Any business with an online sales channel is exposed to fraud that could affect its profit and reputation. Some major problems caused by fraud include low acceptance rates, chargeback rate fines from the major credit card networks, or even a complete shutdown of their online channel due to the high level of fraud detected.

As people were forced to stay at home during the COVID-19 lockdowns, industries such as gaming and retail have seen a rapid rise in both online activities and the average rate of mobile attacks. For instance, e-commerce sites have always been top targets for payments fraud or credential stuffing attacks, but retailers are also facing many bot attacks, including loyalty point theft or gift card fraud.

Furthermore, when the world reopened its borders, travel sites and the hospitality space were largely targeted with bot attacks focused on unauthorized price scraping and inventory hoarding.
Understanding the most common types of fraud will help you identify if your company is currently a target of a fraud network or if it could be affected in the future. In the following paragraphs, we will explain the most common types of e-commerce fraud and some mechanisms you can use to reduce your exposure.

Common E-Commerce Fraud Types

Stolen Cards

Most popular and commonly used by fraudsters. In this type of fraud, the fraudster uses stolen credit card details to make an online purchase. 

This can occur in two different ways:

• The fraudster has the credit card, meaning they physically stole the card.
• The credit card details were stolen electronically or purchased on the internet.

In many cases, the business ships the goods or provides the service because they processed the transaction as valid since they didn’t identify it as fraudulent. 

How to prevent stolen card fraud

This type of fraud can be reduced with specific mechanisms like adding 3DS validation or an Anti-Fraud Solution to your purchase flow to identify if someone has already detected that card as stolen.

Alternative Refunds

This fraud type is a little more elaborate since it happens using stolen payment methods and a refund strategy. 

Let’s imagine that you have an online music lessons store, then a fraudster books six months of your services, but then they say they only require one month.

They will request a refund, and usually, you will process the refund on the same payment method. But the fraudster claims that the credit card was canceled, and they require processing the refund on a different payment method. Then you agree and refund the partial amount.

After a while, if the legitimate credit card holder disputes the fraudulent payment, your business will lose the original amount and the amount sent to the alternative payment method during the refund, causing a double loss.

How to avoid alternative refunds

Never refund payments using a different method than the one originally used! You need to train your customer service team to make the best decisions and have business processes defined to take care of these cases.

Friendly Fraud

Friendly fraud occurs when a legitimate cardholder processes a payment but disputes the transaction as fraudulent. 

This type of fraud is challenging to identify for stores because, in many cases, the cardholder is the one initiating the transaction and has all the details, but in the end, they were just trying to get the goods or services without paying for them.

How to reduce friendly fraud

This type of fraud can be reduced by collecting the required information during the payment flow to fight in case a dispute is raised, like having proof of the service being delivered or authenticating the transaction using the email from the user.

This way, we can show the bank that the customer performed the transaction.

Card Test Fraud

This kind of fraud is particularly prevalent on platforms where the user can change the amount they want to pay or on e-commerce where the fraudster can process small amounts, like $1USD, for example.

This is used to test the stolen credit card data to validate the information. Then, once the information is validated, the fraudster will use it to process bigger purchases.

During this process, the fraudster is trying to identify if the online store has those cards already identified as fraudulent or if they can use them to process a bigger payment.

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 large purchases.

How to cut down on card test fraud

This fraud can be reduced by implementing simple mechanisms like CAPTCHA or limiting the number of transactions per account. Doing an in-depth analysis of a customer’s behavior or payment method helps to identify this type of fraud.

Take Action Against E-Commerce Fraud Today

The types of fraud described above are probably the business world’s biggest unresolved cost center. And with the constant evolution of the digital technology landscape and the continuous adaptation of fraudsters, reliance on outdated anti-fraud technologies and blacklists isn’t going to change things. 

Instead, a digital-first approach leveraging innovative technologies such as device fingerprinting and behavioral biometrics analytics allows businesses to establish that customers are who they claim to be from the outset. This results in stepping up authentication only when needed – reducing friction and improving UX – and helping move fraud prevention from a cost center to a value-added function.

Businesses should look to mature and evolve towards a positive identification approach. Every business has its pathway to maturity, adopting the strategies and technologies it requires to progress – at its own pace.

Clearly, the specifics will vary depending on the business, but with fraud accelerating, it’s not only vital that businesses don’t get left behind but that they take the right steps to move ahead of the curve.

If you have questions or need help to improve your fraud protection, start the conversation today by contacting consulting-payments@wizeline.com. The experts at Wizeline can help you identify the best solution for your problem.