E-commerce fraud can take various forms and shapes. Whether we discuss sophisticated bot attacks or consumers attempting fake refunds, one thing remains constant: fraud can incur significant costs for your business.
E-commerce fraud, also referred to as payment fraud, encompasses any deceitful activity conducted over the internet with the aim of financial or personal gain. But what does it look like in practice, how is e-commerce fraud executed in 2023, and how can your business protect itself from such attacks?
Key E-commerce Fraud Types to Be Aware Of
Credit Card Fraud
Credit card fraud is a general term used for fraudulent activities carried out using credit or bank cards. In the context of e-commerce fraud, credit card fraud is known as “card-not-present fraud” and “payment fraud.”
In online credit card fraud, perpetrators use stolen credit card information to make purchases on an e-commerce site.
Affiliate Fraud
Affiliate fraud is an illegal activity aiming to generate commissions based on the sales you provide to a company. In affiliate marketing, online sellers include a commission for sales made through unique, trackable web links that direct shoppers to the seller’s store.
In affiliate fraud, culprits deceive the system by manipulating behavior and generating commissions through fraudulent activities, either creating fictitious referrals or inflating commission amounts.
Chargeback Fraud
In the world of credit card transactions, a chargeback is a request made by a credit card provider to a retailer to refund a disputed or suspicious transaction.
In online commerce, chargeback fraud occurs when a person who made a credit card purchase online later requests a refund from the credit card company through the card-issuing bank. Essentially, it involves the unauthorized retrieval of the purchase amount from the online seller through the bank.
Phishing/Account Takeover
Most e-commerce stores provide accounts that store customers’ personal information, financial data, and purchase history. Cybercriminals gain access to these accounts through phishing tactics.
In a common tactic, fraudsters send emails to deceive customers into disclosing personal information like usernames and passwords. They then access accounts, change passwords, and make unauthorized purchases.
Interception Fraud
In interception fraud, criminals use stolen credit cards to make online purchases, send products to the address registered with the credit card during payment, and later cancel the order before delivery.
For example, a perpetrator might visit an online store like Amazon, use a fake name, address, and credit card to buy a product. After the transaction, they call customer service to change the delivery address to their desired location before shipment.
Dropshipping Fraud
Dropshipping fraud involves a three-step process to deceive online sellers.
In the first step, criminals create a fake online sales catalog offering popular branded products at discounted prices. The sole purpose of the site is to collect names, addresses, and credit card numbers from unsuspecting shoppers.
In the second step, fraudsters use stolen customer identity and credit card information to visit an active online store, purchase exactly what the victim ordered from the fake site, and have it shipped to the customer.
In the third step, perpetrators exploit the stolen customer data to make additional online purchases. This type of fraud often goes undetected for longer periods due to the lack of suspicion raised by the original purchase from the fake site.
Sectors Most Affected by E-commerce Fraud in 2023
E-commerce fraud rates varied by sector in 2023. The fashion industry experienced the most significant growth, with fraud increasing by 106% year-over-year.
The luxury goods sector followed closely with a 104% increase in fraud. The entertainment and outdoor sector came third with a 42% increase.
However, some sectors experienced a decrease in fraud rates in 2023 due to increased vigilance and security measures.
The alcohol and tobacco sector saw a 28% decrease in e-commerce fraud for businesses. Beauty and cosmetic businesses experienced a 39% decrease. The most significant decrease by sector was seen in supply chains, with a 48% decrease in fraud.
E-commerce Fraud in 2023
While the diversity in the described fraudulent activities illustrates the extent of potential threats, one thing is certain: e-commerce fraud is not disappearing any time soon.
In fact, malicious actors continually discover new ways to attack businesses and circumvent website security measures.
The True Cost of Fraud
Our partner, Cloudflare, conducted comprehensive research on what a fraudulent payment truly means for an online site. Despite a fraudulent order being worth only $100, the actual cost of a fraudulent transaction was found to be an average of $206.80. This figure encompasses various associated costs such as wholesale product costs, shipping, fulfillment, and marketing costs.
Additionally, there are fees directly related to fraud, including transaction fees, chargeback fees, and manual review rates, among others. When considering the time spent dealing with fraud by payment providers, the list of costs becomes quite extensive.
Fraudsters are continuously utilizing new technologies and techniques to attack your website and disable fraud detection software.
Innovations in Fraud Technology
Automation has long been a significant tool for fraudsters in various industries. Analysts anticipate that, in 2024, bad actors will leverage new automated technologies, such as automatic phishing, to exploit online platforms further.
This innovation becomes particularly challenging for site owners when combined with a series of high-profile data breaches in the past two years. The need to scrutinize every transaction intensifies when considering the potential convergence of these developments.
Combatting E-commerce Fraud with Novajet Soft and Cloudflare
At Novajet Soft, we have partnered with Cloudflare to implement a range of e-commerce protection platforms.
Cloudflare is a pioneering fraud prevention company that utilizes big data and artificial intelligence machine learning to distinguish between fraudulent and legitimate transactions.
Understanding the identity and intent of users allows Cloudflare’s Commerce Protection Platform to make decisions at key points in the purchasing journey for online sellers and brands:
Whether to fulfill an order or reject it based on legitimacy or fraud.
– Monitoring all traffic to the site and preventing access in case of potential issues.
– Allowing payments only from specific countries, regions, or locations.
– Making these decisions accurately and promptly is a key to providing a secure customer experience, leading to the creation of lifetime customer loyalty.
Final Thoughts
E-commerce fraud is a prevalent issue in 2024. From phishing and account takeover schemes to credit card fraud, malicious individuals can use various techniques to defraud sellers. As technologies continue to advance, website owners must remain vigilant.
However, saying it is easier than doing it. Utilizing a fraud prevention and protection partner like Cloudflare can help shield sellers from fraud allegations and contribute to business success.
