
Credit card fraud is a serious crime that can damage your credit score and reputation, and it can be costly to resolve. Though retailers from all over the world suffer from this type of fraud, it is most common in Mexico, where a 77% increase in online payment fraud was seen in 2021.
Account Takeover Fraud:
In account takeover fraud (ATF), an attacker gains access to a victim's online account and then uses it to make unauthorized purchases or to access sensitive information. According to Cybersource Global Fraud Report, 23% of brands experienced ATF in 2021.
There are a few different ways that account takeover fraud can happen. In some cases, attackers will use stolen credentials to log in to a victim's account. In other cases, they may use malware to take over the account. In either case, the attacker will usually change the account password and email address to prevent the victim from regaining access. They may also sell the account to other criminals.
Promo, Affiliate, or Loyalty Abuse:
eCommerce businesses use promo codes, affiliate programs, or loyalty points to attract their potential customers and retain existing ones. However, this leads to a boost in eCommerce fraud. In fact, it has been found that 49% of eCommerce businesses have experienced a hike in promo abuse, espeically after the COVID-19 pandemic. It also has been found that approximately $1 billion in reward value is lost to fraud every year.
Promo, affiliate, or loyalty abuse in eCommerce is a type of fraud where scammers use special codes to get discounts or freebies. This code can be found on promotional material, through an affiliate program, or by signing up for a loyalty program. The scammers will then use this code to make purchases, often through a third-party website, and resell the items for a profit.
Triangulation fraud is a fraud whereby a fraudster uses two or more victims to launder money or merchandise. The fraudster typically uses a bogus or hijacked account on an e-commerce site to buy goods or services from a legitimate merchant, then uses a stolen credit card or PayPal account to pay for them. The fraudster then resells the goods to a third party, often at a significant markup, and collects the proceeds. This type of fraud can be difficult to detect because it often involves the use of multiple stolen identities and credit card numbers.
Interception fraud is a type of eCommerce fraud in which a fraudster intercepts a legitimate customer's package before it is delivered to them. This type of fraud typically occurs when a customer's shipping information is compromised, allowing the fraudster to have the package delivered to their own address instead. Once the fraudster has the package, they can open it and keep the contents for themselves or resell it on the black market.
This type of fraud can be difficult to detect, as the customer may not realize their package has been intercepted until they attempt to track it and find that it has been delivered to an alternate address. In some cases, the fraudster may even reach out to the customer pretending to be customer service in order to obtain even more information.
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How To Protect eCommerce Site From Fraud?
While different types of eCommerce fraud can impact your business profit and reputation, it is vital to know how to prevent eCommerce fraud. So, here are a few tips to help you combat eCommerce fraud.
Choose your Host Wisely:
When looking for hosting for your eCommerce website, choosing a reputable and reliable hosting company is important. A good host will have security measures in place to protect your website from hackers and other online threats. They will also have customer support available to help you if you experience any problems.
Use a Secure Connection:
When setting up your eCommerce website, you will need to use a secure connection (SSL) to protect your customers' personal and financial information. SSL encrypts the information that is sent between your website and your customers’ browsers, making it difficult for hackers to intercept and read the data.
Create a Strong Password and Store it Safely:
Creating a strong password for your eCommerce store may seem like an obvious step, but it's one that is often overlooked, making your store vulnerable to cyber attacks. So, choose a password that is at least 8 characters long and includes a mix of lower and uppercase letters, symbols, and numbers. Avoid using dictionary words or easily guessed phrases. Once you have created your password, make sure to store it in a secure location such as a password manager.
However, if you are adding eCommerce to an existing website using Shoprocket, you need not worry about generating a strong password. At Shoprocket, we use Passopolis, a plugin that helps you create a strong password and store the login credentials to the tools and services you use. You need not worry about knowing your password. With Shoprcoket, everything is encrypted and managed for you.
Monitor Your Site for Suspicious Activity:
One of the bPassopolisest ways to protect your eCommerce site from fraud is to monitor it for suspicious activity. This includes watching for strange logins from unfamiliar IP addresses, large numbers of failed login attempts, and unusual account activity. Many site owners overlook this step, but it's crucial for catching fraudsters before they cause too much damage. If you notice any suspicious activity on your site, be sure to take action immediately.
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The Bottom Line
Now that you know more about eCommerce fraud and how to prevent it, you can take the necessary steps to protect your online store. By implementing the tips above, you can help keep your business safe from fraudsters.