Online shopping has exploded in the past decade. In 2015, e-commerce accounted for 7.4 per cent of global retail sales. In 2020, this had grown to 18 per cent with projections of a rise to 21.8 per cent by 2024. This is good news for businesses, as online platforms are allowing them to reach new customers and drive more sales.

 

However, as e-commerce grows, so does the potential for fraud. Fraudsters are finding new ways to abuse online shops and processes to damage businesses and steal goods. Here, we explore some of the common types of e-commerce fraud that are hitting business hard. Then we’ll review how your business can prevent these online activities and protect its revenue.

Chargeback fraud

Chargeback fraud occurs when a cardholder intentionally disputes a transaction that they originally authorized. The fraudster will contact the bank and claim that this transaction was not authorized or may argue that the package ordered never arrived. E-commerce businesses will be charged for the cost of the product without receiving anything in return, leaving them out of pocket.

Fraudsters may do this to receive products without having to pay for them or because they regret making the purchase and are unable to return the items.

Friendly fraud

Friendly fraud is similar to chargeback fraud, except the fraudster, in this case, may not have ill intentions. In this case, a cardholder may mistakenly dispute a charge because they can’t remember authorizing the payment.

 

This unintentional fraud may be caused because the cardholder does not recognize the purchase on their bank statements or may have forgotten about a recurring payment. However, whether intentional or not, it’s still a costly loss for businesses.

Customers who fear a mistaken charge should contact a business directly before getting in touch with the bank, where the consequence of a chargeback can take longer for a refund and be costly for a business.

Return fraud

In the UK and the EU, consumers have the right to return goods ordered online within 14 days of receiving their goods. It’s important that customers have the opportunity to review products and decide if they are suitable. However, this is an aspect of e-commerce that is open to fraud.

Return fraud comes in many forms. Complaints can be fabricated to order a refund that they may not have been eligible for, leaving businesses out of pocket and down on inventory. Meanwhile, returning fake items in place of the genuine article is another way that fraudsters are hurting business. Some may not even attempt to find a similar item, shipping something with the approximate weight – there are reports of fraudsters returning a potato in place of an iPhone.

It seems unbelievable that such an unusual feat of fraud can take place in this way. But some online payment engines, such as PayPal, only require the tracking number of the return in transit to provide a refund.

Unauthorized resellers

If someone bought fifty identical products from your e-commerce store, what would you believe the intention of the buyer was? If these products are expensive goods or bought at a discounted price, you may have a safe assumption that the buyer intends to sell these goods for a profit.

Unauthorized reselling is a type of fraud that is difficult to tackle on e-commerce platforms. While it can appear positive for your business to achieve this many sales, resellers can damage your brand image. It can also be difficult to determine if the threat of resellers is genuine.

Preventing fraud

The best way to prevent fraud is to stop fraudsters from buying from your e-commerce site in the first place. Taking away the power to buy takes away their power to commit fraud. But how can a business differentiate between fraudsters who intend to chargeback, commit return fraud, or resell your products from a genuine customer? How do you know who is buying from your e-commerce store?

 Commerce protection platforms, such as Signifyd, are used to automate customer experiences and eliminate fraud and abuse. This is just one solution to reducing fraud online. These platforms are able to make intelligent decisions based on historical buying activity. Transactional and behavioral data is key to stopping fraud before it has even happened. This commerce protection platform has rendered an image of the shopping world from over 10,000 merchants in over 100 countries. Impressively, this means that 98 per cent of all online purchases are made by consumers that Signified has seen before.

These platforms can accurately identify anomalies in buying and behavior such as account takeover, unauthorized resellers, and promotion abuse. Even better, they can automatically recover lost revenue from a chargeback, meaning that fraud has a limited impact on a business.

 Businesses should continually strive to create improved customer experiences online, with frictionless payments, while protecting themselves against fraud and abuse. As the e-commerce market grows, fraudsters must be eliminated from riding the coattails of your success.