5 Common Payment Frauds Threatening Your eCommerce Business
Vlad-Danut Dan
Business Development Manager @ MEJIX | Team Lead, Project Manager Ecommerce Team, Ecommerce Consultant, Shopify Specialist
We all love the ease of online shopping, but fraudsters love it too. To keep your business safe, make sure to invest in advanced fraud detection tools and regularly update your security protocols to outsmart those trying to exploit your system.
Let's dive into the most common types of payment fraud and how they can impact your business:
Transaction Fraud
Transaction fraud happens when criminals use stolen payment details to make unauthorized purchases. These fraudulent transactions often go unnoticed until a chargeback is filed, leading to financial losses and extra costs from chargeback fees. To prevent this, merchants should use strong fraud detection systems and prioritize customer data security.
Account Takeover Fraud
Account takeover fraud is like a digital break-in. Cybercriminals gain unauthorized access to a customer’s account, often through phishing or data breaches. Once inside, they can make unauthorized purchases, change account details, or steal payment information. This not only causes financial loss but also damages customer trust and harms the business's reputation.
Friendly Fraud/Chargeback Fraud
This occurs when a customer disputes a legitimate purchase, claiming they didn’t receive the item or didn’t authorize the transaction. Whether accidental or intentional, this type of fraud results in revenue loss for merchants and potential penalties from payment processors due to high chargeback rates.
Merchant Identity Fraud
In merchant identity fraud, scammers create fake eCommerce stores or clone legitimate ones to trick customers into making purchases. They take the customer’s money but never deliver the goods, causing financial loss for consumers and damaging the reputation of the legitimate businesses they impersonate.
Triangulation Fraud
Triangulation fraud involves three parties: the fraudster, the legitimate customer, and an unsuspecting eCommerce store. The fraudster sets up a fake online store offering popular products at low prices. When a customer makes a purchase, the fraudster buys the item from a legitimate store using stolen card details and has it shipped to the customer. The store ends up with a chargeback, while the fraudster keeps the payment.
Gift Card Fraud
Gift card fraud occurs when fraudsters exploit weaknesses in gift card systems, often using phishing scams or other methods to obtain or steal gift cards. They then sell these cards at a discount or use them to make purchases. This type of fraud is hard to trace and can lead to significant financial losses for both businesses and consumers.
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SMS and Mobile Payment Fraud
As mobile payments grow in popularity, fraudsters are increasingly targeting SMS-based and other mobile payment methods. This type of fraud involves intercepting one-time passcodes sent via SMS or exploiting vulnerabilities in mobile payment apps, leading to unauthorized transactions and a loss of trust in mobile payment security.
How to Stop Payment Fraud
Implement Multi-Factor Authentication (MFA): Adding an extra layer of security, such as a one-time passcode sent to a customer's phone in addition to their password, makes it significantly harder for fraudsters to gain unauthorized access to accounts, even if they have stolen credentials.
Monitor Customer Behavior: Regularly track and analyze customer behavior on your site to spot any unusual activity. For instance, sudden changes in purchasing patterns, such as frequent high-value transactions or unusual login times, can be early indicators of fraudulent activity.
Use Advanced Fraud Detection Tools: Invest in machine learning-based fraud detection systems that analyze transaction patterns and flag suspicious activities in real-time. These tools can identify anomalies, such as huge orders or multiple transactions in a short period, helping you stop fraud before it happens.
Transaction Information Verification: Always verify key transaction details like billing address, phone number, and email. Cross-checking this information can help identify inconsistencies that could indicate fraud.
Watch for Priority Shipping Choices: Fraudsters often select expedited or priority shipping to receive goods before discovering the fraudulent transaction. Flagging and reviewing such orders, especially if they are from new or unusual customers, can help prevent fraud.
Flag Multiple Failed Purchases: Multiple failed purchase attempts can indicate that a fraudster is trying different card numbers or information to find one that works. Monitoring and flagging these failed transactions can help you stop fraudsters before they succeed.
Review Transaction Locations and Destinations: Keep an eye on where transactions are being initiated and where goods are being shipped. Transactions from high-risk regions or inconsistent shipping destinations compared to the billing address should be reviewed more closely.
Implement Comprehensive Security Solutions: Regularly update your security protocols, including software updates, vulnerability patches, and advanced fraud detection systems. A comprehensive approach ensures that all potential entry points for fraud are secured, reducing overall risk.
Conclusion
These various fraud tactics show how cybercriminals exploit eCommerce systems. While their methods differ, the outcomes are often the same: financial loss, damaged reputations, and eroded customer trust. To protect against these threats, eCommerce businesses must strengthen security measures, stay updated on emerging fraud trends, and educate customers on safe online practices.