Types of e-Commerce Fraud
Elangovan, October 2, 2019Let me start this article with this scary truth: online payment fraud is constantly growing. In fact, it seems to be unstoppable. In 2018 alone, successful retail fraud attempts grew by nearly 30%, with mobile commerce driving a significant share of the fraudulent transactions. All of a sudden it’s not just something you read about in the news, but actually something you might face yourself. Being equipped with the necessary tools is key in everyday fraud management, but it’s even more important around the holidays (Bumbiere, 2019).
The term ecommerce fraud is also known as purchase fraud, is pretty self-explanatory. It occurs when a criminal (fraudster) approaches a merchant and proposes a business transaction using fraudulent means such as a stolen or fake credit card to pay for it. This leaves the merchant without getting paid for the sale that was just made. Online fraud most commonly takes place when the credit card is lost, or its information is not stored securely. And while card-present fraud losses have decreased over the last couple of years, card-not-present (CNP) frauds continue to grow (Bumbiere, 2019).
In order to have a deeper understanding of this concept, we will be exploring the different forms of credit card frauds briefly:
Classic fraud: This type of fraud is generally committed by unsophisticated fraudsters. Stolen credit card credentials are purchased on the dark web, and goods are sent to re-shippers in an attempt to retrieve the stolen merchandise. Often, internet proxies are used to mask the international IP where a majority of this type of fraud originates (Posner, 2019). This means that the fraudster might not even be from the country where they claim to be resident. As unsophisticated as it looks like, countless people still fall for this kind of fraud.
Triangulation fraud: This type of fraud involves three parties – the fraudster, the unsuspecting legitimate shopper and the ecommerce store. An online storefront is created by the fraudster, often on eBay or Amazon, that offers high-demand goods at extremely low prices. The store collects payment for the goods it sells. The fraudster then uses other stolen credit card data and the names collected in orders on his online storefront to purchase goods from a legitimate website and ships them to the customers that purchased on his new online storefront. This type of fraud can usually be identified by the products that are targeted as well as some investigative work by locating the unsuspecting shopper who can identify the storefront where the stolen goods were purchased (Posner, 2019).
Friendly fraud: Contrary to what the name suggests, there’s nothing friendly about this type of fraud. It happens when a customer purchases a product with their own credit card, and issues a chargeback (in some cases deliberately), claiming an item was never received or that they never made the charge. If you think about your customer FAQs, you’ll quickly realize that they’re all in some way or form a distant relative of the friendly fraud. “My order never arrived although the tracking information states it did” might be the most popular of them all. Turns out you’ve been dealing with this type of fraud on a daily basis. So, how do you prevent this form of fraud?
You should make sure your credit card descriptors match your business name. A lot of times, chargeback fraud happens because customers don’t recognize the company name on their card statements. Also, if you can, only use shipping with tracking. In case customers approach you asking for a refund, it’s the best evidence you can provide to prove the products were delivered to their door. Last but not least, have clear reshipping, refunds, and return policies (Bumbiere, 2019).
Interception fraud: Fraudsters will create orders where the billing and shipping match the address linked to the card. Their goal is to intercept the package in any of the following ways:
- Asking a customer service rep to change the address on the order before shipment.
- Contacting the shipper to reroute the package to an address where they can retrieve the stolen goods.
- In cases where the fraudster lives in close proximity to the cardholder’s billing address, physically wait near the address for the delivery to arrive and offer to sign for the package as the homeowner is not available (Posner, 2019).
Card testing fraud: This is the practice of testing the validity of a credit card number, with plans to use valid credentials at another website to commit fraud. Fraudsters target websites that reveal a different response for each type of decline. For example, when a card is declined due to an incorrect expiration date, a different response is given, so they know they just need to find the expiration date. This is generally done by bots, and transaction attempts happen quickly, in rapid succession. The data on the orders will often be identical, either all the data or just a subset of data — like the shipping address (Posner, 2019).
Fraud through identity theft: In this case, the fraudster assumes another person’s identity, creates credit cards in the victim’s name and goes on a shopping spree. This type of fraud is increasing rapidly as the number and scope of data breaches increase. It is also the most difficult to identify as the fraudsters behind identity theft are quite sophisticated (Posner, 2019). Impersonation is the most difficult form of fraud to handle. It perfectly assumes the identity of another person, thereby making it hard to suspect.
Prevention is the best antidote to stopping all forms of frauds. When it comes to online fraud, it’s not just the lost product and incorrectly declined transactions that cost merchants cash. From the actual lost sales themselves to the chargeback fees, resources spent fighting the chargebacks and the looming threat to their merchant accounts, chargebacks pose yet another significant financial risk to today’s online retailers. That’s why prevention of fraud—as well as the chargebacks that come with them—is crucial to operating a financially healthy business in today’s day and age (Chargeback Gurus, 2018).
References
Bumbiere, E (2019). The Basics Of Ecommerce Fraud –What It Is And How To Manage It. Retrieved from https://www.printful.com/blog/the-basics-of-ecommerce-fraud-what-is-it-and-how-to-manage-it/
Chargeback Gurus (2018). The 5 Types Of E-Commerce Fraud. Retrieved from https://www.chargebackgurus.com/blog/the-5-types-of-e-commerce-fraud
Posner, S (2019). The 7 Types Of Ecommerce Fraud Schemes You Should Know About. Retrieved from https://www.entrepreneur.com/article/324464
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