Fraud is one of the biggest challenges facing e-commerce sellers today. As online shopping grows, so does the sophistication of fraudulent activity, and the financial impact can be significant.
This guide covers the most common fraud types, Card fraud and Refund and Friendly fraud, and practical steps you can take to protect yourself and your store.
In this Shopify article, you can learn about other fraud types and how to protect your business.
Card fraud
Card fraud happens when criminals use stolen credit card information to place orders in your store. Once the order is fulfilled and shipped, the real cardholder disputes the charge, leaving you without the product and facing a chargeback fee from the bank.
Credit card fraud can be an expensive problem, with even small individual instances eventually leading to significant financial losses. Fraudsters may also use "card testing" by placing small trial purchases to verify which cards are active before using them for larger transactions.
To reduce your exposure to card fraud:
Use fraud prevention software to flag suspicious orders automatically.
Enable AVS (Address Verification System) and CVV checks on all transactions.
Choose a reliable third-party payment processor with built-in fraud detection.
Friendly fraud and Refund fraud
These two fraud types look similar on the surface. A customer makes a purchase, then files a chargeback claiming they never received the item, received a damaged or empty package, or didn't place the order at all.
In some cases, this is a genuine misunderstanding: the customer may not recognize the charge if your card descriptor doesn't match your store name. This is known as 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.
To reduce your risk:
Make your customer service easy to reach and responsive, so genuine concerns are resolved before becoming chargebacks.
Set realistic product expectations to reduce disappointment-driven disputes.
Create a clear and fair refund policy that gives customers a legitimate path to resolution.
Make sure your credit card descriptor matches your business name so customers can identify the charge.
How to spot a potentially fraudulent order
No single signal is definitive, but these patterns are worth investigating before fulfilling an order:
First-time buyer with an unusually large order. Fraudsters often target new stores and try to maximize a single transaction before the stolen card is flagged.
Atypical shipping location. Orders shipping to countries you don't normally serve may warrant extra verification.
Large quantities of the same product. Ordering multiples of the same item is a common tactic to spend as much as possible quickly.
IP address doesn't match the billing or shipping address. A mismatch is a strong indicator of potential fraud.
Multiple transactions in a short period. This may signal an attempt to exhaust a stolen card's balance before the account is shut down.