Online fraud is a huge problem for ecommerce businesses. Kiwis have lost $35 million to online scams and fraud in the 2020/21 financial year. That’s a lot of money! If you’re an ecommerce business, it’s important to be aware of the different types of fraud out there and take steps to prevent them from happening to you. In this blog post, we’ll discuss 9 types of online fraud that you should watch out for.

What is fraud?

Fraud is an intentional deception or misrepresentation to gain an advantage. Ecommerce fraud is when someone uses fraudulent means to purchase goods or services online. Ecommerce fraud prevention is important for any business that sells products or services online.

Stolen credit card information is all that’s needed to commit ecommerce fraud, which becomes increasingly prevalent year after year due in part to the anonymity afforded by the internet.

There are several tactics to avoid fraud or deception, but the most crucial thing is to identify when it happens to you or to your company.

There are many different types of ecommerce fraud, but here are nine of the most common:

1. Credit Card Fraud

Credit card fraud is when someone uses a stolen or counterfeit credit card to make a purchase online. Credit card fraud is the most common type of ecommerce fraud, and it can be difficult to detect.

The best way to prevent credit card fraud is to use a payment gateway that offers fraud protection, such as Verified by Visa or Mastercard SecureCode.

Other things customers can do to prevent credit card fraud include:

  • Protect your PIN
  • Contact your bank immediately if your credit or ATM card is lost or you suspect your bank account has been hacked
  • Avoid using public WIFI when online banking
  • Keep your anti-virus and firewall up to date
  • Verify that the websites or apps on your phone or computer are from reliable sources. Be wary if the website does not have a physical address, contact information, terms of trade or if the deal is too good to be true.

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2. Chargeback Fraud

Chargeback fraud or friendly fraud is when, after buying a product, the customer skips over the merchant and contacts their credit card company to cancel the transaction, resulting in a chargeback. If the customer makes a purchase and then asks for a refund claiming they never received the product, this would be considered refund abuse. In both cases, the fraudster aims to obtain a free product. A case of chargeback fraud can be more difficult to detect. When left undetected, high chargeback rates can result in your payment processor revoking your ability to accept credit card payments from certain companies.

To detect fraudulent chargeback activity, merchants need robust fraud detection tools. Moreover, a visible returns policy and rapid customer service will hinder customers from filing chargebacks and assist in constructing stronger dispute cases.

Merchants can require customers to sign for their purchases when delivered to prevent refund abuse. You can also keep records of all communication with the customer, including any emails or phone calls.

3. Return/Refund Fraud

If the customer makes a purchase and then asks for a refund claiming they never received the product, this would be considered refund abuse. The fraudster aims to obtain a free product in both chargeback and refund fraud cases.

Return fraud is when a person returns a product they never bought or a product they purchased from another store. Refund fraud is when a person gets a refund for a product they never returned. To prevent return and refund fraud, you can require the customer to present the receipt at the time of purchase. You can also check the IP address of the person returning or requesting a refund to see if it matches the billing address on the credit card.

4. Account Takeover Fraud

Account takeover fraud is when a fraudster gains access to a customer’s account and uses it to make unauthorised purchases. Account takeover fraud is frequently perpetrated by cybercriminals via phishing. Phishing or spoofing happens when a fraudster sends an email that looks like it’s from a legitimate company, asking the customer or employee to click on a link and enter their login information.

Phishing occurs when a malicious actor obtains sensitive information from an unsuspecting user, such as bank account details. Spoofing is a type of identity theft where the perpetrator poses as a legitimate user.

Either way, once the fraudster has the customer’s login information, they can access their account and make unauthorised purchases. A common example of this scam is when someone receives an email that looks like it’s from their bank, asking for updated login information. If they don’t comply, they are told they will lose access to their account. It is critical to know what a phishing email might look like and how to identify them. Signs to look for in the email include:

  • Spelling mistakes
  • Email address is different from usual
  • Website is incorrect
Image sourced by Otago University

Prevent this type of fraud by requiring customers or your employees to use strong passwords and have them update their passwords regularly. You should also have a process for customers to reset their passwords if they forget them.

5. Interception Fraud

Interception fraud is when a fraudster intercepts a package shipped to the customer. The fraudster then changes the shipping address to their own and receives the package. To prevent interception fraud, you can require a signature upon delivery. You can also ship your packages with a tracking number to see if they’ve been delivered to the right address.

6. Triangulation Fraud

Triangulation fraud is when a customer buys something from a third-party marketplace like eBay or Amazon, but the seller has actually purchased the product elsewhere. The name derives from how there are three parties involved in this type of fraudulent transaction: an unsuspecting customer, a legitimate merchant, and then the dishonest middleman. You can notice signs of triangulation fraud from items that may be sold for significantly less than its retail value, if the seller has low feedback ratings, or if the seller refuses to answer questions about the product.

As a merchant, you can prevent triangulation fraud by requesting that customers provide feedback on your product and, if it’s a faulty item, obtain the item so you can inspect it for yourself.

Imaged sourced from Chargebacks911

7. Coupon Fraud

Coupon fraud is when a person uses a fake or stolen coupon to get a discount on their purchase. To prevent coupon fraud, you can require the customer to present the coupon at the time of purchase. You can also check the IP address of the person using the coupon to see if it matches the billing address on the credit card.

8. Invoice Scam

An invoice scam is when a fraudster creates a fake invoice that looks like it is from your customer or supplier and sends it to the business. The business then pays the invoice, not knowing it’s fake. To prevent an invoice scam, you can:

  • Require the customer to verify the invoice before paying it
  • Check if an account number changes
  • For payments, you may have bank accounts pre-loaded and saved
  • Create a 2-step authentication process for your email

As well as that, ensure that everyone in your business agrees to any changes in the payment process and that all costs are accounted for.

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9. Affiliate Fraud

Ecommerce businesses employ promotion, affiliate, and loyalty programs to acquire new consumers and retain old ones. However, their popularity makes them a magnet for fraudsters.

Affiliate fraud, loyalty fraud or promotion fraud is when a person uses a fake or stolen affiliate link to get a commission on their purchase. Since the COVID-19 pandemic, over half of the ecommerce firms have dealt with promotion abuse. You can implement several measures to prevent affiliate fraud, including requiring consumers to display the affiliate link at the time of purchase and carefully screening your affiliates and participants in your promotion programs.

Other common types of fraud or scams common in public:

  • Ponzi Scheme: A fraudulent investment operation where the operator, an individual or organization, pays returns to its investors from new capital paid to the operators by new investors rather than from profit earned by the operator.
  • Pyramid Scheme: A fraudulent system of making money based on recruiting new members.
  • Advanced Fee Fraud: A type of fraud where the victim is persuaded to pay an upfront fee to secure a large sum of money, often related to lottery winnings, a donation, or an inheritance.

With so many types of scams circulating, it’s hard to know how to identify them. Read examples here to make sure you don’t fall victim to them. Find other examples of online scams here.

What to do if the scam has already happened?

If it’s happened to you, chances are someone else is experiencing the same thing. Online scams are easy to pull off, so many fraudsters target large groups of people at once.

If you think you have been a victim of any of the scams above, there are a few things you can do:

  • Contact your local police department and file a report with Netsafe
  • Contact your bank or credit card company and let them know what happened
  • Change your passwords for all of your online accounts
  • Monitor your credit report for any unusual activity

By taking these steps, you can help protect yourself from further fraud and scams. Stay alert and be vigilant when shopping online to help prevent ecommerce fraud.

We hope this blog post has helped you to understand some of the different types of ecommerce fraud out there. Remember, by taking some simple steps and being aware of these scams, you can help protect yourself and your business.