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Fraud Prevention

Most common fraud types and how to prevent them.

Alina avatar
Written by Alina
Updated over a week ago

As eCommerce continues to evolve, so does eCommerce fraud. Global reports are shocking, to say the least. According to Statista, from 2021 to 2022, the e-commerce losses to online payment fraud doubled, from $20 billion to $41 billion, and the figure is expected to grow to $48 billion by 2023.

Although there are multiple eCommerce fraud types, we will focus on the most popular ones - Card fraud and Refund and Friendly Fraud (66% of Global experience in 2022). In this Shopify article, you can learn about other fraud types and how to protect your business.

Card fraud

What is it?

Even though this one is harder to pull off for most shoppers, it is still one of the most common fraud types. By exploiting underground markets for access to sensitive data, criminals can easily increase their financial gains dramatically by perpetrating this type of fraud.

Fraudsters use stolen credit card information to purchase goods and services, taking advantage of both the original owner of the card as well as unsuspecting merchants.

After the orders have been fulfilled and shipped, the chargebacks come in. As a result, merchants lose the product or service they provided and are hit with a hefty chargeback fee by the cardholder's bank. Credit card fraud can be an expensive problem, with even small individual instances eventually leading to significant financial losses. Worse still, criminals may use the tactic of 'card testing' - trial purchases to determine which cards are valid and then use that information for larger heists.

How to prevent it?

Shield your business from fraudster-induced losses by utilizing the latest anti-fraud technology! Verifying customer identities is just a start - ensure you have access to powerful tools that protect your transactions and keep malicious actors at bay.

  • Use fraud prevention software.

  • Use AVS and CVV.

  • Pick a reliable third-party payment processor.

Friendly Fraud and Refund Fraud

What is it?

We have decided to discuss these two types together, as they are incredibly similar.

A customer makes a purchase with their card. Then they make a chargeback saying they didn’t receive the product, received an empty or damaged box or didn’t place the order in the first place.

This might not seem fraudulent, as customers regularly ask about their orders not showing up - even though tracking information suggests otherwise. Or the customer did not recognize the card charge as the card descriptor name does not match the name of the business they purchased from. When those are genuine concerns from the customer, it’s called Friendly Fraud.

However, scam artists can use the same tactics for malicious intent and file a chargeback even if they received all their purchased goods in perfect condition. In this case, it is Refund Fraud.

How to prevent it?

  • Make sure your customer service is accessible and willing to help your customer out in a situation where they are not happy with their order;

  • Aim for customer satisfaction by setting realistic expectations of your products; give customers the assurance that their order will meet or exceed all their hopes;

  • Create a clear and liberal refund policy;

  • Make sure your credit card descriptors match your business name so the customers can recognize the seller.

How to spot a fraudulent order?

Even though you can never know for sure if the order is legitimate, there are a few signs you can look for when analyzing potential fraud.

First-time buyers: scam artists will usually target stores where they have never been before so that they leave no significant trace and then move on to the next one.

Huge orders: scammers usually do not have much time with the stolen card, so they will try to gain the maximum from a single transaction.

Atypical location: if you notice that someone has purchased from a country you usually do not work with, you will want to check if that transaction is authentic.

Enormous amounts of the same product: same as with huge orders, it is much easier for fraudsters to spend as much as possible in a brief period by ordering the same product rather than adding multiple ones to the card.

IP does not match the shipping and/or billing address: if there is a mismatch, it is a strong indicator that the order might be fraudulent.

Multiple transactions in a short time: the fraudster is trying to dry up the card balance before the account gets closed down.

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