6 types of fraud targetting ecommerce retailers

Online businesses are quickly becoming easy targets for cybercriminals as fraud in e-commerce continues to rise. The era of digitalisation has presented fraudsters with a massive opportunity, especially with millions of personal credentials easily available on the dark web. It's now far easier for fraudsters to hide behind false details and cover up their tracks.

And e-commerce fraud shows no signs of slowing down. According to an Experian report, in 2017, there was a 30% increase in e-commerce fraud attacks compared to 2016.

Additionally, “there were 16.7 million reported victims of identity fraud the same year, proving to be another record year for the number of fraud victims,” according to the report.

What types of fraud do ecommerce retailers face?

Although stealing bank cards and account details to make payments are the most common types of ecommerce fraud, cybercriminals are notoriously creative. They also target phones, tablets, computers, and even gift cards. Here are some methods of fraud that are used to target ecommerce businesses.

1. Payment fraud

This is the most common form of ecommerce fraud, comprising a tremendous 71% of all attacks. Identity fraud is part of the majority of the methods used by cybercriminals, either as the end goal or the precursor to another attack.

This type of fraud doesn’t always involve stolen card details, however. Fraudsters will also use email accounts, user accounts, names, addresses, IP addresses and personal devices to make them seem like a real customer. This can lead to fraudulent purchases, the creation of fake accounts and the manipulation of traffic.

2. Fraudulent chargebacks

Friendly fraud can occur by design or by mistake. The basic premise of a fraudulent chargeback is that a customer (legitimate or otherwise) will pay for a service or product which they claim is never delivered or was damaged on delivery. The merchant then has to issue a refund, re-deliver the item, or face a chargeback.

Chargebacks occur when the customer approaches their card issuing bank to get their money back. They involve the retrieval of funds from the merchant by the issuing bank, which are then given back to the customer. Chargebacks are a common point of contention for ecommerce retailers.

3. Clean fraud

Clean fraud refers to fraudulent transactions that appear to be legitimate. This type of fraud is increasingly problem for retailers as the usually the transaction doesn’t get flagged up or blocked by blacklisted fraud accounts. This involves using stolen credit card information to impersonate the card holder.

Fraudsters can get hold of these details through convincing account holders to make a purchase on a fake website, intercepting messages between transaction parties and even by buying them on the dark web, which can only be accessed by using certain browsers.

According to Chargebacks911, clean fraud is one of the fastest-growing and most dangerous challenges faced by retailers.

4. Affiliate fraud

Through affiliate fraud, malicious actors can manipulate traffic and sign ups to make a merchant think they are receiving consumer attention that doesn’t actually exist.

Many companies are part of, or run, an affiliate marketing program that generates commission through sharing links and content. Unfortunately, affiliate fraud can be as simple as refreshing a webpage multiple times, or sending spam emails and popups to create a false sense of high traffic.

5. Triangulation fraud

This type of fraud is when online criminals set up a fake or replica website and entice buyers with cheap goods. Sometimes these fake websites may appear in ads, or be sent to a user’s email directing to the website through a phishing attempt.

The catch is that these goods don’t actually exist, or of course are never shipped. If the website is an impersonation, the existing legitimate business also suffers damage to their image.

And when the customer pays for something they don’t receive, they can also suffer the loss of their bank details. Getting hold of credit card credentials in this way and using them to make fraudulent purchases is called triangulation fraud. The name comes from the threefold process of enticing buyers, stealing their details, and using them as part of a wider scheme.

6. Refund fraud and abuse

Increasingly a pain point for online companies, refund fraud involves the customer misrepresenting the truth when they file a refund claim with the merchant.

It is admittedly much more difficult to identify than payment fraud, as it can be perpetrated by the legitimate card holder – perhaps better called a criminal customer – as much as by a professional criminal or fraud ring. Because of this, merchants are advised to bring together and align the customer service and fraud teams in order to assess customers' true intention when filing a claim.

Using machine learning for fraud detection in ecommerce

Fraudsters are certainly clever, however, they often leave tracks. Knowing what they are and how to spot them is a powerful weapon in the fight against fraud.

Our machine learning models turn the tables in favour of the online retailer, with next-generation machine learning technology to power highly accurate decisions in milliseconds. Merchants are provided with a full suite of machine learning products that take care of a spectrum of fraud threats including chargebacks, voucher abuse, friendly fraud, credential stuffing and collusion fraud. We provide better results at less cost to protect online merchants and their customers.